ORDER
Bilal Nazki, J.
1. These are three writ petitions which raise similar questions of law, therefore, they are being decided together. In the first instance we proceed to decide the question of law raised and applicable to all the three petitions. One way or the other in all the three writ petitions we have to deal with ‘one time settlement’ scheme promulgated by the respondents for settlement of recovery of loans. When WP No. 609 of 2000 came up before learned single Judge the Court passed the following order :
“The case of the petitioner is that there has been one time settlement between the petitioner and the respondents but the benefits are not being given to him. The respondents submit that the settlement had been reached many years before but for the last five years the petitioner had not paid anything towards liquidation of the loan. As on 31-1-2000 the liability of the petitioner is Rs. 1,38,52,326/-.
This Court has been the scheme by which the respondents enter into one time settlement’ with the defaulters. Lot of concessions are being given to the defaulters. They are being charged even simple interest. This scheme, prima facie, is giving rewards to the defaulters whereas the genuine loanees who repay the loans in accordance with the
agreements are paying more than what is being paid by the defaulters. Law breakers get concessions whereas law abiders get punished. There are larger questions of public importance particularly a question, whether such a schme can be allowed to be implemented which amounts to punish the genuine borrowers and reward the defaulters? Can the financial institutions which advance loans to industrialists for enhancement of their business on terms and conditions agreed between the parties be allowed to have a settlement known as ‘one time settlement’ by allowing the very soft options in their favour at the cost of the tax payers of this country? Prima facie, I am of the view that, public money cannot be allowed to be dwindled by the functionaries of financial institutions, Banks and Finance Corporations. Therefore, I order that the respondents shall not enter into ‘one time settlement’ till further orders from this Court.
At this stage, the learned Counsel appearing for respondents submits that the scheme of ‘one time settlement’ is not only framed by the respondents but almost every Bank and financial institutions are having such schemes. Therefore, I direct that a notice be given to the Regional head of the Reserve Bank of India at Hyderabad who shall furnish the list of Scheduled Banks working in the State of Andhra Pradesh so that they are made parties to this writ petition. The Reserve Bank of India be also made a party to this writ petition. The Ministry of Finance, Government of India be also made a party to this writ petition. Let a notice be sent to learned Advocate-General also.
Since the matter is of public importance, I deem it proper to refer the matter to Division Bench. Let the matter be placed before Division Bench after obtaining orders from Hon’ble Chief Justice.”
In pursuance of this order the matter was placed before the Division Bench. Hence the matter has come up before this Court. In view of the reference by the learned single Judge, the question to be decided is, whether the ‘one time settlement’ is a scheme, which is constitutional and valid.
2. We have heard the learned Counsel for the parties at length. The learned senior Counsel Mr. C.R. Pratap Reddy, submits that, although there is no provision in the State Financial Corporations Act, 1951 authorising respondents to have one time settlement with borrowers but on comprehensive reading of the Act there remains no doubt that such power can be exercised by the respondents. It is necessary to have a glance over the relevant provisions of State Financial Corporations Act (hereinafter referred to as “the Act”) in order to decide the controversy.
3. The preamble of the Act lays down that, in order to provide medium and long time credit to industrial undertakings which fall outside the normal activities of Commercial Banks a Central Industrial Finance Corporation had been set up under the Industrial Finance Corporation Act, 1948. To supplement the work of the Industrial Finance Corporation the State Government also wanted to have such Corporations. The intention was that the State Finance Corporations will confine their activities to financing medium and small scale industries and shall also consider the cases which were outside the scope of the Industrial Finance Corporation. Under Section 3 of the Act the State Governments are empowered by notification in the official gazette to establish a Financial Corporation for the State. Powers and duties of the Board are given under Section 24. It lays down :
“24. General duty of the Board :–The Board in discharging its functions under this Act, shall act on business principles, due regard being had by it to the interests
of industry, commerce and the general public.”
