Holding

Section 29 of the State Financial Corporation Act empowers the corporation to take possession and sell seized assets of a chronic defaulter, and the Mahesh Chandra guidelines are overruled; judicial review is limited to statutory violation or unreasonable action.

Summary

The Haryana Financial Corporation (HFC) granted a loan of Rs 7.48 lakh to Jagdamba Oil Mills under the State Financial Corporation Act, 1951, to be repaid in instalments. The borrower repeatedly defaulted despite two reschedulings, prompting HFC to recall the loan under Section 30 and take possession of the unit under Section 29, intending to auction it. The borrower obtained a permanent injunction from the trial court, which was upheld by the lower appellate courts. HFC appealed to the Supreme Court, arguing that the lower courts wrongly applied the Mahesh Chandra guidelines and ignored the principles laid down in Gem Cap. The Supreme Court held that the Mahesh Chandra guidelines were overruled, that Section 29 gives HFC the power to take possession and sell the seized assets without the restrictive procedural requirements, and that judicial review is limited to statutory violation or unreasonable action. The Court allowed the appeal, directing HFC to give notice and a six‑month period for repayment before disposing of the seized unit.

Issues considered

The validity of HFC's action under Section 29 and Section 30 of the State Financial Corporation Act, 1951 in a case of chronic loan default.
Whether the procedural guidelines laid down in Mahesh Chandra v. U.P. Financial Corporation are applicable to HFC's action.
The scope of judicial review of administrative actions of a State Financial Corporation, particularly the relevance of fairness and natural justice.

Legislation cited

State Financial Corporation Act, 1951s. 29, s. 30

Subjects

State Financial Corporation ActSection 29Section 30loan defaultadministrative lawfairnessjudicial reviewindustrial financingseizure of assetsoverruled precedentMahesh ChandraGem Cap

Judgment

HARYANA FINANCIAL CORPORATION AND ANR. A
v.
MIS. JAGDAMBA OIL MILLS AND ANR.

JANUARY 28, 2002

[B.N. KIRPAL, K.G. BALAKRISHNAN AND ARIJIT PASAYAT, JJ.] B

State Financial Corporqtion Act, 1951

Sections 29 &30--Default in repayment of loan-Seizure of defaulting
unit-Duty cast upon the borrower to repay the instalments in time unless C
prevented by unsurmountable difficulties-Reg11lar payment is the rule and
non-payment due to extenuating circumstances is the exception-Jn the event
of default Financial Corporations empowered to take over management!
possession or both to deal with it.

Legislative intent of the Act-To promote industrialisation by giving
D
financial assistance-Realisation of objective-Financial Corporation has to
recover tha loan amounts so that fresh loan can be given to other industries
so as to promote industrialisation.

Administrative Law: E
Fairness-obligation to Act fairly-Financial Corporation being
administrative authority has to ensure rule of law and to prevent failure of
justice by following requisite procedure-If borrower adopts pretexts and ploy
to avoid payment, he cannot take the plea that Corporation has not acted
fairly-Administrative action-Review of-Courts not to review an administrative F
action as an appellate Court.

Precedents-Applicability of-Judgments of the Courts are not to be
trued as statutes-Observations of the Courts must be read in the context
hich they appear-Significance offactual situation for applicability of a
partice1lar ratio-Discussed G
Resporident No. 1 was granted loan by the appellant-Corporation.
Repayment of loan with interest was to be made in instalments.
Respondent N&. I mortgaged its land, building and machinery in favour
of the Corporatit'n. It was mentioned categorically in the mortgage deed H
621
y
622 SUPREME COURT REPORTS [2002] I S.C.R.

A that instalments were to be disbursed on the basis ofsecurities created by
the borrowers and as and when enough securities were created, the loan
amount was to be disbursed. Appellant disbursed the loan. Respondent
failed to repay the instalments by due date; instead requested for
rescheduling the payment schedule. Despite rescheduling, the respondent
defaulted again. Respondent again requested for rescheduling the payment
B schedule but again failed to repay the due instalment by the due date. Since
Respondent No. 1 was a chronic defaulter in making repayment of loan
instalment, appellant initiated action against Respondent No. I under
Section 29 of the State Financial Corporation Act, 1951 after recalling the
loan under Section 30, and accordingly taken over possession of the unit
C of the respondent. The respondent filed suit in the Civil Court seeking a
decree for permanent injunction restraining the appellant from auctioning
the seized unit. Trial Court decreed the suit. Unable to succeed in appellate
Court and the High Court, appellant-Corporation preferred appeal to this
Court.

