Hon'ble CHAUHAN, J. - (1.) Polonius, in Shakespere's play Hamlet, advised his son, Laertes "neither a borrower nor a lender be". This piece of advice is seldom followed by the people. This case is a classic example of what happens to the borrower and the lender. The petitioner, the borrower; has challenged the notice dated 19.11.96 whereby the Rajasthan Financial Corporation ('the RFC, for short), invoking its power under Section 30 of the State Financial Corporations Act, 1951 ( the Act', for short), has recalled the loan amount of Rs.12,76,630/-. The petitioner has also challenged the order dated 11.2.1997, whereby the RFC, invoking its power under Section 29 of the Act, has informed the petitioner that it will take over the possession of the assets of the petitioner company on 28.2.1997.
(2.) The facts of the case are that earlier run as a firm, the petitioner Company, is engaged in manufacturing of iron and steel items. For the purpose of its business, it took three different loans from RFC namely, first loan on 31.1.1980 for an amount of Rs.10 lacs to be repaid with interest @ 14% p.a. plus 5% penal interest; second loan, on 13.2.1981 for an amount of Rs.5 lacs to be repaid with interest @ 15% p.a. plus 5% penal interest; third loan on 30.3.1988 for an amount of Rs.1.68 lacs. The said loan was interest free. Thus, the petitioner firm had taken three loans totaling Rs. 16.68 lacs from the RFC. However, in this case the controversy is restricted only to the penal interest chargeable on the first two loans mentioned above. During the course of business, the firm found it profitable to transfer its assets to a company incorporated under the Companies Act, 1956. Thus, with effect from 19.11.1988, the firm was transformed into a company, in the name and style of M/s. R.S. Industries (Rolling Mills) Ltd. The petitioner company duly informed the RFC. The Dy. General Manager, RFC, in turn, informed the petitioner company that necessary correction about the name and style of the company has been made. Since the Company faced certain difficulties in running its business, since it was unable to repay the loan amount, the petitioner was liable to pay the penal interest on the defaulted amount. But, vide letter dated 30.8.1988, the petitioner company requested the RFC to waive the entire amount of penal interest, so that total outstanding amount could be squared up. Vide letter dated 26.9.1988, the petitioner reiterated the same request to the RFC. Vide letter dated 4.10.1988, the petitioner brought it to the notice of the RFC that, at the relevant time, the RFC had a scheme for waiving the penal interest if closure of the company's unit occurred due to problem in power supply. It further pointed out that the company's unit was closed from 1.12.1982 till August, 1984 due to problem in power supplya factor beyond the petitioner's control. It also clearly pointed out that the RFC has already agreed to reschedule the outstanding loan amount. It was also stated that the petitioner has regularly paid the monthly instalments in accordance with rescheduled scheme from 1.4.1982 till March, 1986. Moreover, in order to make good all irregularities, it made a payment of Rs. 5.75 lacs between February and March, 1988. Furthermore, it continued to pay monthly instalments after October, 1988. Further, along with the letter dated 26.9.1988, the petitioner sent a cheque of Rs.40,000/- to the RFC. In response to this letter, vide letter dated 24.12.1988 the RFC informed the petitioner to contact the Dy. General Manager (F.R.) on 2.1.1989. As a culmination of negotiations between the petitioner and the Dy. General Manager (F.R.), vide letter dated 11.1.1989 the RFC informed the petitioner that it is willing to waive the penal interest, for the closure period during which the unit was out of commercial production for reasons beyond its control. The RFC also stated that the monthly payment, agreed between the parties in the rescheduled scheme, would be considered to have been made in the month itself, if they are paid within the same quarter of the same financial year. For this purpose, the quarters were taken as January-March, April-June, July-September and October-December. It is pertinent to point out that this letter was written by the Manager (F.R. II) to the Dy. General Manager (F.R.), with a copy endorsed to the petitioner. A responsibility was imposed both upon the Dy. General Manager (FR) and the petitioner to verify and calculate, within a period of one week, the total liability of the petitioner. The letter also clearly stated that the benefit of waiver of penal interest of the closure period, and benefit for repayment of monthly instalments would be given provided the party clears its outstanding amount before 31.1.1989. Lastly, in case the amount is so deposited by the said date, then the benefit of the current scheme would also be given to the petitioner. According to the petitioner, immediately