ORDER
K. Sreedhar Rao, J.
1. The revision filed against the order of the Principal Civil Judge (Senior Division), Hubli on I.A. No. 1 in Original Suit No. 199 of 1998 and the order of II Additional District Judge, Dharwar in Miscellaneous Appeal No. 110 of 1999 arising out of the order passed in the suit on I.A. No. 1.
2. The petitioner is the defendant in the suit. The respondent-plaintiff filed the suit for permanent injunction against the defendant restraining them from proceeding against the plaintiff-concern and from taking possession of the management of the plaintiff-concern. The petitioner-defendant is the Karnataka State Financial Corporation alleged to have advanced the loans to the plaintiff-concern. There appears to be defaults in payment of the loan installments. As of now, it is said that the plaintiff is due in a sum of Rs. 2 crores by way of defaulted installments, according to the petitioner. The Assistant General Manager of the petitioner-Corporation issued a show-cause notice to the plaintiff to explain why the proceedings under Section 29 of the State Financial Corporations Act of 1951 should not be initiated for taking over the possession or management of the concern. Pursuant to the said notice the suit came to be filed contending that the Assistant General Manager has no power of taking possession or management of the concern under Section 29 of the State Financial Corporations Act, the Board alone is competent to take such decision and pass appropriate orders. The Trial Court allowed the application under Order 39, Rules 1 and 2 of the Civil Procedure Code by passing a temporary injunction against the petitioner. In the appeal, the First Appellate Court confirmed the order passed on I.A. No. 1. Being aggrieved, the present revision is filed.
3. The short question that falls for consideration would be the validity of the show-cause notice issued by the Assistant General Manager for initiating proceedings under Section 29 of the State Financial Corporations Act. The ruling of the Supreme Court in Maharashtra State Financial Corporation v. Suvarna Board Mills and Anr., , is cited at the Bar. At para 4 of the judgment, the following observations are made:
“4. Let it be seen whether the respondent was sounded in advance that if it would not clear the arrears within a fixed period, the hammer of Section 29 would fall. This was abundantly done, according to us. Of course, for this we shall have to ignore what had been stated in letters of the Corporation issued in April and May 1991 requiring clearance of dues, as what natural justice requires is to give opportunity to represent against the proposed action, as stated in paragraph 16 of S.L. Kapoor v. Jagmohan and Ors., . The letters of April and May 1991 did not speak about contemplated action with the aid of Section 29 (The letter of December
1990 stands on the same footing, besides being too remote). But then, the Section 29 notice did call upon the respondent to repay the dues by 21-1-1992, failing which the respondent was put to notice that possession of its factory premises would be taken. This did meet the requirement of natural justice, according to us. No separate show-cause notice was required, as held by the High Court. Section 29 action could not have therefore been set at naught because of absence of an independent show-cause notice”.
4. The reading para 4 of the judgment clearly implies that before any action under Section 29 of the State Financial Corporations Act is initiated, it should be preceded by issuance of a show-cause notice in order to provide sufficient opportunity for the debtor to explain the conditions and circumstances in detail. However, the loss in business and extreme penury without any sincere effort of making payment is not a ground to prevent the action under Section 29 of the Act. The debtor can avoid proceedings under Section 29 of the State Financial Corporations Act if. only he can show to the Board that he had defaulted payments under justifiable conditions coupled with efforts made for making some substantial payments to keep up the terms of the loan.
5. The contention the Counsel for the petitioner that the show-cause notice issued by the Assistant General Manager is bad in law and that show-cause notice should have been issued only by the Board does not appear to be a tenable contention. The law envisages some reasonable opportunity before the steps are taken under Section 29 of the State Financial Corporations Act. However, show-cause notice issued to be construed only as a step in aid for initiating proceedings under Section 29 of the State Financial Corporations Act.
6. It is the contention of the Counsel for the respondents that pursuant to the show-cause notice, the Assistant General Manager would usurp the powers to take possession and management under Section 29 of the Act is an untenable and a presumptuous apprehension. The case is only at a preliminary stage and show-cause notice is issued by the Assistant General Manager, it is open to the plaintiff-respondent to reply the show-cause notice and explain the justifiable reasons to avoid taking over of possession under Section 29 of the Act. It is ultimately for the Board to take the decision on the material produced by the plaintiff.
7. In that view of the matter, I find that both the Courts below have totally erred in considering the show-cause notice as a proceedings under Section 29 for taking possession or management of the concern. By the impugned notice, it cannot be argued that there has been violation of the compliance of mandatory requirements under Section 29 of the Act to challenge the intended proposed action under the show-cause notice.
8. Accordingly, the impugned orders are set aside. The temporary injunction granted is vacated. However, it is observed that the plaintiff-respondent is entitled to submit to the Competent Authority all the necessary material and explanation for committing default and based
upon such material, the Board or the Competent Authority may take appropriate action in accordance with law. Accordingly, the revision is allowed.