JUDGMENT
Hansaria, C.J.
1. Whether Section 29 of the State Financial Corporations Act, 1951 (for short, “the Act”) is in the nature of a ‘Henry VIII Clause’, as contended by the petitioners, or discharges the function of a ‘catalyst in the process of industrialisation’, as is the case of the opposite parties, is the question needing our determination in this batch of petitions which have been taken up at the first instance for deciding the vires of the section.
2. The attack on vires is mounted on the anvil of Article 14 of the Constitution. To put the arguments in a nutshell, the same is that Sections 29 and 31 (or for that matter, Section 32-G) of the Act operate in the same field and the former being harsher than the latter and there being no guidance as to which provision should be invoked in which case, Section 29 has conferred arbitrary power on the Corporations and is, therefore, violative of Article 14 of the Constitution. To answer this, we have to sec the following:–
(1) Whether the aforesaid sections operate in the same field?
(2) Whether Section 29 can be said to be harsher than Section 31? .
(3) Whether there is any guidance in the Act relating to invocation of Section 29?
3. Before undertaking the long journey, we may remind ourselves that there is a presumption of constitutionality of a provision. This apart, it has been contended by Shri Mohanty, one of the learned counsel for the opposite parties, that when violation of Article 14 is urged, it is the burden of the person challenging the vires to establish the same. As to the argument relating to burden, we would only say that the stand taken by Shri Mohanty may not be correct in view of what has been stated by the Constitution Bench in paragraph 16 of D.S. Nakara v. Union of India, AIR 1983 SC 130 : (1983 Lab IC 1), in which, while seized with the question whether the classification made by the memorandum in question was hit by Article 14, the Bench stated that the State has to establish not only the rational principle on which classification is founded, but that it is co-related to the object sought to be achieved. This was also said to be the approach adopted in Ramana Dayaram v. International Airport Authority of India, AIR 1979 SC 1628. We may not, however, pursue this question of burden as both the sides having laid down their cards fully, the question of burden is not relevant for the cases at hand.
4. The question of vires of the section at hand depends upon the applicability or non-applicabilily of the ratio of the seven-Judge-
Bench in Maganlal Chhaganlal v. Greater Bombay Municipality, AIR 1974 SC 2009, which overruled the decision of a five-Judge-Bench rendered in Northern India Caterers (P) Ltd. v. State of Punjab, AIR 1967 SC 158. The importance of Maganlal’s case for our purpose is that that case laid down the law as to when different procedures for enforcing a right are prescribed by a statute, what has to be considered when the harsher procedure is challenged as violative of Article 14 of the Constitution. The law in this connection was summarised by the majority in paragraph 15 in these words :
“Where a statute providing for a more drastic procedure different from the ordinary procedure covers the whole field covered by the ordinary procedure …….. without any
guidance as to the class of cases in which either procedure is to be resorted to, the statute will be hit by Article 14.”
It is because of the aforesaid enunciation of law, of which both the sides are conscious, that the aforesaid three questions have been posed for our consideration.
Field of Operation of Sections 29, 31 & 32-G
5. Let us, therefore, first see whether Sections 29 and 31 of the Act operate in the same field. Though the learned counsel for the petitioners built up their case of invalidity of Section 29 by contrasting it with Section 31, at the stage of argument, Shri Mukherjee appearing for one set of petitioners also mentioned about Section 32-G of the Act, which was inserted by Act 43 of 1985 and has provided that the amount due to the Financial Corporation can be recovered as an arrear of land revenue. Learned counsel, therefore, submitted that Section 32-G provides another mode of recovery, and while deciding the vires of Section 29, we should also bear in mind this provision. We shall do so.
6. To know about this, let us quote the
relevant parts of these sections :–
“29. Rights of Financial Corporation in
case of default –
(1) Where any industrial concern, which is under a liability to the Financial Corporation
under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any quarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) to (5) xx xx xx xx”
“31. Special provisions for enforcement of claims by Financial Corporation.”