In the light of these provisions the argument of the learned Counsel for the petitioners and also of the respondents is that, since the Board has the general power to act on business principles with due regard to the interests of the industry, commerce and general public, therefore, whatever policy decisions they take on business principles after having due regard to the industry and commerce that cannot be looked into by the Court. Mr. Pratap Reddy submits that when money is advanced by way of loan, since it is a State owned Corporation it has to attain two main objections one being establishment of industry and its smooth development and running and the second objective being securing the amounts advanced by the Corporation so that these amounts after recovery are made available to other entrepreneurs. He submits that both these interests go together and one cannot be divested from the other. Therefore, it appears that where the industry faces some difficulty in repaying the loans and if the Corporation insists on repayment in accordance with the conditions in the agreements the industry itself may vanish thereby jeopardizing the over all interests of the State and also it may result in defeating the purpose for which the Corporation was established. He further submits that the Supreme Court in Mahesh Chandra v. Regional Manager, UPFC, , considered the scope of Section 24 of the Act. The Supreme Court held :
“Corporations deal with public money for public benefit. The approach has to be public oriented, helpful to the loanee, without loss to the Corporation. Section 24 of the Act itself required the Board “to discharge its function on business principles, due regard being had to the interest of industry, commerce and general public”. ‘Business’ is a word of
wide import. It has no definite meaning. Its perceptions differ from private to public sector or from institutional financing to commercial banking. The Financial Corporations under the Act were visualised not as profit earning concerns but an extended arm of a welfare State to harness business potential of the country to benefit the common man.
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“Thus a helping attitude on the part of the Corporation to constantly monitor the working of the industrial concern or units (it may even charge the overhead expenses on this account) would subserve the purpose of the loan, object of the Act, and the constitutional objective of economic justice to the needy. Equally employment and better working conditions to the workmen are assured and the unit gets stablished and starts yielding returns for repayment of principal amount and interest payable thereon. The facts in this case do demonstrate that non-co-operation by the partners and depletion of working capital are causes to close down the mill and the consequential default in the payment of the principal amount and the interest accrued thereon. The Corporation acted indifferently.”
The learned Counsel submits that since under Section 24 of the Act there is a duty cast on the Board to run the Corporation on business principles therefore it should be left to the Corporation as to how best the objectives laid down in Section 24 can be achieved. The learned Counsel for the respondents also supports the contentions raised by the Counsel for petitioner and he relies on judgment of Supreme Court in U.P. Financial Corporation v. M/s. Naini Oxyzen and Acetylene Gas Limited., 1995
AIR SCW 254. In this case the detailed facts are not necessary to be mentioned it will be suffice to say that the Corporation had taken over the industrial establishment which had become a defaulter under Section 29 of the State Financial Corporations Act. Before taking over under Section 29 the Corporation had offered rehabilitation package. The company filed a writ petition. The High Court allowed the writ petition directing the Corporation to handover the possession of the industrial unit to the company without any adjustment. The matter went to the Supreme Court. The judgment of the High Court was set aside. In para 13 the Supreme Court held :
“13. However, we cannot lose sight of the fact that the Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge. As such, in the discharge of its functions, it is free to act according to its own light. The views it forms and the decisions it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations. Unless its action is mala fide, even a wrong decisions taken by it is not open to challenge. It is not for the Courts or a third party to substitute its decision, however more prudent, commercial or business like it may be, for the decision of the Corporation. Hence, whatever the wisdom (or the lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable.”
Certain other judgments have also been cited and it has been stated that the scheme framed for one time settlement is not in fact for defeating the recovery but it is to encourage the recovery. The apprehensions expressed by this Court in its reference order dated 8th March, 2000 were also expressed at the Bar and it was
contended by all the Counsels appearing in the matter that those contentions raised might be correct, the contentions being that an honest businessman who pays in accordance with the terms of the contract ends paying more than a defaulter, but it is contended that exactly the same arguments were advanced in relation to voluntary disclosure of income scheme promulgated by Government of India with respect to undisclosed incomes in the case reported in All India Federation of tax Practitioners v. Union of India, . The following argument was made before the Supreme Court:
“Before dealing with the contentions, at the outset, we state that it is the say of the petitioners that, while dishonest taxpayers are given more benefit, honest tax-payers, who have paid the tax all throughout, are at a discount. Various immunities are given to the dishonest tax-payers, which would have an overall effect on the moral fabric of society. The main thrust of the argument of learned Counsel for the petitioners was that honest tax-payers have paid tax as per the prevailing rate during previous years from 90 per cent to 40 per cent. As against this, a dishonest (ax-payer is given full immunity and would be required to pay only 30 per cent. It has also been pointed out that, apart from paying 30 per cent tax, various ways and means could be devised by the dishonest taxpayer so that the said taxation rate can be further reduced.”
