U.P. FINANCIAL CORPORATION versus GEM CAP (INDIA) PVT. LTD. AND ORS.

Citation: [1993] 2 S.C.R. 149 · Decided: 02-03-1993 · Supreme Court of India · Bench: KULDIP SINGH · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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U.P. FINANCIAL CORPORATION 
A 
v. 
GEM CAP (INDIA) PVT. LTD. AND ORS. 
MARCH 2, 1993 
(KULDIP SINGH AND B.P. JEEVAN REDDY, JJ.) 
B 
State Financial Corporations Act, 1951: 
Section 29. Company-Loan by Corporatiolt-Default in payment of 
loan by Debtor-Company-Proceedings by Corporation for recovery of C 
amount due- Validity of-Corporation's obligation to Act fairly-Extent 
of-Held obligation to act fairly does not extend to revive and resurrect every 
sick industry-Fairness required of Corporation cannot be carried to the extent 
of disabling it from recovering what is due to Corporation. 
Constitution of India, 1950: Article 226. 
High Court-Jurisdiction-Limitation on exercise of-Review of action 
of adiminstrative authorities-High Coun cannot act as an appellate autho-
rity. 
Article 12-State--Financial Corporation is instrumentality of state. 
E 
Administrative Law: 
Judicial Review of Administrative action-Scope of. 
Doctrine of fairness. 
F 
The respondent-Company obtained loan from the appellant-Finan-
cial Corporation. Soon after obtaining the loan it ceased to. operate and 
was declared a sick unit. Consequently, it did not make any repayment of 
loan as stipulated in the agreement and the hypothecation deeds. There-
after, the appellant-Corporation issued notice under section 29 of the State G 
Financial Corporations Act, 1951 for taking over the respondent's unit for 
recovery of the amount due - Rs.38.57 lakhs. The respondent-Company 
filed a writ petition in the Allahabad High Court questioning the 
appellant's action. The High Court allowed the petition and directed (1) 
expeditious rehabilitation of the concern and (2) to restore back the H 
149 
150 
SUPREME COURT REPORTS 
. [1993J 2 S.C.R. 
A 
possession or the unit to the respondent-Company. Against the judgment 
of the High Court the Financial Corporation filed an appeal In this Court. 
B 
Allo\\ing the appeal and setting aside the order of tile High Court, 
this Court, 
HELD : l. It is true that the appellant-Corporation which is an 
instrumentality of the State created under the State Financial Corpora-
tions Act, 1951 is uot like an ordinary money- lender or a Bank which lends 
money. It is a lender mth a purpose - the purpose being promoting the 
small and medium industries. At the same time, it is necessary to keep 
C certain basic facts in 'iew. The relationship beiween the Corporation and 
the borrower is that of creditor and debtor. the Corporation is not sup-
posed to give loans once and go out of business. It bas also to recover them 
so that it can give fresh loans to others. Corporations too borrow monies 
from Government or other finandal corporations and they too have to pay 
interest thereon. No doubt it has to act within the four comers of the Act 
D and in furtherance of the object underlying the Act. But this factor cannot 
be carried to the extent of obligating the Corporation to revive and 
resurrect every sick industry irrespective of the cost lnvoh\!d. 
E 
F 
G 
(1S6H, 157 A-C, F] 
Promoting industrillsatlon at the cost of public funds does not serve 
the public interest; it merely amounts to transferring public money to 
private account. The fairness required of the Corporation cannot be carried 
to the extent of disabling it from recovering what Is due to it. While not 
insisting upon the borrower to honour the commitments undertaken by 
him, the Corporation alone cannot be shackled band and foot in the name of 
fairness.Faimess is not a one way street, • more particularly i11 mailers like the 
present one. The fairness required of it must be tempered - nay, determined 
in the light of all these circumstances. In the instant case the respondents 
have no intention of repaying any part of the debt. They were merely putting 
forward one or other ploy to keep the Corporation at hay. (1570-F) 
Mahesh Chandra v. Regional Mo11oger, U.P. Financial Corporatio11 & 
Ors., (1992) 2 J.T •. 326, held inapplicable. 
2. In a matter between the corporation and its debtor, a mt court 
has no say except in two situations : (1) the•-e is a statu,tory violati?n on 
H the part of the Corporation or (2) where the Corporation acts. unfafrly i.e. 
FINANCIAL CORPN. v. GEM CAP (INDIA) 
151 
unreasonably. The High Court exercising its jurisdiction under Article 226 A 
of the Constitution cannot sit as an Appellate Authority over the acts and 
deeds of the Corporation and seek to correct them. Doctrine of fairness, 
evolved in administrativ

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