(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any quarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires on industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment, than, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 (4 of 1882) any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely :
(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or
(aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial concern to the Financial Corporation; or
(c) for an ad interim injunction restraining
the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.
(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and much other particulars as may be prescribed.”
“32-C. Recovery of amounts due to the Financial Corporation as an arrear of land revenue —
Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorised by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that Government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.”
7. The sheet-anchor of the case of the petitioners is that both Sections 29 and 31, or for that matter Section 32-G also, require only one pre-condition, namely, “default by an industrial concern”, and nothing more is required to bring into operation either of these sections. Though in this context Shri Mukherjee, supported by Shri Das, has also urged that Section 29 is a provision conferring a ‘right’ and Section 31 provides the machinery for enforcing that right, this proposition may not detain us, because the Full Bench decision of the Allahabad High Court in Munnalal v. Uttar Pradesh Financial Corporation, AIR 1975 All 416, which has been cited in this connection, does not support the submission inasmuch as there the question was whether to recover the loan advanced to
an industrial concern, the property of a surety can become, subject-matter of a proceeding under Section 31 of the Act, or surety has to be proceeded against in general law. In the cases at hand, we are not concerned with this controversy. This apart, the Full Bench decision itself has noted that Section 29 almost permits the Corporation to take over the management of the industrial concern or realise the mortgaged property by way of lease or sale. Further, in view of the recent decision of the apex Court in Mahesh Chandra Jethy v. Regional Manager, Uttar Pradesh State Financial Corporation, 1992 (2) SCC 326 : (1992 (2) OLR 135), the question does not really survive.
8. Another passing submission of Shri Mukherjee may also be dealt with here. That submission is that an industrial concern should not be regarded to be in “default”, of which these sections speak, till the end of the period visualised by the agreement between the Corporation and the loanee relating to payment of the entire money advanced by the Corporation. Shri Mukherjee has felt emboldened to so urge because, according, to him, the Financial Corporations set up by the Act are not ordinary creditors or lenders of money, but trustees, nay partners of the industrial concerns, and so, the principle which applies in the case of ordinary lender of money would not be applicable when the loan is advanced by a body like the Corporation, which is a ‘State’ within the meaning of Article 12 of the Constitution. Learned counsel contends that fostering of industrial growth being the object of advancing loan by the Corporation, the industrial concern must not be treated as a defaulter till the entire amount sanctioned to it has been paid and it has been allowed all the opportunity to set up the industry; and it is an ultimate failure alone that the concern should be branded as a defaulter, and not at any earlier stage.
9. We will have occasion to discuss the submission relating to the object of setting up of the Corporations under the Act when we shall advert to the second submission, which deals with the question as to whether Section 29 is harsher than Section 31. At this
stage, all that we should like to say is that in case of a single default of one instalment of the principal, or for that matter, of interest, it would not be permissible on the part of the Corporation to invoke Section 29 against the defaulter, which aspect has now been made abundantly clear by the apex Court in Mahesh Chandra’s case. While saying so, we are conscious of the fact that a word “is” not crystal, transparant, unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used”, as is the celebrated saying of Holmes, J. Even so, we do not think if we would be justified in accepting the extreme submission advanced by Shri Mukherjee. More than this is not required to be said for the cases at hand in view of Mahesh Chandra’s decision.
