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Srinivasa Kandasari Sugars, Narasimhunipet Vs. Government of Andhra Pradesh and ors. - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit petition No. 5191 of 1973
Judge
Reported inAIR1976AP93
ActsAndra Pradesh State Financial Corporations Act, 1951 - Sections 8, 9, 10, 24, 25, 27, 29 and 31; Constitution of India - Article 14
AppellantSrinivasa Kandasari Sugars, Narasimhunipet
RespondentGovernment of Andhra Pradesh and ors.
Appellant AdvocateM.R.K. Chowdari, Adv.
Respondent AdvocateGovt. Pleader for Industries, ;Y. Sivarama Sastry, ;A. Venkatarama Reddy and ;A. Sesharathanam, Advs.
Excerpt:
constitution - validity of sale - sections 8, 9, 10, 24, 25, 27, 29, and 31 of andhra pradesh state financial corporations act, 1951 and article 14 of constitution of india - writ for declaration of sale illegal and void under section 29 of act of 1951 - petitioner contended that section 29 is violative of article 14 of constitution of india - perusal of facts revealed that petitioner knew about proceedings initiated by respondent - respondent acted in good faith and its action under section 29 was not done arbitrarily - section 29 found in consonance of constitutional provisions - held, action taken by respondent was legal and valid. - - the petitioner having thus come into possession of the property become liable to repay the loan amount, but failed to pay off the arrears. the 2nd.....jayachandra reddy, j. 1. this writ petition is for the issuance of a writ of mandamus or any other writ or direction declaring the sale of the petition-schedule properties by the andhra pradesh state financial corporation, i.e., the 2nd respondent, under section 29 of the state financial corporation act, 1951 in favour of the 4th respondent, as unconstitutional, illegal and void, and the same came up for hearing before one of us (sambasiva rao, j., as he then was). during the course of the arguments, the learned counsel for the petitioner questioned the constitutional validity of the section 29 of the state financial corporation act, 1951, hereinafter referred to as 'the act', and as the same has to be heard by a division bench, the writ petition was directed to be posted before a bench.....
Judgment:

Jayachandra Reddy, J.

1. This Writ Petition is for the issuance of a writ of mandamus or any other writ or direction declaring the sale of the petition-schedule properties by the Andhra Pradesh State Financial Corporation, i.e., the 2nd respondent, under Section 29 of the State Financial Corporation Act, 1951 in favour of the 4th Respondent, as unconstitutional, illegal and void, and the same came up for hearing before one of us (Sambasiva Rao, J., as he then was). During the course of the arguments, the learned counsel for the petitioner questioned the constitutional validity of the Section 29 of the State Financial Corporation Act, 1951, hereinafter referred to as 'the Act', and as the same has to be heard by a Division Bench, the writ petition was directed to be posted before a Bench and accordingly it has come up before us.

2. The essential facts for appreciating the contentions on behalf of the petitioner, may briefly be stated. The writ petition schedule properties consisting of both movable and immovable properties, which are necessary for the purpose of maintaining the Khandasi Sugar factory situated at Narasmhunipeta, Bobbili Taluk, belonged to Sri Venugopal Khandasari Sugars of which the 5th respondent was the Managing Partner. The 5th respondent approached the 2nd respondent for a loan of Rs. 1,50,000. It was sanctioned upon the terms and conditions and against the security mentioned in the mortgage deed executed and registered on 26-11-1963 by the 5th respondent in favour of the 2nd respondent. The loan was subsequently reduced to Rs. 1,24,000 and the same had to be repaid by instalments. On 11-2-1966 the first instalment was paid. On 23-10-1967 the petitioner wrote a letter to the 2nd respondent stating that the petition-schedule property was sold to them and that they will be responsible for the repayment of the loan amount by instalments due to the 2nd respondent. The petitioner having thus come into possession of the property become liable to repay the loan amount, but failed to pay off the arrears. In this regard and in regard to the transfer of assets by executing the necessary documents correspondence commenced from 28-11-1967 onwards the details of which will be given later. The 2nd respondent ultimately filed O.P. No. 47 of 1972 on 10-8-1972 in the Court of the District Judge, Srikakulam for the sale of the schedule properties under the provisions of Section 31(1)(a) of the Act and for other necessary reliefs. During the pendency of this O.P. several interlocutory applications for appointment of a Receiver and other reliefs, were filed from time to time. Ultimately an Advocate-Receiver was appointed for the management of the properties. During the pendency of the O.P. the 2nd respondent-Corporation advertised in the Indian Express dated 28-7-1973 and in Andhra Patrika dated 30-7-1973 inviting tenders for purchase of the Khandasari Unit and among the tenders received the tenders of the 4th respondent was fund to be in order as it satisfied the necessary conditions. While that being so, the 2nd respondent filed I.A. No. 503 of 1973 with a request to advance O.P. No. 47 of 1971, and the permission to withdraw the O.P. The hearing of O.P. was advanced and on 27-8-1973, the O.P. was dismissed as withdrawn. On 28-8-1973 the 2nd respondent exercising its power under Section 29 of the Act executed a sale deed in favour of the 4th respondent.

