GUJARAT STATE FINANCIAL CORPORATION Vs. LOTUS HOTELS PVT LIMITED

JUDGEMENT

(1.) This appeal under Clause 15 of the Letters Patent is directed against the judgment and order of N. H. Bhatt J. in Special Civil Application No. 1399 of 1979 whereby he directed the appellant Corporation to disburse to the respondent (original petitioner) the loan amounts forthwith in accordance with the letter of offer dated 24-7-1978 followed by the agreement dated 1-2-1979. The appellant-Corporation having been aggrieved by the said order and direction given by the learned Single Judge has preferred the present appeal. The facts giving rise to this appeal briefly stated are as under.

(2.) The appellant is a statutory Corporation established under sec. 3 of the State Financial Corporations Act 1951 (hereinafter called the Act). The said Act was enacted to provide medium and long-term credit to industrial concerns which expression as defined by sec. 2(c)(iii) includes a concern engaged or to be engaged in the hotel industry. The appellant-Corporation established under sec. 3 of the Act is a body corporate having a perpetual succession and a common seal With power subject to the provisions of the Act to acquire hold and dispose of property and to sue and be sued in its name. By sec. 9 the superintendence direction and management of the affairs and business of the Corporation vest in a Board of Directors which with the assistance of an Executive Committee and a Managing Director may exercise all the powers and discharge all the functions which may be exercised or discharged by the Corporation. Sec. 10 provides for the constitution of a Board of Directors. According to that provision the Board of Directors shall consist of twelve persons four of whom shall be Government nominees. It also lays down that the Managing Director shall be appointed by the State Government in consultation with and after obtaining the advice of the Industrial Development Bank of India and except in the case of first appointment also with the Board. By virtue of sec 15 the Chairman of the Board shall be one of the Directors not being the Managing Director nominated by the State Government after considering except in the case of the nomination of the first Chairman the recommendation of the Board The powers and duties of the Board have been delineated in Chapter III of the Act. Sec. 24 lays down that the Board in discharging its functions under the Act shall act on business principles due regard being had by it to the interests of industry commerce and the general public. Sec. 25(1)(g) with which we are concerned states that the Financial Corporation may subject to the provisions of the Act carry on and transact the business of granting loans or advances to an industrial concern repayable within a period not exceeding twenty years from the date on which they are granted. Sub-sec. (2) of sec. 25 inter alia provides that no accommodation shall be given under clause (g) of sub-sec. (1) unless it is sufficiently secured by a pledge mortgage hypothecation or assignment of movable or immovable property or other tangible assets in the manner prescribed by regulations. Sec. 27 empowers the Corporation to impose a further condition or conditions as are considered necessary or expedient for protecting the interests of the Corporation and for securing that the accomodation granted by it is put to the best use by the industrial concern. Sub-sec. (2) of sec. 27 next provides that where any arrangement entered into by the Financial Corporation with an industrial concern provides for the appointment by the Corporation of one or more directors of such industrial concern such provisions and any appointment of Directors in pursuance thereof shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act 1956 or any other law for the time being in force etc. Sec. 29 then outlines the rights of the Financial Corporation in case of default by the industrial concern. It provides that where any industrial concern which is under a liability to the 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 guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Corporation the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern as well as the right to transfer by way of lease or sale and realise the property pledged mortgaged hypothecated or assigned to the Corporation. Any transfer of property made by the Financial Corporation in exercise of the aforesaid powers shall by virtue of sub-sec. (2) vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property. The Financial Corporation is also entitled to recover all costs charges and expenses properly incurred by it in exercise of its aforesaid powers from the industrial concern. That brings us to sec. 30 on which considerable reliance was placed by the learned Advocate General appearing on behalf of the appellant in the course of his submissions before us. We therefore consider it proper to reproduce the relevant part of the said section :