10. Shri Mohanty appearing for the Corporation has submitted that both the sections have conferred independent powers, which would be apparent, according to the learned counsel, from the use of the words “without prejudice to the provisions of Section 29 of the Act”, contained in Section 31. Learned counsel then contends that though the precondition for exercise of power under both the sections is ‘default’ of the industrial concern, this pre-condition may be “very nearly” the same, but not identical, as stated in paragraph 14 of his written submission. This is so because the objects for which these powers can be exercised and the reliefs that could be obtained under these two sections differ. To bring home this, the learned counsel has in his written submission dealt in detail with the object of the two sections and the reliefs made available by these sections. The object of Section 29 is not recovery of the defaulted amount but to take over the management or possession or both of the industrial concern, so also to transfer the industrial concerns by way of lease or sale; whereas the object sought to be achieved by invoking Section 31 is “enforcement of claims” by the Corporation, as is stated in the heading of this section, which consists primarily in realising of the defaulted amount. Learned counsel urges that in case of default, the Corporation would not like in all cases
just to go in for sale of the property pledged to it, which is the motivating force of Section 31. It may first like to see that the industry survives and the industrial growth, to give fillip to which is the principal aim of establishment of Financial Corporations is not stultified. There can be no denial that this object of the Corporation is laudable and has to be encouraged. But Section 31 itself can be invoked for this, as its Sub-section (1)(b) would permit this relief to be granted.
11. This aspect of the matter has been highlighted by Shri Misra also appearing for the Corporation in paragraph 10 of his written submission, wherein the learned counsel has even gone to the extent of saying that to contend that Sections 29 and 31 have the same condition precedent for invoking them is “misconceived”. According to the learned counsel, if both these sections are read “in their entirety and conceptual eventuality”, distinction between them would come out clearly, which distinctions are “not in the field of abstraction but in the arena of reality”. The learned counsel has given eleven points of distinction (a) to (k) in his note. The distinctions are worth nothing and we can do no better than quoting what Shri Misra has urged in this connection :–
“(a) Section 29 deals with the rights of the Corporation in case of default whereas Section 31 deals with special provision for enforcement of claims.
(b) Section 29 confers power on the Corporation to take over management or possession or both of the industrial concern and in addition to that authorities of the Corporation have the right to transfer by way of lease or sale. Section 31 does not envisage the concept of lease or does not visualise taking over possession.
(c) The Corporation under Section 29 can make a unit viable by running the same, but such arrangement cannot be done under
Section 31.
(d) Under Section 29 the Corporation cannot take over the possession of the properties given by the guarantors or surety whereas under Section 31 steps can be taken
for enforcing the liability of any surety.
(e) Under Section 29 of the Act if the Corporation takes over the management, the supervisory guidance is available to the entrepreneur whereas the same may not be available under Section 31.
(f) In absence of Section 29 there would be delay in taking over possession in cases where the entrepreneur makes no attempt to pay the dues of the Corporation and the factory is allowed to remain idle and in that case the machineries and other articles are bound to be damage,d, and such a situation calls for immediate action. The said immediate action cannot be availed of under Section 31.
(g) Under Section 29 the unit is brought under the control of the Corporation wherea’s under Section 31 any one of the reliefs (namely, seeking for an order for sale, enforcing the liability of any surety, for transfer of the management, or for an ad interim injunction) can be sought for.
(h) Speedy recovery is one of the guiding factors of Section 29 for realisation of the amount advanced so that money is to be recirculated keeping in view Section 24 of the
Act.
(i) Under Section 29 the unit concerned is taken over and leased out for a specified period, the owner does not lease the title and the payment by the lease-holder is adjusted towards the liability of the owner, thus, while the liability is lessened the unit runs and the ownership remains in tact. This aspect is absent under Section 31 of the Act.
(j) After seizure of the industrial concern under Section 29, negotiation is done with the owner and he is offered an opportunity to appear before the Corporation authorities and discuss with regard to the viability of the unit for payment of the dues in question. The Corporation has the authority to rephase the loan by fixing further suitable instalments. In this case, the entrepreneur gets an opportunity to revive. This arrangement is not possible under Section 31.
(k) Looking from another engle, where the industrial concern has not committed any
default has not violated the terms of the agreement but negotiates with any other person to transfer the properties of the concerned unit, then the remedy is provided under Section 31(1)(c) of the Act though such a remedy is not provided under Section 29 of the Act.”