3. In this writ petition, which is filed questioning the above said sale by the 2nd respondent to the 4th respondent, it is mainly contended that Section 29 of the Act is violative of Article 14 of the Constitution of India. This plea was not originally taken, but subsequently the petitioner was permitted to raise the same and a petition seeking for the amendment to this effect is also allowed. Sri Challa Seetharamaiah, the learned counsel for the petitioner contends before us that firstly Section 29 of the Act is violative of Article 14 of the Constitution, secondly that the 2nd respondent having initiated proceedings under Section 31 of the Act cannot have recourse to Section 29 of the Act, and thirdly that the action of the 2nd respondent taken under Section 29 is opposed to principles of natural justice. To put it in other words the sum and substance of these contentions is that Section 29 of the Act is violative of Art. 14 of the Constitution and if Section 29 is to be struck down on this score, then the action of the 2nd respondent under Section 29 in selling the Khandasai unit to the 4th respondent is illegal and void. The principal grounds of attack against the validity of Section 29 of the Act are that the special procedure thereunder is more drastic and prejudicial than the procedure contemplated under Section 31 , and though both these procedures cover the same filed there are no guidelines provided as to when the procedure under Section 29 can be resorted to, thereby permitting discrimination among the industrial concerns to whom the State Financial Corporation has given financial aid. The vice of discrimination, according to the learned counsel, lies in the unguided and unbridled power of singling out some industrial concerns amongst the same class of industrial concerns for being subjected to the special procedure under Section 29 which is more drastic and arbitrary.

4. To appreciate the contention of the learned counsel it is necessary to refer to the provisions of Sections 29 and 31 of the Act. Section 29 is in the following terms :

'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 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 of the industrial concern, as well as the right to transfer byway of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.

(2) Any transfer of property made by the Financial Corporation, in exercise of the power under sub-section (1), shall 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.

(3) The Financial Corporation shall have the same rights and powers with respect to good manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.

(4) Where the management of an industrial concern is taken over by the Financial Corporation or any property is transferred and realised by it under provisions of sub-section (10, all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental to such management, or transfer and realisation shall be recoverable from the industrial concern and the money which is received by it from such management or transfer and realisation shall, in the absence of any contract to the contrary, be held by it in trust to the applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.

(5) Where the Financial Corporation takes over the management of an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern.'

Under this section the Financial Corporation can straightway take over the management of the defaulting industrial concern as well as the right to transfer by way of lease or sale with the necessary incidental and consequential rights and liabilities. Section 31 of the Act is as follows:

'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 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 Section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 any officer of the Financial Corporation, generally or specially authorized 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: or

(b) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plaint 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 such other particulars as may be prescribed.'

5. It is to be noted that under Section 31 also the Financial Corporation may apply to the District Judge for several reliefs mentioned therein which include the transfer of the management, the sale of the property pledged etc. Under this section also the District Judge can grant interim relief which are incidental and consequential. Section 32 of the Act lays down the procedure of the District Judge in respect of the applications under Section 31 of the Act. The several provisions under this section contemplate an adjudication of the rights and liabilities the Financial Corporation as well as the defaulting industrial concern. Sub-section (9) of Section 32 provides for an appeal to the High Court against the orders of the District Judge. It is needless to say that this procedure contemplated under Sections 31 and 32 is more or less the same as is found n the ordinary civil procedure and more beneficial to the defaulting industrial concern. Compared to this, the procedure under Section 29 does not give so much of protection to the defaulting industrial concern. The Financial Corporation can, under the circumstances mentioned in Section 29, take over the management of the defaulting industrial concern and sell the property pledged. So a plain reading of sections 29 and 31 of the Act clearly indicates that the procedures under both these sections operate in the same field and it goes without saying that the procedure under Section 29 is more drastic in the sense that the Financial Corporation can take over the management of the defaulting industrial concern and sell the property pledged without the intervention of the Court. But the real question is whether the mere existence of two remedies one more drastic than the order by itself amount to infringement of equality guaranteed under Art. 14 of the Constitution, or something more is necessary.

6. It is well settled that where a statute provides for a more drastic procedure different from the ordinary procedure without giving any guideline in any form and when both of them operate in the same field, such a provision providing for drastic procedure will be hit by Article 14 of the Constitution, as the same suffers from the vice of discrimination. In State of West Bengal v. Anwar Ali Sarkar, : 1952CriLJ510 the Supreme Court, while considering the constitutional validity of the West Bengal Special Courts Act, observed as follows:

'A rule of procedure laid down by law comes as much within the purview of Art. 14 as any rule of substantive law and it is necessary that all litigants, who are similarly situated, are able to avail themselves of the same procedural rights for relief and for defence with like protection and without discrimination.

If a legislation is discriminatory and discriminates one person or class of persons against others similarly situated and denies to the former the privileges that are enjoyed by the latter, it cannot but be regarded as 'hostile' in the sense that it affects injuriously the interests of that person or class.'