D It was contended for the appellant that Courts below erred in placing
reliance on the decision in Mahesh Chandra's Case without noticing the
distinguishing factual backgrounds; that they did not follow the decisions
of this Court in Financial Corporation v. Gem Cap India (P) Ltd. which was
squarely applicable; and that ample opportunity was granted to the
E respondents to make repayment of loan instalments but they failed to make
payment. It was contended for the respondent that the Financial
Corporation as trustee was not expected to act like any other individual
money-lender.

Partly allowing the appeal, the Court
F HELD 1.1. Financial Corporation is expected to act fairly in the
matter of disbursement of loans. There is corresponding duty cast upon
the borrower to repay the instalments in time, unless prevented¥by
unsurmountable difficulties. Regular payment is the rule and non-payment
due to extenuating circumstances is the exception. If the repayments ar
G not received as per the scheduled frame, it will disturb the equilibriu of ·
the financial arrangements of the Corporations. Non-paymeiit of
instalments by a defaulter may stand in the way of deservi~~ borrower
getting financial assistance. (628-E-F)
,
1.2. Legislative intent in enacting the Statute in questions was to
H promote industrialisation of the States by encouragini:; slnall and medium

/
/
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS 623
industries by giving financial assistance in the shape of loans and advances, A
repayable within a stipulated period. There is a purpose in its lending i.e.
to promote small and medium industries. The relationship between the
Corporation and the borrower is that of creditor and ~ebtor.
(628-H; 629-A)

That basic feature cannot be lost sight of. A Corporation is not B
supposed to give loan and then to write it off as a bad debt and ultimately
to go out of business. It has to recover the amounts due so that fresh loan
can be given. In that way, industrialisation which is the intended object,
can be promoted. (629-A-B)

U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd & Ors., (1993)
c
2 sec 299, relied on.

Mahesh Chandra v. Regional Manager U.P. Financial Corporation &
Ors., (1999) 2 SCC 279, overruled.
D
2.1. Fairness cannot be a one way street. Financial Corporation
borrows money from the Government or other Financial Corporations and
are required to pay interest thereon where the borrower has no genuine
intention to repay and adopts pretexts and ploys to avoid payment, he
cannot make the grievance that Financial Corporation was not acting
fairly. (630-D) E
2.2. Obligation to act fairly on the part of the administrative
authorities was evolved to ensure rule of law and to prevent failure of
justice. This doctrine is complimentary to the principles of natural justice
which the quasi-judicial authorities are bound to observe. The distinction F
between a quasi-judicial and the administrative action has become thin.
Even so the extent of judicial scrutiny/judicial review in the case of
administrative action cannot be larger than in the case of quasi judicial
action. If the High Court cannot sit as an appellate authority over the
decisions and orders of quasi-judicial authorities, it follows equally that
it cannot do so in the case of administrative authorities. Thus, the power G
of the Courts while reviewing the administrative action is not that of an
appellate Court. (630-E-F-G; 631-C-E)

U.P. Financial Corporation v. Gem Cap. (India) Pvt. Ltd. & Ors., (1993)
2 SCC 299 and A.K. Kraipak v. Union of India, (1969) 2 SCC 262, relied
on. H
y
624 SUPREME COURT REPORTS [2002) I S.C.R.

A Secretary of State for Education and Science v. Metropolitan Borough
Counsel of Tameside, (1977) AC 1014 and Associated Provincial Picture
Houses Ltd v. Wednesbury Corporation (1947) 2 All ER 680, referred to.