(3.) The respondent Messrs Lotus Hotels Private Limited was incorporated as such under a Certificate of Incorporation dated 7/10/1971 issued under the provisions of the Companies Act 1956 Amongst others the object for which the respondent Company was incorporated was to carry on the business of hotel restaurant cafe etc. Shri Chandulal Jethalal Jaiswal the sole proprietor of Ramprakash Estate Corporation is the promoter-director of the Company. He had entered into an agreement dated 15/04/1970 with one Chhaganbhai Desaibhai Patel for the acquisition of land admeasuring about 10 600 square feet on Race Course Road Baroda bearing Survey No. 515/2/1 in Tikka No. 7 of Registration District and Sub-District Baroda. One of the objects of the Company incorporated on 7/10/1971 was to acquire the rights under the aforesaid agreement in respect of these land in question. It appears that Messrs Ramprakash Estate Corporation had obtained on 21/07/1973 permission from the Municipal Corporation of Baroda for constructing a Four Star Hotel on the said parcel of land. Thereafter on 7/12/1977 the Company made an application to the appellant-Corporation for a loan of Rs. 30 lakhs. The appellant-Corporation by its letter dated 24/07/1978 sanctioned the loan of Rs. 29.93 lakhs. On 2/08/1978 the respondent Company confirmed the acceptance of the loan sanctioned by the appellant-Corporation. Thereupon a letter was addressed to Messrs H. Desai & Company Solicitors to certify that the titles in respect of the land were clear and marketable. On 31/08/1978 the competent authority under the Urban Land (Ceiling and Regulation) Act 1976 granted permission to the respondent Company to create an equitable mortgage in favour of the appellant-Corporation for securing the loan of Rs. 29.93 lakhs It appears that thereafter two pseudonymous letters purporting to have been written by Shri Ramanlal V. Patel and Shri Chandrakant Pandya were addressed sometime in October 1978 to the Chief-Minister Gujarat State Gandhinagar and Chairman Industrial Development Bank of India Limited Bombay respectively alleging that Shri C.J. Jaiswal was a person who indulged in illegal transport of liquor and smuggling of goods on a large scale and was facing several prosecutions in Courts of law because of such nefarious activities. Copies of the first application were sent to the Manager (Finance Division) and Managing Director of the appellant-Corporation for information. Similarly copies of the letter under the signature of Chandrakant Pandya were sent amongst others to the Chairman and the Managing Director of the appellant-Corporation. On 3/01/1979 a copy of the letter of Chandrakant Pandya bearing the date 17/10/1978 received by the State Government was forwarded to the General Manager (Finance) of the Corporation. In the meantime Messrs M.M. Choksi & Company Chartered Accountants issued a certificate regarding the cost of the land construction of building etc and thereafter on 1/02/1979 an equitable mortgage was created in favour of the appellant-Corporation for the amount of the sanctioned loan and certain other documents the details whereof are given in paragraph 8 of the main petition were executed. Thereafter on 13/02/1979 the Industrial Development Bank of India wrote a D.O. letter to Shri K. S. Kanekar General Manager (Finance) of the appellant-Corporation stating that in view of the fact that police inquiry was pending against Shri. C. J. Jaiswal the main promoter of the hotel we are treating the above application for refinance as closed. It was also stated in that letter that the application could be resubmitted on receipt of satisfactory report from the concerned authorities in regard to the pending inquiries against the main promoter of the hotel. It may at this stage be noted that the equitable mortgage was created after the appellant Corporation had received the aforesaid two pseudonymous letters sometime in October 1978 After the creation of the equitable mortgage and the execution of the various documents set out in paragraph 8 of the main application it appears that the appellant-Corporation did not disburse the loan in compliance with the terms of the agreement whereupon two telegrams were sent in March/April 1979 by the Company pointing out that the delay in the disbursement of the loan amount was resulting in substantial damage to the Company. In response to the inquiry initiated by the appellant-Corporation on receipt of the aforesaid two pseudonymous applications the Assistant Collector (Headquarters) Customs and Central Excise Ahmedabad wrote a letter to the Managing Director of the Corporation on 4/04/1979 stating that the income-tax authorities had carried out search of five premises with which Shri C. J. Jaiswal was either directly or indirectly concerned on 15/07/1976 but nothing incriminating attracting action under Customs and Central Excise provisions was recovered by them. It was however stated in that letter that from his residential premises at 8 Maharshi Arvind Society R. V. Desai Road Baroda the income-tax authorities had seized 1112.5 gms. of gold ornaments which were suspected to be unaccounted and after inquiry the authorities came to the conclusion that ornaments weighing 1018 gms. were unaccounted and added the income thereof to his income for the assessment years 1971-72 to 1976-77. It was also pointed out in that letter that out of the total unaccounted/undeclared income of Rs. 5 53 113 the income-tax authorities had included Rs. 1 51 500 profit from illicit business carried on in French Polish Thinner and forging of denatured spirit permits etc. which were offences punishable under the Prohibition Act. It may at this stage be mentioned that apart from the allegations contained in this letter nothing has been placed on record to show that Shri C. J. Jaiswal was convicted for the commission of any offence under the Prohibition Act. On 26/04/1976 Messrs Shirgaonkar and Associates Architects wrote a letter to the Director of the respondent-Company pointing out that the delay in the progress of construction work was likely to lead to certain complications including the cost of project going up in view of the increase in the prices of cement and steel. On receipt of this report the Company wrote a letter dated 27/04/1979 requesting the appellant-Corporation for disbursement of the loan. On the next day that is 28/04/1979 the General Manager (Finance) of the appellant-Corporation submitted a note to the Board to consider the question whether the disbursement should be made to the Company in view of the letter of the Assistant Collector Customs and Central Excise Ahmedabad dated 4/04/1979 and the refusal on the part of Industrial Development Bank of India to refinance the loan. It appears that on the basis of this note the Board at its meeting held on 29/04/1979 decided not to disburse the loan to the respondent-Company. This is clear from the affidavit filed by Shri Girish J. Trivedi Senior Manager (Law) of the appellant-Corporation in October 1980 It is mentioned in paragraph 19 of this affidavit that the respondent-Company was informed about the Board Resolution of 29/04/1979. This fact is denied by the respondent-Company and we may state that there is no documentary evidence on the record of the case to conclude that the decision of the Board was conveyed to the Company. If that were so the Company would pot have despatched another telegram on 3/05/1979 calling upont he appellant-Corporation to disburse the loan amount under the agreement entered into earlier. As no reply was received to this telegram the respondent Company was constrained to file the petition in question on 7/05/1979.