The Supreme Court relied on R.K. Garg v. Union of India, . This was the case where the provisions of the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 were challenged. Considering all the rival arguments the Supreme Court agreed with the observations made in the R.K. Garg’s case (supra). The observations are :
“It is necessary to remember that we are concerned here only with the constitutional validity of the Act and not with its morality. Of course, when we say this we do not wish to suggest that morality can in no case have relevance to the constitutional validity of a legislation. There may be cases where the provisions of a statute may be so reeking with immorality that the legislation can be readily condemned as arbitrary or irrational and, hence, violative of Article 14. But the test in every such case would be not whether the provisions of the statute offend against morality but whether they are arbitrary and irrational having regard to all the facts and circumstances of the case. Immorality by itself is not a ground of constitutional challenge and it obviously cannot be, because morality is essentially a subjective value, except insofar as if may be reflected in any provision of the Constitution or may have crystalised into some well accepted norms of social behaviour.”
Then the Court went on to say :
“We agree that honest tax-payer in the society is at discount. However, considering the present social and economic scenario in the country, it cannot be said that the Government was having other alternative, efficacious remedy and yet it has selected this method to unearth unaccounted money.”
The Court again went to say :
“As discussed above, in our view, it is for Parliament to enact laws pertaining to tax law, giving benefits or immunities to tax-evaders or tax-payers, but it is not for the Court to evolve a scheme and direct Parliament to enact such schemes on the basis of the view expressed by persons affected and to evolve any such scheme. Keeping the
aforesaid well settled law in mind, it will be difficult for us to arrive at a conclusion that, as more benefits are given to tax-evaders, the provision of the scheme are arbitrary and violative of Article 14 of the Constitution. It is adopted by Parliament after taking into consideration the economic and social conditions prevailing in the society.”
4. A notice had been given to the Reserve Bank of India also who have filed an affidavit. We have heard the learned Counsel for the Reserve Bank also. They relied on various provisions of the Banking Regulation Act, 1949 and also judgment of Supreme Court in U.P. Financial Corporation v. M/s. Gem Cap (India) Private Limited, AIR 1993 SC 1435. The facts of this case were that, a company took loan to the extend of 29.70 lakhs from U.P. Financial Corporation. A sum of Rs. 26,29,578/- was released in favour of the company. The company went into production but within few months of production the operations ceased and subsequently the unit was declared a sick unit. The unit did not make repayment as stipulated in the agreement and hypothecation deeds. Therefore the Corporation took steps to take over the unit under Section 29 of the State Financial Corporations Act for recovering the amount which had by then swelled upto Rs. 38.57 lakhs. Thereafter the unit holders started litigation. In one of the writ petitions the unit holders sought a direction from the Court to reschedule the repayment of debt in accordance with earlier orders of the Court. The High Court allowed the writ petition. The matter went in appeal before the Supreme Court. In Para 12 the Supreme Court held :
“While this is not the occasion to examine the content and contours of the doctrine of fairness, it is enough to reiterate for the purpose of this case that the power of the High Court while reviewing the administrative action is not that of an
appellate Court. The judgment under appeal precisely does that and for that reason is liable to be and is herewith set aside.”
5. Going by the judgments produced by either side, it appears that the law is settled in this country that the financial institutions including the Banks and even the Union of India and State Governments are free to frame such schemes in order to achieve the objectives of development and also objectives laid down in a particular enactment. In the present case we are concerned with State Financial Corporations Act. It is the normal business activity of the State Financial Corporation to ensure that the companies run and loans advanced by it are recovered. The methods adopted for recovery in case of defaulters may give rise to some heart-burning to the honest borrowers but that cannot become a reason for High Court to quash such schemes. Therefore, we hold that the ‘one time settlement’ scheme promulgated by the State Finance Corporation is constitutionally valid and do not in any way come under mischief of Article 14 of the Constitution of India.
WP No. 609 of 2000
6. Now, coming to the cases separately, Writ Petition No. 609 of 2000 has been filed seeking a direction that the respondent should implement the Court order given in WPMP No. 26157 of 1995 in WP No. 21289 of 1995 dated 21-9-1995. In this petition the Court had ordered :
“Interim direction to the respondents to continue the benefit of the scheme of one-time settlement to the petitioner without reference to the letter No. AFC/ SRB/MR & R/1995-96, dated 1-9-1995, pending further orders.”