2.3. Fairness required of the Financial Corporations can not be
B carried to the extent of disabling them from recovering what is due to
them. The Corporation is an independent autonomous statutory body, as
such in the discharge of its functions, it is free to act according to its own
rights. Unless its action is malafide, even a wrong decision 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.
C In the matter of action of the Corporation, under Section 29, scope of
judicial review is confined to two circumstances, i.e. (a) where there is
statutory violation on the part of the State Financial Corporation or (b)
where the State Financial Corporation acts unfairly/unreasonably while
exercising its jurisdiction under Article 226 of the Constitution of India.
D High Court does not sit as an appellate authority over the acts and deeds
of the Corporation and Courts other than the High Court and is not to
interfere with action under Section 29 of the Act unless the aforesaid two
situations exist. (631-F-H; 632-A-C)

U.P. Financial Corporation and Ors. v. Naini Oxygen & Acetylene Gas
E Ltd. and Anr., (1995) 2 SCC 754 and Karnataka State Financial Corporation
v. Micro Cast Rubber & Allied Products (P) Ltd. & Ors., JT (1996) 6 SC 37,
relied on.

The Chairman and Managing Director, SIPCOT. Madras ..8 and Ors.,
v. Contromix Pvt. Ltd by its Director (Finance) Seetharaman, Madras and
F Anr., JT (1995) 6 SC 283, referred to.

3.1. If the guidelines, as indicated in Mahesh Chandra's case, are to
be strictly followed, it would be giving a premium to a dishonest borrower.
It would not further the interest of any Financial Corporation and
G consequently of the industrial undertakings interested to avail financial
assistance. It would only provide an unwarranted opportunity to the
defaulter (in most cases chronic and deliberate) to stall recovery
proceedings. It is not to be understood that in every case the Financial
Corporation shall take recourse to action under Section 29. If any reason
is indicated or cause shown for the default, same has to be considered in
H proper perspective and a conscious decision has to be taken as to whether
[J
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS 625
action under Section 29 of the Act is called for. Thereafter, the modalities A
for seized units have to be worked out. [632-H; 633-A-B)

U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. & Ors., [1993)
2 sec 299, rel!ed on.
3.2. Section 29(1) gives the Financial Corporation in the event of B
default the right to take over the management or possession or both and
thereafter deal with the property. Guidelines issued in Mahesh Chandra's
case place unnecessary restrictions on the exercise of power by the
Financial Corporations contained in Section 29 ·Of the Act by requiring
.. the defaulting unit holder to be associated or consulted at every stage in C
the sale of property. A person who has defaulted is hardly ever likely to
cooperate in the sale of his assets. The procedure indicated in Mahesh
Chandra's case will only lead to further delay on realisation of the dues
by the Corporation by sale of assets. (633-E-GJ

Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and D
Ors., [1993] 2 SCC 279, overruled.
4. Courts should not place reliance on decisions without discussing

- as to how the factual situation fits in with the fact situation of the decision
on which reliance is placed. Observation of the Courts must be read in
the context in which they appear. Judgments of the Courts are not to be
construed as statutes. To interpret words, phrases and provisions of a
E

statute, it may become necessary for Judges to embark into lengthy
discussions but the discussion is meant to explain and not to define.
[634-B-C)

London Graving Dock Co. Ltd. v. Horton, (1951 AC 737); Home Office F
v. Dorset Yacht Co., (1970) 2 All ER 294 and Hirrington v. British Railways
Board, (1972) 2 WLR 537, referred to.

CIVIL APPELLATE JURISDICTION Civil Appeal No. 607 of
2002.

From the Judgment and Order dated 6.10.2000 of the Punjab and G
Haryana High Court in RSA No. 3801/00.
.... Amit Dayal for the Appellants .

G.K. Bansal and Sanjay Bansal for the Respondents.

The Judgments of the Court was reserved by H
626 SUPREME COURT REPORTS (2002) I S.C.R.

A ARIJIT PASAYAT, J. Haryana Financial Corporation (hereinafter
referred to as 'Corporation') assails judgment dated 6.10.2000 of the Punjab
and Haryana High Court in regular second appeal No. 3801/2000 whereby
judgment and decree in Civil Suit No. 86 of 1995 instituted before the Civil
Judge (Senior Division), Ambala and judgment and decree in Civil Appeal
No. 37 of 1998 before the Addi. District Judge, Ambala affirming them were
B upheld. Respondents filed the suit seeking a decree for permanent injunction
restraining the Corporation and its functionaries from auctioning the unit of
the respondents which was seized by the Corporation.