it contacted the RFC and placed the entire relevant record to show that its unit was closed from 1.12.1982 till August, 1984. Vide letter dated 21.1.1989, the petitioner also sent three cheques of Rs.1 lac each in favour of the RFC. It further requested that total amount owed by the petitioner to the RFC should be calculated immediately in terms of the letter dated 11.1.1989. Simultaneously, vide letter dated 21.2.1989, the petitioner again requested the RFC to calculate the entire amount and to inform it, so that the total outstanding loan amount could be paid. As the RFC did not respond to the letters written by the petitioner, the petitioner continued to make oral requests. According to the letter dated 25.3.1989, a cheque of Rs.3 lacs was issued in favour of the RFC with a view to finally settle the loan amount. In the letter, the petitioner had clearly pointed out that it had already paid Rs.5.75 lacs in the financial year 1987-88, and Rs.11.80 lacs in the year 1988-89. The petitioner, therefore, requested that a clearance certificate be issued with regard to the two loan accounts of Rs.10 lacs and Rs.5 lacs, respectively. However, instead of issuing the clearance certificate, vide letter dated 12.3.1990, the RFC informed the petitioner that after a detailed examination of the petitioner's request for waiver of penal interest, the RFC has decided to waive the penal interest only from 5.4.1988 (i.e. the date on which request for change in the constitution was made to the RFC) till 12.3.1990. This concession would also apply provided that the petitioner were to clear the entire dues before 31.3.1990. Vide letter dated 9.5.1990, the petitioner expressed his shock and dismay about the letter dated 12.3.1990. For, the said letter was contrary to the letter dated 11.1.1989. However, instead of addressing the petitioner's anxiety, vide letter dated 14.6.1990, the RFC informed the petitioner that in case the entire loan amount were not paid by the petitioner, the RFC would take necessary legal action against it. Vide letter dated 24.1.1991, the petitioner again requested the RFC to forward a copy of statement of account, so that accounts could be verified and the amount be repaid. However, instead of sending the statement of accounts, vide letter dated 21.3.1991, the RFC informed the petitioner that the RFC has decided not to extend the benefit of waiver to the petitioner. The petitioner immediately wrote to the RFC and pointed out, firstly that it has been paying the monthly instalments on regular basis; secondly, that the RFC was going back on its waiver as expressed in the letter dated 11.1.1989. Therefore, the petitioner again requested that the benefit of waiver be given to it. However, instead of acting on the request made by the petitioner, vide letter dated dated 4.7.1991 the RFC informed the Manager (Branch) RFC, Vishwakarma Industrial Area, Jaipur that the relief granted to the unit vide letter dated 11.1.1989 has been disallowed. But, surprisingly, thereafter the RFC maintained a studied silence for five years. Suddenly, vide letter dated 9.2.1996, the RFC demanded the repayment of Rs. 10.01 lacs from the petitioner. It threatened that in case the said amount were not repaid, it would take action against the petitioner under sections 29 and 30 of the Act. Immediately, on 23.3.1996, the petitioner reiterated its position and reminded the RFC that the RFC had waived the penal interest vide its letter dated 11.1.1989. The petitioner also requested the RFC to furnish latest statement of accounts w.e.f. 1.4.1988. However, vide letter dated 18/21.5.1996, the RFC refused to reconsider its decision regarding recalling of the waiver of penal interest. In response thereto, on 11.9.1996 the petitioner submitted a representation to the Chairman-cum-Managing Director, RFC. The petitioner again requested for reconsidering the waiver of penal interest in terms of the letter dated 11.1.1989. However, vide letter dated 14/17.10.1996 the said request of the petitioner was categorically refused. Still hoping that the RFC would see reason, vide letter dated 13.11.1996, the petitioner requested the RFC to furnish certain documents, since the documents which were in petitioner's possession were destroyed in a fire which broke out in the petitioner's office in 1994. A registered letter to the same effect was sent on 14.11.1996. However, instead of acting on the said request, the RFC invoked its power under section 30 of the Act, and vide notice dated 19.11.1996 directed the petitioner to pay the total loan amount of Rs. 12,76,301/-. Vide letter dated 3.12.1996, the petitioner informed the Dy. Manager, RFC that the petitioner is yet to receive statement of accounts. In the absence of such statement of accounts, it would be difficult for the petitioner to verify the veracity of the amount claimed by the RFC in its letter dated 19.11.1996. Vide letter dated 13.12.1996, the petitioner