12. Despite the valiant effort made by the learned counsel for the opposite parties, which include, apart from the Corporation, the Industrial Promotion and Investment Corporation Ltd. (IPICOL) represented by Shri L. Mohapatra, we would not quite agree with them, as the main basis for dividing the field of operation is that Section 29 can be used to take over management of the concern to nourish it, whereas Section 31 is for enforcing claim is not well founded, because Section 31(1)(b) specifically speeks about “transferring the management of the industrial concern to the Financial Corporation”, who after obtaining possession of the concern can either manage it itself or transfer it to others by way of lease etc., as visualised by Section 29. The scope of Section 31 cannot be confined to “enforcing of claims” merely because its heading states so. It is well settled rule of interpretation that headings provide a very poor aid to find out the scope of a section and the same cannot control the reach of the section. What we have stated regarding Section 31 would apply proprio vigore to Section 32-G.
13. The number of cases in which the Corporation has been invoking Section 31 — this was 106 in 1991-92, as reflected in Appendix Z to the written note of Shri Mohanty amply bears our conclusion. So, we shall continue our journey.
WHETHER SECTION 29 IS HARSHER THAN SECTION 31.
14. This aspect requires us to examine whether Section 29 is ‘draconian’ as the petitioners say requiring its scrapping from the statute book, or it is a piece of flexible and responsive’ provision much beneficial to the loanees as is the case of the opposite parties, requiring its nourishment.
15. The petitioners’ case of comparative harshness of Section 29 is built up on these grounds:–
(1) Under Section 29, the Corporation acts as a judge in its own cause, which is not so in Section 31. (2) In Section 29, the decision regarding 'default' is taken by administrative authority whereas in Section 31 it is by a judicial body. (3) There is no appeal against any order passed under Section 29, whereas an order passed in a proceeding under Section 31 ,is appealable.
16. The opposite parties contend that the aforesaid are no grounds to brand Section 29 hersher than Section 31. They further contend that the “judicial gloss” put on the power of Section 29 mainly by the recent decision in Mahesh Chandra has taken away any harshness which might have existed in Section 29. They also aver that if need be, Section 29 can be further read down to reduce its supposed harshness.
17. In so far as the first ground is concerned, Shri Mohanty submits that the decision about the industrial concern being in default is taken by the Corporation not only while exercising power under Section 29, but that also is the position when the District Judge is approached under Section 31. According to the learned counsel, this follows from the language of Section 31, which read with Section 32, would make it clear that Section 31 proceeding is also in the nature of an “execution proceeding”, and is not a suit for recovery of outstanding dues. According to the learned counsel, on an application, under Section 31(1) being made, it is obligatory upon the Court to make an interim order attaching the security with or without interim injunction? and if the relief claimed be the transfer of the management of the industrial concern, it is obligatory on the part of the District Judge to grant ad interim injunction. It is only after cause is shown by the industrial concern that the District Judge is “to investigate the claim” under Section 32(6) of the Act; but this investigation does not expand the contest so as to convert the proceeding to a suit.
18. To bring home the aforesaid submission, reference is principally made to Gujarat
State Financial Corporation v. Natson Manufacturing Co., AIR 1978 SC 1765, in which the question for decision was whether while approaching the District Judge under Section 31, the Corporation has to pay Court-fee on its application, as is required while filing a suit. The Gujarat High Court took the view that it has to do so because the application was taken to be on par with a suit by a mortgagee to enforce the mortgage debt by sale of the mortgaged property, which was treated as a money suit. On appeal being filed before the apex Court, the judgment of the High Court was set aside by observing that the application under Section 31(1) is “something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree”. The apex Court did not appreciate the view taken by the High Court that “the proceeding is not in the nature of execution of a decree”. These views find place in paragraph 13 of the judgment and fully support the submission of Shri Mohanty.
19. In view of the above, it is not necessary to refer to the decisions of the High Courts, including that of Alka Ceramics v. Gujarat State Financial Corporation, AIR 1990 Guj 105, wherein this view of the apex Court was followed.