The factual background of the case in a nutshell is as under:
c •
Respondent No. I a concern represented by its proprietor (respondent
No. 2, applied to the Corporation for grant of loan and in terms of the
sanction letter dated 16.10.1992 a sum of Rs. 7,48,000 was sanctioned. The
loan was to be repaid in 8 years, to be counted from the date of execution
of the mortgage deed. The repayment of the loan was to be made in 15 half
D yearly instalments. Said repayment was to commence within 13 months from
the first disbursement of the loan. The first 13 instalments of payment were
to be of Rs. 50,000 each and the last two instalments were to be of Rs. 49,000
each, towards principal. Apart from the repayment of principal amount, the '"'
respondents were required to pay, inter a/ia, interest which became due along ....
E with the respective instalment towards the principal amount. Respondent No.
I mortgaged its land, building and machinery in favour of the Corporation.
In the mortgage deed it was categorically mentioned that loan instalments
were to be disbursed on the basis of securities created by the borrowers and
as and when enough securities were created, the loan amount was to be
disbursed. According to the Corporation, the said method was adopted so as
F to safeguard the interest of the Corporation and also to ensure that the money 1

taken as a loan from the Corporation is being utilized for the purpose for
which it was sanctioned as per the loan agreement. The Corporation disbursed
the first instalment of loan on 25.2.1993 upon creation of the mortgage. The
last instalment was disbursed on 26.2.1994. The total loan availed by the
respondent No. I was Rs. 7.45 lacs. As per the terms and conditions stipulated
G
in the loan agreement, respondent No. I was required to deposit a sum of Rs.
1,29,551 on 1.3.1994. But there was failure to deposit the same. Respondent
No. I, however, requested the Corporation to reschedule the repayment ~-.i

schedule. The request was accepted and reschedulement was done. Thereafter
on 1.9.1994 Rs. 1,24,409 fell due. There was again default in making the
H deposit. Respondent No. I again requested to reschedule the instalment. The
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS [ARIJIT PASA YAT, J.] 627

request was again accepted. Notwithstanding such change in the schedule of A
payments, respondent did not make any payment. Thereafter on 1.3.1995 an
instalment of Rs.1,31,046 fell due. As in the past, the respondent defaulted
in making the payment of the said instalment. As the respondent No. 1 was
a chronic defaulter in making payment of the instalments action under Section
29 of The State Financial Corporation Act, 1951 (in short 'the Act') was
taken, after recalling the loan under Section 30 of the Act. Possession of the B
unit of the respondents was taken by the Corporation. Respondents instituted
Civil Suit No. 86 of 1995 in the court of the Civil Judge (Senior Division),
Ambala seeking a decree for permanent injunction restraining the Corporation
and its functionaries from auctioning the unit which was seized. The said suit
was decreed by the trial court. It was, inter alia, observed that since the. C
defendants (meaning the Corporation and its functionaries) did not give
breathing time to the unit and its possession was taken within the period of
one year from the date of last instalment, the action cannot be sustained.
Reliance was placed on the decision of this Court in Mahesh Chandra v.
Regional Manager, U.P. Financial Corporation and Ors., [1993] 2 SCC 279.
The matter was carried in appeal. The Addi. District Judge, Ambala in Civil D
Appeal No. 37 of 1998 upheld the view of the trial court. Reliance was also
placed by the first Appellate Court on the decision in Mahesh Chandra's case

- (supra). The matter was again carried in Second appeal before the Punjab &
Haryana High Court. In the said appeal, by the impugned judgment, the
.challenge was negatived. It was held that there was no merit in the appeal in E
view of what has been stated by this Court in Mahesh Chandra's case (supra).