again brought it to the notice of RFC that a quixotic situation has developed: on the one hand, the RFC is refusing to furnish statement of accounts clearly showing the outstanding loan amount due against the petitioner. Yet on the other hand, it is demanding Rs. 12,76,301/-. Simultaneously, it is threatening to take action under sections 29 and 30 of the Act. Instead of responding to the petitioner's letter dated 13.12.1996, the RFC directed the petitioner to first clear the overdues in the loan account. The RFC further informed the petitioner that the documents would be supplied only after the overdue amount is cleared. Vide order dated 11.2.1997, finally, the petitioner was informed that its assets would be taken over under section 29 of the Act. Hence, this petition before this court challenging the notice dated 19.12.1996 and the order dated 11.2.1997. Even during the pendency of this writ petition, the RFC had floated a One Time Settlement Scheme COTS Scheme', for short) for those who had taken loans between Rs.2,00,000/- to Rs.50,00,000/-. Since the petitioner was eligible for the same, it applied to the RFC for being given the benefit of the said scheme. Vide letter dated 15.7.1997, the petitioner not only requested that the benefit of the scheme be given to it, but it also claimed that as it had overpaid the due amount, the excess amount should be refunded. The petitioner sent reminders on 11.8.1997 and 23.8.1997. Vide letter dated 4.9.1997, the RFC informed the petitioner that although it is welcome to take advantage of the OTS scheme, but the excess amount deposited with the RFC, the same would not be refunded. Vide letter dated 15.9.1997, the petitioner claimed that despite the promise made in the OTS scheme about complete waiver of penal interest, the same was not being granted by the RFC. Moreover, vide letter dated 29.9.1997, the petitioner pointed out that in case the entire penal interest were waived, as promised under the OTS scheme, then the petitioner has overpaid the due amount by Rs.3,65,655/-. Thus, it is entitled to the refund of the said amount. Yet, despite the apparent eligibility of the petitioner, inspite of its repeated requests, the RFC is sitting over the entire issue like a Pharah's statue.
(3.) Mr. Alok Sharrna, the learned counsel for the petitioner, has vehemently raised a plethora of contentions before this Court: firstly, in order to recover the outstanding loan amount due to it, the RFC has three options under the Act: firstly, under section 30 of the Act, the power to recall full loan amount read with the power under section 29 of the Act to take over the possession of the assets and management of the industrial concern, as well as the right to transfer the property which has been pledged, hypothecated or assigned with the Financial Corporation. Secondly, the power under section 31 of the Act, to move an application for recovery of loan amount; thirdly, the power under section 32 G of the Act, to have the property attached through the concerned Collector. Thus, various options have been bestowed upon the RFC. However, the discretion should be exercised in a reasonable, just and fair manner. For, a discretion cannot be exercised in an arbitrary, capricious or whimsical manner. The RFC should be alive to the fact that the powers bestowed upon it range from the softest power under section 31 of moving an application before the District Judge, to the harsher power under section 32 G of recovery and attaching the property of the borrower, to the harshest power under section 29 of taking over the assets and the management of the company. While exercising these powers, the RFC should initially opt for. softest power under section 31, then should opt for the harsher power under section 32 G, and in the rarest of rare cases, should it invoke its harshest power under section 29 of the Act. For, section 29 sounds the economic death-knell of the business. Thus, in the present case, instead of invoking its power under sections 31 and 32 G at the first instance, the RFC has suddenly invoked its powers under sections 30 and 29 of the Act. Therefore, it has arbitrarily exercised its discretion. Secondly, the petitioner had made the last payment to the RFC on 29.3.1989. Yet, the impugned notice was issued on 11.2.1997 i.e. almost after eight years. Therefore, the RFC has invoked its power under section 29 of the Act after a lapse of almost eight years. But according to the Limitation Act, 1963, a debt can be realised only within three years from the date the debt becomes due. Thus, the RFC cannot invoke its power under section 29 of the Act after an inordinate delay of almost eight years. For, after three years, the recovery proceedings would be hit by limitation. Thirdly, "the amount due" has to be an amount, which is "legally due" and which can be recovered through "a legal remedy". But, the RFC cannot recover an amount after it is hit by