20. While on the aforesaid question, we may deal with the grievance of Shri Mukherjee that nobody can be a judge in his own cause, which would violate the principle of ‘nemo judex in cause sua’. Shri Mohanty meets this argument by submitting that what has been provided in Section 29, or for that matter, which lies at the root of Section 31, authorising the Corporation to itself determine whether an industrial concern is in default or not is not unknown to law inasmuch as Section 69 of the Transfer of Property Act contains a similar provision of which reference has even been made in Section 31(1) of the Act. Shri Mohanty submits that Section 69 of the Transfer of Property Act, though finding place in a pre-constitutional statute, has been held by a single Judge of the Madras High Court in v. Narasimhachariar v. Igmore Benefit Society, AIR 1955 Madras 135, as not offensive, inter alia, of Article 14 of the Constitution, Various reasons have been assigned by the learned Judge in taking this view. This decision, however, is not relevant for our purpose because attack on the anvil of Article 14 was on the ground that Section 69 of the Transfer of Property Act confined its operation to the presidency towns of Calcutta, Madras and Bombay or to any other town or area which the State Government may by notification in the official gazette specify, with which aspect of the matter we are not concerned.
21. The scope of Article 14 has, however, widened manifestly after the decision in Maneka Gandhi v. Union of India, AIR 1979 SC 597 according to which, Article 14 takes care of arbitrariness in decision; and if one is allowed to become a judge in one’s own cause, arbitrary decisions can be taken. This apart, as being the judge in one’s own cause is violative of the doctrine of nemo judex in causa sua, which is a part of the principle of natural justice, Article 14 comes in through the sidedoor in view of what has been stated in paragraph 72 of Union of India v. Tulasiram Patel, AIR 1985 SC 1416 : (1985 Lab IC 1393), and paragraphs 42, 109 and 120 of Charanlal Sahu v. Union of India, AIR 1990 SC 1480, both of which are decisions by Constitution Benches.
22. Despite the above, we have not felt persuaded to accept the aforesaid submission. Arbitrariness in the decision of the Corporation relating to an industrial concern being defaulter almost stands ruled out, because every transaction with a Financial Corporation is well accounted for, duly reflected in required registers and is mostly through bank. There cannot be any “hanky panky” in such transactions, as may be while dealing with private lenders.
23. As to violation of the principle of natural justice on the touchstone of nemo judex in cause sua, we would observe that a large number of administrative bodies have been empowered by now by different statutes to take decisions affecting citizens relating to cancellation of benefits conferred by those authorities, by way of granting leases,
licences, contracts or any other form of largess. This apart, it has to be borne in mind that it is the Corporation which takes the decision, which represents “public interest and discharges a public duty”, as put by Shri Mohanty at page 15 of his written note. This aspect of the matter has already been adverted to while dealing with the first ground of challenge relating to the remedy under Section 29 being harsher. All that is required to be added is that as per the Executive Instructions which have been enclosed as Appendix C to the written note of Shri Mohanty, dealing with “Delegation of the Power of the Board under Section 29 (as visualised by Section 43-A of the Act) adopted in the meeting, of the Board of Directors held on 27-9-85, the power exercisable under this section vests in high officers of the Corporation like General Manager/Joint General Manager/Executive Director. The power being exercisable by high officers, it can be presumed that their maturity would take care of arbitrariness to a great extent.
24. Non provision of the remedy of appeal against any action taken under Section 29 is the third ground of attack on this score. As to this, the submission of Shri Mohanty and Shri Misra appearing for the Corporation is that this by itself is not enough to regard Section 29 as harsher, inasmuch as the power of this Court under Article 226 of the Constitution can always be invoked in appropriate cases. Reference has been made by Shri Mohanty in his written submission to Organo Chemical Industries v. Union of India, AIR. 1979 SC 1803 : (1979 Lab IC 1261), in which it was held that provision for appeal is a “desirable corrective, but not an indispensable imperative” and though its presence is an extra check on wayward orders, its absence is not a sure index of arbitrary potential.”(see paragraph 9).