In support of the appeal, learned counsel for the Corporation submitted
that the courts below erred in placing reliance on the decision in Mahesh
Chandra's case (supra) without noticing the distinguishing factual
backgrounds. It was submitted that the courts below did not apply the decision F
of this Court in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. &
Ors., [1993] 2 SCC 299 which was squarely applicable. The principles to be
applied in a case where action under Section 29 of the Act is sought to be
taken by the Corporation have been elaborately dealt with in the said case.
It is also submitted that the decision in Mahesh Chandra's case (supra) requires G
reconsideration in view of what has been stated in latter decisions, more
particularly, in Gem Cap's case (supra). It is submitted that on the facts as
noted by the courts below, ample opportunity was granted to the respondents
to make payment. Requests for rescheduling the instalments were accepted.
Notwithstanding such adjustments, respondents did not bother to make
payment, and till date, not even a minor fraction of the ·principal amount has H
628 SUPREME COURT REPORTS [2002] I S.C.R.

A been paid.
Learned counsel for the respondents submitted the Corporation and the
borrower unit have a fiduciary relationship and are really partners in a business
enterprise. Corporation stands in the position of a trustee and is not expected
to act like any other individual moneylender. Keeping in view the object for
B which the statute in question was enacted, any other interpretation would be
against the legislative intent.

The object for which the Act was enacted needs to be noted. Central
Industrial Financial Corporation was originally set up under the Industrial
Financial Corporation Act, 1948 with a view to provide medium and long
C tenn credit to industrial undertakings which fall outside the nonnal activity
of commercial banks. Several State Governments desired to set up in the
States similar Corporations with a view to supplement the work of Industrial
Financial Corporation. The intention was that the State Financial Corporations
shall confine to the medium and small industrial units and as far as possible
D to such cases as are outside the scope of the Industrial Financial Corporation.
Since the incorporation, regulation and winding up of such Corporations fall
within the purview of Parliament by Entry No. 43 of the Union List, request
was made to the Government of India to enact necessary enabling legislation,
and that is how the Act was enacted.

E The Corporation as an instrumentality of the State deals with public
money. There can be no doubt that the approach has to be public oriented.
It can operate effectively if there is regular realization of the instalments.
While the Corporation is expected to act fairly in the matter of disbursement
of the loans, there is corresponding duty cast upon the borrowers to repay the
F instalments in time, unless prevented by unsunnountable difficulties. Regular
payment is the rule and non-payment due to extenuating circumstances is the
exception. If the repayments are not received as per the scheduled time
frame, it will disturb the equilibrium of the financial arrangements of the
Corporations. They do not have at their disposal unlimited funds. They have
to cater to the needs of the intended borrowers with the available finance.
G Non-payment of the instalment by a defaulter may stand on the way of a
deserving borrower getting financial assistance.

As was observed by this Court in Gem Cap's case (supra), the legislative
intent in enacting the statute in question was to promote industrialization of -·
the States by encouraging small and medium industries by giving financial
H assistance in the shape of loans and advances, repayable within a stipulated
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS [ARIJIT PASAYAT, J.] 629

period. Though the Corporation is not like an ordinary moneylender or a A
bank which lends money, there is purpose in its lending i.e. to promote small
and medium industries. The relationship between the Corporation and the
borrower is that of creditor and debtor. That basic feature cannot be lost sight
of.A Corporation is not supposed to give loan and then to write it off as a
bad debt and ultimately to go out of business. As noted above, it has to B
recover the amounts due so that fresh loans can be given. In that way
industrialization which is the intended object can be promoted. It certainly is
not and cannot be called upon to pump in more money to revive and resurrect
each and every sick industrial unit irrespective of the cost involved. That
would be throwing good money after bad money. As was rightly observed in
Gem Cap's case (supra), promoting industrialization does not serve public C
interest if it is at the cost of public funds. It may amount to transferring
public money to private account. In Mahesh Chandra's case (supra), this
Court issued directions which were required to be observed by the Financial
Corporation while exercising power under Section 29. In this regard, it was
observed at pages 297 and 298 as follows:

"Every endeavour should be made, to make the unit viable and be put
in working condition. If it becomes unworkable:

(I) Sale of a unit should always be niade 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 higJlest price on which tender is
to be accepted must be intimlj.ted to the unit holder.
(4) (a) If unit holder is willing to offer the sale price, as the tenderer,
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
630 SUPREME COURT REPORTS [2002] I S.C.R.