limitation. For, the moment the limitation comes into picture, the RFC is prevented from seeking a legal remedy. In order to buttress this contention, the learned counsel has relied upon State of Kerala vs. V.R. Kalliyani Kutty ((1999) 3 SCC 657), Maharashtra State Financial Corporation vs. Ashok Kumar Agrawal, (AIR 2006 SC 1584), and upon RFC vs. M/s. Anis Ahmed Habib Khan & Ors. (2009(2) WLC 63). Since the RFC did not invoke its power within three years from the last date of payment i.e. 29.3.1989, it cannot invoke its power under sections 29 and 30 of the Act in the year 1997. Fourthly, after some negotiations, the RFC had agreed to waive the penal interest for the period for which the unit was closed due to reasons beyond the petitioner's control. Such a waiver was expressly stated in the letter dated 11.1.1989. Once this waiver was made, the RFC could not back track from the said waiver. However, vide letter dated 12.3.1990, the RFC suddenly made a "U turn" and reduced the period of waiver. Initially, according to the letter dated 11.1.1989 the period of waiver extended from the date of founding of the unit till payment of the loan amount. But, according to the letter dated 12.3.1990, the waiver was to be granted only from 5.4.1988, the date on which request for change of constitution was made by the petitioner, till 12.3.1990. The sudden reduction in the period of waiver, according to the petitioner, is an arbitrary exercise of power. Fifthly, according to the letter dated 11.1.1989 a responsibility was reposed upon the Dy. Manager to examine the company's accounts, returns of sales-tax, returns of income-tax and other record in order to decide the period for which the unit was closed for reasons beyond the control of the petitioner. According to the petitioner, immediately it had submitted all the relevant documents for the perusal of Dy. Manager. However, instead of taking a ' decision about the period of closure, as required by the letter dated 11.1.1989, the RFC maintained a studied silence. Moreover, after a lapse of about one year, without giving any opportunity of hearing to the petitioner, suddenly, the RFC changed its stand and narrowed the period of waiver. Therefore, the RFC has acted in most arbitrary, most unfair, and most unjust manner. Sixthly, According to section 63 of the Contract Act a promisee can waive repayment of a loan. Once the right has been exercised, then the promisee cannot wriggle out of the waiver. For, it would be hit by the doctrine of promissory estopple. In order to buttress this contention, the learned counsel has relied upon Jagad Bandhu Chatterjee vs. Smt. Nilima Rani and Others ((1969) 3 SCC 445), Had Chand Madan Gopal and Others vs. State of Punjab ((1973) 1 SCC 204), and Mardia Chemicals Ltd. Etc. vs. Union of India & Others ((2004)4 SCC 311). Seventhly, the entire conduct of the RFC is questionable. Instead of dealing with the petitioner in a fair manner, it has dealt with the petitioner in most unfair manner: it made a promise to waive the penal interest for the period when the unit was closed, then resiled from the said promise. Without giving an opportunity of hearing, without holding any negotiation with the petitioner, the RFC has unilaterally reduced the period of waiver. When the petitioner protested against the reduction of the period, the RFC went into coma for five long years. Meanwhile, during this period the interest kept on accumulating. Suddenly, after a lapse of five years, the RFC woke up and demanded the repayment of loan. Even during the pendency of this petition, the RFC did float an OTS scheme. However, despite the petitioner's repeated requests that it be given the benefit of said scheme, the RFC has maintained an enigmatic silence over the entire issue. Since, the RFC is a facet of the State, its action should be fair, just and reasonable. However, in the instant case, the conduct of the RFC is, both, whimsical and capricious. Hence, it is in violation of Article 14 of the Constitution of India. Eighthly, Section 24 of the Act requires that the RFC should act in a just, fair and reasonable manner. Yet, the RFC has failed to act in a just, fair and reasonable manner. Thus, its action is in violation of the spirit of Section 24 of the Act. Lastly, that exercise of power under Sees. 29, 30, 31 and 32-G of the Act is amenable to judicial review. In case the RFC were to act in an arbitrary, capricious or whimsical manner, this Court has ample power under Art. 226 of the Constitution of India to set things right. In order to buttress this contention, the learned counsel has relied upon M/s. Ormi Textiles & Another vs. State of U.P. & Ors. ((2008) 5 SCC 194); N. Lokanadham vs. Chairman Telecom Commission and Others ((2008) 5 SCC 156), M/s. Everest Wools Pvt. Ltd. and others vs. U.P. Financial Corporation and others ((2008) 1 SCC 643), and M/s. Mahendra Saree Emporium vs. G.V. Srinivasa Murthy ((2005) 1 SCC 481).;