AI Structured Summary
Not yet generated for this judgment
Judgment
Ramanujam, J.—This writ appeal is directed against the decision of Mohan, J. in W. P. 765 of 1982, dismissing the same. The third
respondent herein filed O. P. 114 of 1961 on the file of the Court of the District Judge, Chingleput, for the recovery of a sum of Rs. 86,56,223.02
being the amount due in respect of two mortgage loans taken by the appellant. The said original petition has been filed under S. 31, State Financial
Corporations Act, 1951 which is intended to facilitate the speedy recovery of the outstanding loans to all the financial institutions such as
respondent 3. The appellant has filed its counter statement in the said original petition. One of the contentions urged by the appellant before the
said District Court was that the original petition was not maintainable and that court had no jurisdiction to try the matter. The appellant also moved
the District Court by filing an application under S. It 3, read with O. 46 R. 1, Civil P. C. to refer the question of constitutional validity of S. 31 of
the Act to the High Court, That application was, however, dismissed. The appellant thereafter filed the Writ Petition (W. P. 765 of 1982) seeking
a writ of certiorari to quash the notification D/4-9-1978 issued by the Ministry of Finance, Department of Economic Affair (Banking Division),
Government of India, respondent I herein, on the basis of which respondent 3 is invoking the aid of S. 31 of the Act, The points urged by the
appellant in his writ petition were that respondent 3 cannot invoke S. 31. as S. 46 of the State Financial Corporations Act is not retrospective. The
said writ petition was resisted by respondent 1, the Union of India, contending that being a financial institution the impugned notification applies to it
and therefore it is entitled to invoke S. 31 and that there is no violation of Art, 14 of the Constitution merely because the power to choose a
remedy out of available plurality of remedies is given to any citizen or corporation. Having regard to object of the provision which is to assist the
financial institutions to have better liquidity of funds tot reinvestment in other industrial units, a special procedure has been thought of under S, 31,
and that it is also not correct to state that. there are no guidelines prescribed under S. 31.
Respondent 3 has filed a counter affidavit containing the following averments. Under S. 46 State Financial Corporations Act,'' 1951, respondent
1 is empowered by notification in official gazette to direct that all or any of the provisions of the Act shall apply to any institution in existence on the
commencement of the Act which has for its objects the financing of industrial concerns. It further provides that on issue of such a notification, it
shall be deemed to be a Financial Corporation established by the State Government for the State within the meaning of the Act and that the
provisions of the Act will be applicable according to the tenor of the notification. It cannot be disputed that respondent 3 is an institution having its
object for financing the industrial concerns and the fact that the institution is registered under the Companies Act does not alter its character as a
financial institution. For the purpose of S. 46, it need not be a financial corporation established under S. 3 of the Act. It need not be a body
corporate within the meaning of S. 3(2) of the Act. as the deeming provision in S. 46 operates. According to respondent 3, once the notification
under S. 46 is published, it will confer right on the financial institutions to have recourse to summer procedure to recover the'' loans already
advanced prior to the date of the notification or granted after the notification if default has been committed and that it is incorrect to say that S. 31
will apply only in respect of loans advanced after the date of the notification.
Thus the main controversies between the parties in the writ petition were (i) whether respondent 3 corporation which is not a financial institution
when the Act came into force is covered by the notification issued under S, 46 and whether the deeming provision under S. 46 can apply here, (ii)
whether for the application of S. 31, the default should have occurred after the notification and it S. 31 is intended to apply to cases where default
has occurred earliest to the date of the notification, S. 31 will be retrospective in operation and it is well settled law that delegated legislation cannot
have retrospective effect and (iii) whether the notification issued under S. 46 is bad because it is not signed by the person who is authorised on
behalf of the President of India under the Business Rules under Art. 77 of the Constitution, All these contentions have been rejected by Mohan J,
holding, that respondent 3 institution is a does not dispute before us that respondent 3 will be a financial institution as contemplated by S. 46 of the
Act, as admittedly respondent 3 is an institution established by the State Government with the object of financing industrial concerns and, therefore,
on the issue of a notification under S. 46, Ss. 29, 30, 31, 32 etc., of the said Act, have to be applied to respondent 3 as the notification specifically
applies the provisions of the said sections to respondent 3. We do not see how the notification under S. 46 applying certain provisions of the Act
to respondent 3 could be successfully challenged by the appellant. The notification extends, certain provisions of the Act to an existing institution
which is deemed to be a financial institution. According to the learned counsel since the Central Government has issued the notification under S. 46
of the Act, it will have to be treated as a subordinate legislation and therefore the notification issued in this case can only be construed as
prospective and not retrospective. According to him, a subordinate legislation cannot at all be retrospective and can only be prospective. It is said
that since the notification issued can only be prospective, it can apply only to loans taken after the notified ion from the notified financial institutions
and that even if it is construed as being applicable to loans taken earlier, the default or the breach of the contract of borrower should have occurred
subsequent to the date of the notification and it is only then, S. 31 will come to the aid of the notified financial institutions. We are not in a position
to accept the contention of the learned counsel for the appellant that the notification can apply only to the debts borrowed from the notified
financial institutions subsequent to the date of the notification. The notification issued under S. 46 merely applies certain provisions of the Act to an
existing financial institution and the notification does, not contain any qualification or fetter that the application of the provisions ,could only be in
respect of debts borrowed subsequent to the notification. We are therefore of the view that the application of the provisions to the notified financial
institutions will be in respect of all debts realisable by the finan6al institutions whether such debts had been incurred before or after the
commencement of the Act without reference to the fact as to when the debts were incurred. Similarly we are not inclined to agree with the