A large concerns where investments runs in very huge amount for
which ordinary buyer may not be available or the industry itself
may be of such nature that by (sic many) 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.
B
(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."

C The guidelines were stated to be necessary to ensure fair play. That
decision, as the factual position would go to show, was rendered in a case
where the borrower intended to repay the debt and was anxious to do so.
While not insisting upon the borrower to honour the commitments undertaking
by him, the Corporation alone cannot be shackled hand and foot in the name
D of fairness.

In matters like the present one, fairness cannot be a one-way street.
Corporations borrow money from the Government or other financial ..
corporations and are required to pay interest thereon. Where the borrower has
no genuine intention to repay and adopts pretexts and ploys to avoid payment,
E he cannot make the grievance that Corporation was not acting fairly, even if
requisite procedures have been followed.

The obligation to act fairly on the part of the administrative authorities
was evolved to ensure the rule of law and to prevent failure of justice. This
doctrine is complementary to the principles of natural justice which the quasi-
F judicial authorities are bound to observe. It is true that the distinction between
a quasi-judicial and the administrative action has become thin, as pointed out
by this Court as far back as 1970 in A.K. Kraipak v. Union of India, [1969]
2 SCC 262. Even so the extent of judicial scrutiny/judicial review in the case
of administrative action cannot be larger than in the case of quasi-judicial
G action. If the High Court cannot sit as an appellate authority over the decisioQ,S
and orders of quasi-judicial authorities, it follows equally that it cannot do so
in the case of administrative authorities. In the matter of administrative action,
it is well known, more than one choice is available to the administrative
authorities; they have a certain amount of discretion available to them. They
have "a right to choose between more than one possible course of action
H upon which there is room for reasonable people to hold differing opinions as
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS [ARIJIT PASA YAT, J.] 63 J

to which is to be preferred". [As per Lord Diplock in Secretary of State for A
Education and Science v. Metropolitan Borough Counsel of Tameside (1977
, AC 1014)]. The Court cannot substitute its judgment for the judgment of
administrative authorities in such cases. Only when the action of the
administrative authority is so unfair or unreasonable that no reasonable person
would have taken that action, can the Court intervene. To quote the classic
passage from the judgment of Lord Greene MR. in Associated Provincial
B
Picture Houses Ltd. v. Wednesbury Corporation, (1947) 2 ALL ER 680:

"It is true the discretion must be exercised reasonably. Now what
does that mean? Lawyers familiar with the phraseology commonly

... used in relation to exercise of statutory discretions often use the word
'unreasonable' in a r~ther comprehensive sense. It has frequently
c
been used and is frequently used as a general description of the
things that must not be done. For instance, a person entrusted with
the discretion must, so to speak, direct himself properly in law. He
must call his own attention to the matters which he is bound to
consider. He must exclude from his consideration matters which are D
. irrelevant to what he has to consider. If he does not obey those rules,

- he may truly be said, and often is said, to be acting 'unreasonably'.
Similarly, there may be something so absurd that no sensible person
could ever dream that it lay within the powers of the authority."

While this is not the occasion to examine the content and contours of E
the doctrine of fairness, it is enough to reiterate for the purpose of this case
that the power of the Courts while reviewing the administrative action is not
that of an appellate court.

The aforesaid position was succinctly stated in Gem Cap's case (supra).
F
The fairness required of the Corporations cannot be carried to the extent
of disabling them from recovering what is due to them. The matter can be
looked at from another angle. 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 decisions it
G
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 ma/a fide, even a wrong decision by it is not open to challenge. It
is not for the "?urts or a third party to substitute its decision, however, more
prudent, commercial or businesslike it may, for the decision of the Corporation. H
632 SUPREME COURT REPORTS (2002] I S.C.R.