This writ petition on the face of it cannot be allowed and is not maintainable. For implementation of order of this Court the petitioner need not file another writ petition, an appropriate application could be made in the same writ petition which is still pending in the Court. This method adopted is not proper and hence the writ petition is dismissed. WP No. 21289 of 1995
7. This is the writ petition in which the order was passed for the implementation of which WP No. 609 of 2000 has been filed. In this case, the petitioner prayed a direction to respondents to continue the benefit of the scheme of one-time settlement with net simple rate of interest at 11.5% which has already been extended by respondents to the petitioner company. Counter has been filed. In this writ petition the petitioner contended that they installed a factory at Industrial Development Area, Pattancheru in the year 1983 and established a small scale industry. The petitioner was granted loan of Rs. 25-00 lakhs for erection of plant and building. It commenced its production after availing loan facility. The unit was not installed within the schedule time and it had started production with considerable delay and the unit suffered huge losses. The petitioner was not given the loan instalments regularly; that was one of the reasons for the losses. However, the respondents demanded payment of instalments for which the petitioner had to secure loans from other private agencies. The petitioner company was manufacturing liquid Nitrogen and Gasious Nitrogen and was supplying it to other industries. For production of Nitrogen the company needed constant supply of electricity and it is submitted that when electricity it utilized constinuouly for 12 hours formation of gases starts and even after formation of gases there should not be interruption of electricity in getting supply of gases. The unit ultimately became sick unit and a Director was also nominated from the office of the respondent
under 1DBI Rehabilitation scheme of the Government and the unit started production again in the year 1989. The petitioner unit was running thereafter upto 1993 with interruptions. In the year 1992 the petitioner submitted a proposal for one time settlement of the loan with simple rate of interest in accordance with the scheme introduced by the respondents for sick industrial units. Initially the respondents assured the petitioner that the company would be entitled to all the benefits of one time settlement with simple rate of interest. After assuring that such settlement would be reached, the respondents asked for payment of Rs. 9-50 lakhs. The petitioner expecting the settlement paid Rs. 9-50 lakhs from 1992 to 1994. The respondents were asked for one time settlement on several occasions. It is further submitted that there were certain mistakes committed in maintaining the accounts by the respondents. Although the mistakes were pointed out but they were not corrected. The respondents issued a letter on 14-9-1994 accepting the request of the petitioner for one time settlement. The petitioner was asked to pay Rs. 28,56,400-48 ps. along with future interest from 1-2-1994 at a net simple rate of interest on prevailing rate till the closure of the loan account. The letter was replied by the petitioner company and they pointed out the defects in maintaining the accounts and calculation of interest. This reply was given on 15-10-1994 but the respondents without removing the defects issued another letter on 25-10-1994 reiterating what had been stated in the earlier letter and demanding the payment within six weeks. In the light of this controversy the writ petition was filed. In scdedule. The loan of Rs. 25,010,130/- was disbursed reply it is submitted that it is not true that the loan was not given on the petitioner in two instalments between November, 1988, and March, 1989. This loan had itself been sanctioned on 20-1-1988 therefore there was no delay caused by the respondents in disbursing the loan. It is
further submitted that whatever the difficulties the petitioner suffered on account of supply of electricity or on any other account the respondent-Corporation has nothing to do with that. It is further stated that the petitioner company made an application for one time settlement which was considered by the respondent-Corporation on 23-8-1994. The petitioner company was asked to deposit an amount of Rs. 28-56 lakhs. The deposit was not made within the time given to the petitioner. Even after the time given lapsed the Corporation waited for five months so that the petitioner could come forward for making the initial deposit. The initial deposit was not made and therefore the one time settlement was cancelled by respondent Corporation vide its letter No. 1048 dated 1-9-1995 after a period of one year from the date of approving the one time settlement scheme. This letter reads as under:
“With reference to the above, we regret to inform you that you have not paid the amount due as per one time settlement considered by our Corporation. Hence, the benefit given under one time settlement is hereby cancelled as per instructions of our management. You are hereby called upon to repay total amount outstanding within 10 days from this date, failing which, we will be constrained to take further action for recovery of loan amount.”
It is vehemently denied that there were any errors in the accounts maintained by the Corporation. It is stated that it is false to state that there were computer mistakes in the accounts and the interest calculations. The respondents stated that it was a financial institution having it full-fledged establishment for the purpose of lending of funds to various borrowers and entrepreneurs. The interest charged by the Corporation was in accordance with the terms and conditions of the loan agreement. It is further stated that the ledgers maintained by the
respondent Corporation have presumption of truth under Section 44 of the State Financial Corporations Act and under the provisions of Bankers Books of Evidence Act, 1891. However, it is stated that in case there were any such apprehensions the petitioner could have always come to the Corporation to check the accounts. It will be not out of place to mention the letter dated 14-9-1994 by which the respondents agreed for one time settlement. The letter reads as under:
“With reference to the above, we are happy to inform you that our management has accepted your request for one time settlement of the loan account by accepting the payment of Rs. 28,56,400-38 including Rs. 2-00 lakhs paid as advance along with further interest from 1-2-1994 at net simple rate of interest at prevailing rate till the date of closure of loan account. The said payment shall be payable within 6 weeks from the date of this letter.