25. This apart, we may refer to Chintalingam v. Govt. of India, AIR 1971 SC 474, in which, while meeting the challenge to the vires of some Control Orders issued under the provisions of the Essential Commodities Act, 1955 on the ground of the same having imposed unreasonable restriction — in
support of which one of the arguments advanced was that no appeal or revision was provided against the order — it was stated in pragraph 6 that this alone would not be sufficient to regard the restriction as unreasonable, as representation against the order ,was not barred. (Though this decision related to Article 19 of the Constitution, which required consideration of the question of “reasonableness” of the restriction, the ratio would apply, proprio vigore, while judging the question of arbitrariness which is relevant for Article 14, as conceptually reasonableness and non-arbitrariness are one and the same two different names of one trait.)
26. It has been contended by Shri Mohanty that it is always open to the aggrieved party to file representation and as the same would be dealt with by an administrator, he would be in a better position to review his order, if so required, as he has no fetters in this regard, whereas a judicial body dealing with the matter under Section 31(1) of the Act has, in view of the limited power of review available in a judicial proceeding.
27. Shri Mohanty has also drawn our attention in this connection to the Executive Instructions issued by the Corporation on 2-6-1984 in the matter of exercise of the power under Section 29, as at Appendix D of the written note, which also have laid down the guidelines for seizure of industrial concerns which softens the harashness further in so far as the action of seizure is concerned.
28. Apart from the above, the learned counsel appearing for the opposite parties have contended that in view of the “judicial gloss” put on the power under Section 29 in Mahesh Chandra, the biting tinge, even if it be there in Section 29, has been almost fully taken away, because the Court has observed that the Corporation being an instrumentality of the State, any action taken by it must meet the test of justness, fairness, reasonableness and relevance and, that the Corporation is to act in public interest and cannot act in a manner which would benefit a private party at the cost of the State. Further, the exercise of discretion has to be objective and should
effectuate the purposes of the Act. It was emphasised that default alone may not be sufficient to exercise the power of assuming possession or selling the property unless the same is imperative. Rescheduling of payment of instalments has also been mentioned in this connection, and an eye was required to be kept on the need of keeping the unit functioning for the benefit not only of the loanee, but of general public as well as of the Corporation. Finally, it has been observed that after action has been taken under Section 29(1), the Corporation becomes a trustee in respect of the property seized and the standard of con-duct expected of it in dealing with the property or sale thereof is as a prudent owner would exercise in dealing with his own property or estate, one of which conditions being securing of maximum advantage of price.
29. Finally, in paragraph 10 directions were given as to what should be done while exercising the power of sale, which action has to be taken after the Corporation failed in its endeavour to make the unit a viable one and to bring it to working condition. This is what finds place as regards the prosecution to be taken while going for sale:–
“(1) Sale of a unit should always be made by public auction.
(2) Valuation of a unit for purposes of determining adequacy of offer or for determining if bid offered was adequate, should always be intimated to the unit-holder to enable him to file objection if any as he is vitally interested in getting the maximum price.
(3) If tenders are invited then the highest price on which tender is to be accepted must be intimated to the unit-holder.
(4) (a) If unit-holder is willing to offer the sale price, as the tender, then he should be offered same facility and unit should be transferred to him. And the arrears remaining thereafter should be rescheduled to be recovered in instalments with interest after the payment of last instalment fixed under the agreement entered into as a result of tendered amount.
(b) If he brings third parties with higher offer it would be tested and may be accepted.
(5) Sale by private negotiation should be permitted only in very large concerns where investment runs in very huge amount for which ordinary buyer may not be available or the industry itself may be of such nature that by normal buyers may not be available. But before taking such steps there should be advertisements not only in daily newspapers but business magazines and papers.