A As was observed by this Court in U.P. Financial Corporation and Ors. v.
Naini Oxygen & Acetylene Gas Ltd. and Anr., (1995] 2 SCC 754, in
commercial matters the courts should not risk their judgments for the judgments
of the bodies to whom that task is assigned. As was rightly observed by this
Court in Karnataka State Financial Corporation v. Micro Cast Rubber &
B Allied Products (P) Ltd. & Ors., JT (1996) 6 SC 37, in the matter of action
by the Corporation in exercise of the powers conferred on it under Section
29 of the Act, the scope of judicial review is confmed to two circumstances
i.e. (a) where there is statutory violation on the part of the State Financial
Corporation, or, (b) where the State Financial Corporation acts unfairly i.e.
unreasonably. While exercising its jurisdiction under Article 226 of the
C Constitution of India, 1950 (in short 'the Constitution'), the High Court does
not sit as an appellate authority over the acts and deeds of the Corporation.
Similarly, the courts other than the High Courts are not to interfere with
action under Section 29 of the Act unless the aforesaid two situations exist.

As was observed in The Chairman and Managing Director, SIPCOT.
D Madras and Ors. v. Contromix Pvt. Ltd by its Director (Finance) Seetharaman,
Madras and Anr. JT (1995) 6 SC 283 in the matter of sale of public property,
the dominant consideration is to secure the best price for the property to be
sold. This can be achieved only when there is maximum public participation
in the process of sale and everybody has an opportunity of making an offer.
E Public auction after adequate publicity ensures participation of every person
who is interested in purchasing the property and generally secures the best
price. But many times it may not be possible to secure the best price by
public auction when the bidders join together so as to depress the bid or the
nature of the property to be sold is such that suitable bid may not be received
at public auction. In that event, any other suitable mode for selling of property
F can be by inviting tenders. In order to ensure that such sale by calling tenders
does not escape attention of an intending participant, it is essential that every
endeavour should be made to give wide publicity so as to get the maximum
price. These. are aspects which Corporations have to keep in view while
dealing with disposal of seized units.
G The view in Mahesh Chandra's case (supra) appears to have been too
widely expressed without taking note of ground realities and the intended
·>'
objects of the statute. If the guidelines, as indicated, are to be strictly followed,
it would be giving premium to a dishonest borrower. It would not further
interest of any Corporation and conseq~ently of the industrial undertakings
H intending to avail financial assistance. It would only provide an unwarranted
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS [ARIJIT PASA YAT, J.] 633

opportunity to the defaulter (in ·most cases chronic and deliberate) to stall A
recovery proceedings. It is not to be understood that in every case the
k Corporations shall take recourse to action under Section 29. Procedure to be
followed, needless to say, has to be observed. If any reason is indicated or
cause shown for the default, same has to be considered in its proper perspective
and a conscious decision has to be taken as to whether action under Section
29 of the Act is called for. Thereafter, the modalities for disposal of seized
B
unit have to be worked out. The view expressed in Gem Cap's case (supra)
appears to be more in line with the legislative intent. Indulgence shown to
chronic defaulter would amount to flogging a dead horse without any
conceivable result being expected. As the facts in the present case show not
.. even a minimal portion of the principal amount has been repaid. That is a
factor which should not have been lost sight by the Courts below. It is one
c
thing to assist the borrower who has intention to repay, but is prevented by
unsurmountable difficulties in meeting the commitments. That has to be
established by adducing material. In the case at hand factual aspects have not
even been dealt with, and solely relying on the decision in Mahesh Chandra's
case (supra), the matter has been decided. D
r Section 29 gives a right to the Financial Corporation inter alia to sell
... the assets of the industrial concern and realize the property pledged, mortgaged,
hypothecated or assigned to the Financial Corporation. This right accrues
when the industrial concern, which is under a liability to the Financial
Corporation under an agreement, makes any default in repayment of any loan E
or advance or any instalment thereof or in meeting its obligations as envisaged
in Section 29 of the Act. Section 29(1) gives the Financial Corporation in the
event of default the right to take over the management or possession or both
and thereafter deal with the property.