As such the interest amounting to Rs. 12,49,242-48 has been waived without further interest from 1-2-1994. You are therefore advised to pay the said amounts before stipulated date failing which the said concessions will be withdrawn.”
In this letter it was made clear that an amount exceeding Rs. 12-00 lakhs had been waived. It was also made clear to the petitioner that it shall make the payment within six weeks from the date of the letter, but the petitioner did not make the payment. Even thereafter the petitioner was given further time, but it did not make any payment. The only grievance of the petitioner is that calculations were not made correctly. Had the petitioner been honest and had this apprehension been right it would have atleast deposited the undisputed amount. Seven years have passed, the petitioner has not paid a penny. This Court would not be in a position to appreciate
whether there were mistakes in the accounts, or not, which will otherwise have presumption of truth. The petitioner has failed to show that the impugned notice is in any way illegal. The writ petition is accordingly dismissed.
WP No. 2598 of 2000
8. The petitioner company is engaged in manufacturing of drugs. It made an application to the respondent-Corporation for grant of loan to the extent of 47-8 lakhs. The loan was sanctioned by the Corporation on 16-2-1990 and the loan was availed by the petitioner-company. It has been conceded in the writ affidavit that the petitioner-company committed defaults in repayment of loan, however, it is sought to be justified on certain grounds which are not attributable to the Corporation. When the petitioner company went into difficulties the respondents again came to its rescue and additional loan of Rs. 7-15 lakhs was sanctioned out of which a sum of Rs. 6-05 lakhs was adjusted by the Corporation towards interest and other charges. The petitioner thereafter made representations from time to time to the respondents, the amounts were not deposited and the Corporation seized the assets of the company on 7-7-1995. Later on they were restored. The petitioner was, according to the statement made in the affidavit, asked to pay Rs. 7,93,000/- on 31st August, 1998 and it paid Rs. 7-00 lakhs by demand draft. While the settlement was pending consideration the respondent-Corporation again seized the assets of the company vide panchanama on 10-12-1999. After the seizure tenders were ailed for sale and according to the petitioner respondents have received a bad of Rs. 35-10 lakhs. After this bid was received by the respondents they informed the petitioner that highest bid of Rs. 35-10 lakhs had been received from one Mr. Benarji Babu and if the petitioner was willing for the price offered by Mr. Benarji Babu he should convey his
acceptance. Neither the decision of taking over under Section 29 is challenged nor the letter addressed to the petitioner giving him an option of purchase at the bid received by the respondent has been challenged in this writ petition. Only the intended acceptance of the highest bid by the respondents has been challenged in this writ petition. In these circumstances this writ petition would not lie. But, since the matter has been heard, some of the facts are needed to be narrated.
9. Admittedly the petitioner is a defaulter on various occasions, settlements were arrived at between the petitioner and the respondent Corporation. The petitioner made a proposal seeking one time settlement at 9% net simple rate of interest as against 12-5% to 21 %. The respondent-Corporation with a view to examine the bona fides of the peroposal made by the petitioner advised the petitioner to make a down payment of Rs. 25-00 lakhs. This was accepted by the Managing Director of the company and a cheque was issued for Rs. 25-00 lakhs on 31st March, 1999 drawn on the Chairminar Co-operative Bank Limited. The said cheque was dishonoured upon presentation. It is further contended in the counter that petitioner has been persistently making payments towards the dues by issuing cheques whcih have been dishonoured and the respondent Corporation has also initiated criminal action under Section 138 of Negotiable Insruments Act against the petitioner. Even after dishonour of the cheques the Managing Director of the petitioner-company was called by the respondent, he failed to appear, therefore after exercising all options the respondents passed an order under Section 29 of the State Financial Corporations Act on 10-12-1999 with a view to safeguard the interests of the petitioner and the respondent-Corporation.
10. In the light of these facts, we do not feel that the petitioner has come to this
Court with cleam hands. The petitioner has not even challenged the order passed under Section 29 of the State Financial Corporations Act nor has he challenged the notice by which tenders were called. He has also not challenged the letter issued to him giving him option of purchasing the unit. He has also not denied that in order to defeat the auction intended by the respondent-Corporation he had issued cheques which were dishonoured. In view of these facts, we do not feel that the writ petitioner deserves any sympathy from this Court. The writ petition is also accordingly, dismissed.
11. No costs.