(6) Request of the unit-holder to release any part of the property on which the concern is not standing of which he is the owner should normally be granted on condition that sale proceeds shall be deposited in loan account.”
30. The above apart, our attention is invited to two decisions of this Court: (1) Kharavala Industries v. Orissa State Financial Corporation, AIR 1985 Orissa 153; and (2) Bhabagrahi v. Union of India, AIR 1990 Orissa 42, wherein compliance with the principles of natural justice before invoking the power under Section 29 has been held to be a necessary pre-condition, so much so that any violation of the same would render the order bad in the eye of law.
31. Shri Mohanty has described the aforesaid “gloss” put on the power under Section 29 by Mahesh Chandra as “reading down” of Section 29. We do not quite agree with the learned counsel in this regard, inasmuch as recourse to “reading down” whenever permissible (as to which aspect again, there is controversy) is taken when the vires of a section is challenged, which was not so in Mahesh Chandra, and, therefore, what has been stated in Mahesh Chandra about the pre-conditions for exercise of the power under Section 29 would not be regarded by us as the result of “reading down” of the section.
32. The aforesaid discussion leads us to reject the contention of the petitioners that Section 29, as it stands today with the “gloss” added to it in Mahesh Chandra, operates harshly on an industrial concern, as compared to the treatment the concern would have received if the power under Section 31 would have been invoked by the Corporation.
GUIDANCE FOR INVOKING SECTION 29
33. The contention of the petitioners is that the Act contains no guidance as to when the power under Section 29 can be invoked and when under Section 31, nor for that matter under Section 32-G, leaving it to the arbitrary decision of the concerned officer, with the result that of the two similarly situated persons, one may be subjected to the harsher provision of Section 29 and the other to be lighter treatment meted out by a judicial body by Section 31, which vice inheres in the section making it violative of Article 14. According to the learned counsel for the opposite parties, however, there are enough provisions in the Act to guide the authorities, as accepted by different’ High Courts before whom the validity of Section 29 was challenged without success. We propose to note those decisions at the concluding stage of bur judgment. In Alka Ceramics v. Gujarat State Financial Corporation, AIR 1990 Gujarat 105, which has been strongly relied on by the learned counsel for the opposite parties, “speedy recovery” made available by Section 29 has been accepted as having provided guidance. This decision has been cited with approval by the Andhra Pradcsh High Court in R.K. Industries v. Andhra Pradesh State Financial Corporation, AIR 1991 AP 174. Indeed, in Maganlal’s case itself, speedy procedure was accepted as providing guidance,
34. Shri Misra in his written submission has highlighted in paragraph 6 as to how speedy recovery can be regarded as providing guidance. This is what the learned counsel has stated in this regard :–
“(a) Existence of a financial institution depends on its stability.
(b) The Corporation can maintain stability and help in the quick industrial growth and re-cycling of loans if they are recovered at the appropriate time.
(c) If there is default and there is no response from the entrepreneur not taking steps under Section 29 of the Act it would substantially affect the interest of the Corporation in the process of recovery and simultaneously the industrial concern would not be useful if the machineries are allowed to rust and no steps are being taken either to run
it or to sell it.
(d) In a case of fraudulent availability of loan by an over enthusiastic entrespreneur, the Corporation might not be secured and if there would be delay, the same Would be suicidal.
(e) In cases of chronic defaults, the loss of confidence has to play a major role and when it is felt that the entrepreneur is not in a position to manage and maintain, it becomes almost indispensable to take action under Section 29 for recovery so that not only the concern can be saved but there would be some recovery so as to enable the Corporation to entertain new entrepreneurs who are in the waiting.
(f) In a welfare democratic State, not only the existing entrepreneurs but the future entrepreneurs have to be taken care of, recycling of loans for industrial growth in the (sic) of the Financial Corporation and unless the same is achieved, the purpose of the Act is lost.”