The aforesaid guidelines issued in Mahesh Chandra's case place
F
unnecessary restrictions on the exercise of power by the Financial Corporation
contained in Section 29 of the· Act by requiring the defaulting unit holder to
be associated or consulted at every stage in the sale of the property. A person
who has defaulted is hardly ever likely to cooperate in the sale of his assets.
The procedure indicated in Mahesh Chandra's case will only lead to further G
delay in realization of the dues by the Corporation by sale of assets. It is
always expected that the Corporation will try and realize the maximum sale
"" price by selling the assets by following a procedure which is transparent and
acceptable, after due publicity, wherever possible.

The subsequent decisions of this Court in Gem Cap's (supra), Naini H
634 SUPREME COURT REPORTS [2002] l S.C.R.

A Oxygen (supra) and Micro Cast Rubber (supra) run counter to the view
expressed in Mahesh Chandra's case. In our opinion, the issuance of the said
guidelines in Mahesh Chandra's case are contrary to the letter and the intent
of Section 29. In our view, the said observations in Mahesh Chandra's case
do not lay down the correct law and the said decision is overruled.

B Courts should not place reliance on decisions without discussing as to
how the factual situation fits in with the fact situation of the decision on
which reliance is placed. Observations of Courts are not to be read as Euclid's
theorems nor as provisions of the statute. These observations must be read in
the context in which they appear. Judgments of Courts are not to be construed
C as statutes. To interpret words, phrases and provisions of a statute, it may
become necessary for judges to embark into lengthy discussions but the
discussion is meant to explain and not to define. Judges interpret statues, they
do not interpret judgments. They interpret words of statutes, their words are
not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton,
{1951) AC 737 at P. 761, Lord Mac Dermot observed:
D
"The matter cannot, of course, be settled merely by treating the
ipsissima vertra of Willes, J. as though they were part of an Act of
Parliament and applying the rules of interpretation appropriate thereto.
This is not to detract from the great weight to be given to the language
actually used by that most distinguished judge."
E
In Home Office v. Dorset Yacht Co., (1970) 2 All ER 294 Lord Reid
said, "Lord Atkin's speech is not to be treated as if it was a statute definition.
It will require qualification in new circumstances." Megarry, J. in (1971) 1
WLR 1062 observed: "One must not, of course, construe even a reserved
J
F judgment of even Russell L.J. as if it were an Act of Parliament." And, in \ '
Herrington v. British Railways Board, (1972) 2 WLR 537 Lord Morris said:

"There is always peril in treating the words of a speech or judgment
as though they are words in a legislative enactment, and it is to be
remembered that judicial utterances made in the setting of the facts
G of a particular case."

Circumstantial flexibility, one additional or different fact may make a
world of difference between conclusions in two cases. Disposal of cases by
blindly placing reliance on a decision is not proper.

H The following words of Lord Denning in the matter of applying
HARYANA FINANCIAL CORPN. v. JAGDAMBA OIL MILLS [ARIJIT PASA YAT, J.} 635
precedents have become locus classicks: A
"Each case depends on its own facts and a close similarity between
one case and another is not enough because even a single significant
detail may alter the entire aspect. In deciding such cases, one should
avoid the temptation to decide cases (as said by Cordozo) by matching
the colour of one case against the colour of another. To decide, B
therefore, on which side of the line a case falls, the broad resemblance
to another case is not at all decisive."

xxx xxx xxx xxx

"Precedent should be followed only so far as it marks the path of C
justice, but you must cut the dead wood and trim off the side branches
else you will find yourself lost in thickets and branches. My plea is
to keep the path to justice clear of obstructions which could impede
it."

Learned counsel for the respondents during the course of hearing D
submitted that unit is in the possession of the Corporation. They will make
effort to make payment of the amount due to the Corporation, if a reasonable
time is granted. Though their stand has always been different, and the
Corporation opposes the prayer, we grant the prayer in the peculiar
circumstances of the case. To test the bona fides of the respondents, vi:! direct
that the Corporation shall intimate the respondents within a month from to- E
day upto date amount due. Within six months from the date of such intimation,
the respondents shall repay the amount in full. In case of failure to make the
payment, it shall be open to the Corporation to dispose of the seized unit in
l
accordance with law in such a manner as would bring in the highest price.
The appeal is allowed to the extent indicated above. F
S.K.S. Appeal allowed.