contention of the learned counsel that the default in payment of debts should have occurred after the notification and that only in such cases S. 31
could be invoked by the notified financial institutions. Here again, the appellant requires us to read into the notification under S. 46 some limitation,
limiting the operation of the notification to the default or breach committed after the notification. If the intention of the notifying authority is to apply
the provisions of the Act to the financial institutions only in respect of either debts be,,.Towed or defaults committed subsequent the notification
such a limitation would while found a place in the notification itself. But here the notification is very general in terms and it says that certain sections
of the Act will apply to the notified financial institutions, The notification, as it is, enables the financial institution to invoke the various sections of the
Act referred to therein, in respect of the debts whether old or new, whether incurred before or after the notification or whether default or breach
committed either before or after the notification. The learned counsel for the appellant would then contend that if the notification issued under S. 46
in this case is construed as enabling the notified financial institutions to invoke S. 31 in respect of defaults or breach committed before the
notification, then the notification itself will become bad, for it will be retrospective in nature and it is well established that a subordinate legislation
cannot pass a legislation with retrospective operation. We do not see how the notification will have retrospective operation merely because the
notified financial institutions invoke S. 31 in respect of either old loans or, I respect of the breach or default omitted before the notification. The
power is given under the notification to the notified financial institutions to apply certain provisions of the Act and the notified institutions apply the
provisions of the Act only in future. In the matter of recovery of its debts, the financial institution is given the power to invoke S. 31. We do not see
how that power is to be curtailed so as to limit it to defaults or breaches committed after the date of the notification when such a limitation is not
contained in the notification itself. Further, we are of the view that in this case the appellants not having paid any amount either towards principal or
towards interest ever since the date of the repayment it is a default continuing even after the date of the notification. Thus even if, the appellant''s
contention that the notification will apply only, financial institution as per the deeming provision contained in S. 46, that S. 31 can be applied even in
respect of defaults committed prior to the date of the notification and that the notification has properly been issued. In this writ appeal the learned
counsel for the appellant did not question the validity of the notification on the ground that there is no express authorisation under Art. 77 of the
Constitution, nor did he question the finding of the learned single Judge that respondent 3 is a financial institution by virtue of the deeming provision
contained in S. 46, The only question that was canvassed by the appellant before us i s as to the proper interpretation of S. 31.
The notification D/- 4-9-1978 issued under-S. 46 is as follows :
Government of India
Ministry of Finance
Department of Economic Affairs
(Banking Division)
New Delhi the 4-9-1978
Notification
In exercise of the powers conferred by subs, (i) of S. 46 of the State Financial Corporations Act, 1951 (63 of 1951), the Central Government
hereby directs that the provisions of Ss. 29, 30, 31, 32, 32-B. 32-C, 32-D. 32-E, and 32-F of the said Act shall apply to the Tamil Nadu
Industrial Investment Corporation Ltd., Madras.
Sd,,""- M.G. Gupta, Director
S. 46 under which the above notification has been issued runs as follows ----
46(1). The Central Government may be notification in tile official gazette direct that all or any of the provisions of this Act shall, subject to such
exceptions and restrictions as may be specified, apply to any institution in existence at the. commencement of this Act which has for its object the
financing of industrial concerns, and on the issue of such notification shall be deemed to be a financial corporation established by the State
Government for the State within the meaning of this Act, and the provisions of the Act shall, become applicable thereto according to the tenor of
the notification.
(2) Any notification issued under sub-s, (1) may suspend the operation of any enactment applicable to any such institution immediately before the
issue of the notification. Section 31, tile scope of which is to be considered, runs as follows
31(l). Where the industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any installment 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 Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under S. 30 and the industrial
concern fails to make such payment, then without prejudice to the provisions of S. 29 of this Act, and of S. 69, Transfer of Property Act, 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 substantial part of its business for one or more of the following relief''s,
namely -
(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the Joan or
advance; or
(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment front the peruses
of the industrial concern without tile permission of the Board, where such removal apprehended. (The rest is omitted).
In this case the appc1lant had taken two Loans, one on 30-9-1903 and another on 30-10-1969 in all amount; to Rs. 29 lakhs, As security for
the, repayment, it has also executed two mortgages on 30-12-1964 and 24-4-1970. The purpose of granting the loans was to enable the appellant
to put up a factory for the manufacture of bricks by mechanical process, the machinery being imported front foreign country, The appellant did not
repay any amount either towards, principal or towards interest in. spit of the Affair of several concessions, hence the loans were foreclosed and a
notice to, that, effect was issued on 4-6-1981: Since the appellant did not pay the amount as defrauded it hold be taken to have committed breach
of the terms and conditions of the sanctions and therefore steps for recovering, the dust of Rs. 86,56,223.92 were taken by filing an application
under S. 31 of the Act, As already, stated, the appellant in respect of defaults or breaches committed after the notification is accepted, since the
appellant''s default is a continuing one, the notification will be operative in respect of such continuing defaults. We do not, therefore, see any merit
in the contentions urged by the appellant.
The writ appeal fails and is therefore dismissed. There will be, however, no order as to costs.
Ramanujam, J.
Learned counsel for the appellant makes an oral application for the grant of leave to appeal to the Supreme Court against the judgment just now
rendered. However, having regard to the issue involved, we do not see that this is a fit case for the grant of leave to appeal to Supreme Court. The
application for leave is, therefore, rejected.
Appeal dismissed.