35. Shri Mohanty in his turn refers to the very purpose and policy of the Act, with which the power conferred by Section 29 is linked. According to the learned counsel, the purpose of the Act being to provide “basic catalyst” to the process of industrialisation, finance and quick credit are necessary and flow of credit cannot be allowed to be clogged; in other words, “quick re-cycling” of funds is absolutely necessary to achieve the high objectives of the State Financial Corporation, and this purpose would get delayed in the labyrinths of Courts where law’s delay is proverbial, which would stand in the way of the social policy of rapid industrialisation.
36. Another link of the argument of the learned counsel for the opposite parties is that Section 29 having provided mechanism for “speedy recovery”, the mere possibility of invocation of the power under Section 31 in a similar situation cannot be regarded as discriminatory in the light of what has been laid down in Maganlal, because as per that decision, mere possibility of discrimination is not enough, but the chances of discrimination have to be probable. To put it differently, it is not every fancied possibility of discrimination, but the “real risk” of discrimination that
must be taken into account and there is no such risk in the present case, submists Shri Mohanty, because the power of choice of procedure has been left to responsible high authorities, which should be taken to be a sufficient safeguard against abuse of power, in view of what has been stated in Chandra Bhavan Boarding and Lodging v. State of Mysore, AIR 1970 SC 2042 : (1970 Lab IC 1632). There is sufficient force in the submission that there is no “real risk of discrimination inasmuch as a reasonable person (the responsible officers of the Corporation can well be presumed to be so) will normally take recourse to speedy remedy available to him to get his desire fulfilled, instead of submitting to a tardy process to come to his aid.
37. We have, however, a suggestion to make in this context. The same is that the Corporation (s) should make suitable provision which will require recording of reason in those cases where decision is taken to invoke Section 31 (despite availability of Section 29); and Section 31 proceeding shall be initiated after the Board has approved the same. Such a provision shall fully assure the mind of loanees that there is no “real risk”, indeed any risk, of their being picked up by the officials of the Corporation for undergoing harsher treatment.
38. Stage has now come to conclude and we do so by saying that Section 29 is not ultra vires, because though Section 31 (or for that matter 32-G) operates in the field carved out for Section 29, the latter cannot be regarded harsher than the former, and there is guidance also when to invoke the latter provision. So, we hold that the section is not bad, though it may be that a particular action taken in exercise of the power conferred by the section may be so. That, however, would depend upon the facts and circumstances of each case. We may say that ours is not the lone opinion in this regard as many other High Courts of the country, on challenge being made to the vires of Section 29, have taken the same view in the cases decided by them. These High Courts are : (1) Gujarat in Alka Ceramics v. Gujarat State Financial Corporation, AIR 1990 Gujarat 105; (2) Kerala in K.
Surendranathan v. Kerala State Financial Corporation, AIR 1988 Ker 330; (3) Andhra Pradesh in Srinivas Khandsari Sugars v. State, AIR 1976 AP 98; G.A.R. Rerolling Mills v. A.P. State Financial Corporation, 1982 (1) An LR 93; R.K. Industries v. A.P. State Financial Corporation, AIR 1991 AP 174; (4) Allahabad in U.P. State Financial Corporation v. Goodman Drug House, AIR 1990 All 177 and (5) Karnatak in Shreeshyle Crown v. Union of India, AIR 1983 Karnataka 130. We are thus in good company.
39. Before parting, we put on record our unreserved praise for the very labourious work undertaken by all the five learned counsel appearing for the parties, namely, Sarbasri A. Mukherjee, S. Mohanty (whose written note is the best), Deepak Misra, L. Mohapatra and Y. Das, all of whom, apart from advancing argument in the Court, amply assisted us by filing written submissions which are quite exhaustive and speak volumes about the pains taken by them in preparing the same. But for such an assistance, we would not have been able to render such judgment.
40. May it be stated that the little delay in delivery of the judgment has occurred, because the last of the written submissions was filed on 14-11-1992.
41. Let the cases be placed for hearing to examine their merits.
B. N. Dash, J.
42. I agree.