In Kathi Raning v. State of Saurashtra, : 1952CriLJ805 , the Supreme Court, while considering the constitutional validity of the Saurashtra State Public Safety Measures (Third Amendment) Ordinance, 1949 pointed that the claims of equal protection under Art.. 14 are to be examined with the presumption that the state action is reasonable and justified. It is profitable to refer to some of the observations made by Mukherjea, J., in that case, His Lordships observed :

'A legislature for the purpose of dealing with the complex problems that arise out of an infinite variety of human relations, cannot but proceed upon some sort of selection or classification of persons upon whom the legislation is to operate. The consequence of such classification would undoubtedly be to differentiate the persons belonging to that class from others, but that by itself would not make the legislation obnoxious to the equal protection clause.

Xx xx xx If the legislative policy is clear and definite and as an effective method of carrying out that policy a discretion is vested by the State upon a body of administrators or officers to make selective application of law to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discriminatory legislation. In such cases, the power given to the executive body would import a duty on it to classify the subject-matter of legislation in accordance with the objective indicated in the statute. The discretion that is conferred on official agencies in such circumstances is not an unguided discretion, it has to be exercised in conformity with the policy, to effectuate which the direction is given and it is in relation to that objective that the propriety of the classification would have to be tested. If the administrative body proceeds to classify persons or things on a basis which has no rational relation to the objective of the legislature, its action can certainly be annulled as offending against the equal protection clause. On the other hand if the statute itself does not disclose a definite policy or objective and it confers authority in another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory irrespective of the way in which it is applied.'

Further in this case their Lordships indicted that the necessary guidance for the administrative body can as well be obtained or gathered form the policy and purpose of the enactment and from the objects sought to be achieved by the enactment.

7. The Supreme Court in Kedar Nath Bajoria v. State of West Bengal, : 1953CriLJ1621 , after referring to the above two decisions, observed :

'There are cases where the legislature itself makes a complete classification of persons or things and applies to them the law which it enacts, and others where the legislature merely lays down the law to be applied to persons or things answering to a given description or exhibiting certain common characteristics, but being unable to make a precise and complete classification, leaves it to an administrative authority to make a selective application of the law to persons or things within the defined group, while laying down the standards or at least indicting in clear terms and underlying policy and purpose, in accordance with, and in fulfilment of, which the administrative authority is expected to select the persons or things to be brought under the operation of the law.

Whether an enactment providing for special procedure for the trial of certain offences is or is not discriminatory, and violative of Art. 14 must be determined in each case as it arises, for, no general rule applicable to all cases can safely be laid down.

In the case of such a statute it could make no difference in principle whether the discretion which is entrusted to the executive Government is to make a selection of individual cases or of offences, classes of offences or classes of cases. For, in either case, the discretion to make the selection is guided and controlled discretion and not an absolute or unfettered one and is equally liable to be abused, but as has been pointed out, if it be shown in any given case that the discretion has been exercised in disregard of the standard or contrary to the declared policy and object of the legislation, such exercise could be challenged and annulled under Art. 14 which includes within its purview both executive and legislative acts.'

In Ram Krishna Dalmia v. Justice Tendolkar, : [1959]1SCR279 , their Lordships of the Supreme Court summarized the earlier decisions and observed as follows :

'A statute may itself indicate the persons or things to whom its provisions are intended to apply and the basis of the classification of such persons or things may appear on the face of the statute or may be gathered from the surrounding circumstances known to or brought to the notice of the Court.

A statute may not make any classification of the persons or things for the purpose of applying its provision but may leave it to the discretion of the Government to select and classify persons or things to whom its provisions are to apply. In determining the question of the validity or otherwise of such a statute the Court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification.

A statute may not make a classification of the persons or things for the purpose of applying its provisions and, may leave it to the discretion of the Government to select and classify the persons or things to whom its provisions are to apply but may at the same time lay down a policy or principle for the guidance of the exercise of discretion by the Government in the matter of such selection or classification; the Court will uphold the law as constitutional.

A statute may not make a classification of the persons or things to whom their provisions are intended to apply and leave it to the discretion of the Government to select or classify the persons or things for applying these provisions according to the policy or the principle laid down by the statute itself for guidance of the exercise of discretion by the Government in the matter of such selection or classification.'

Their Lordships further observed :

'In the tempo of the prevailing conditions in modern society events occur which were never foreseen and it is impossible for Parliament or any legislature to anticipate all events or to provide for all eventualities and, therefore, it must leave the duty of taking the necessary action to the appropriate Government.'

8. The learned counsel for the petitioner not only referred to the above mentioned decisions but also relied on Jyoti Pershad v. Union Territory of Delhi, : [1962]2SCR125 , and contended that where there are two procedures, one being more drastic, operating in the same field the provision providing for such a drastic procedure should be struck down, particularly when there are no guidelines. In the above mentioned decision their Lordships, after referring to Ram Krishna Dalmia v. Justice Tendolkar, : [1959]1SCR279 pointed out that :

'It is manifest that the above rule would not apply to cases where the legislature lays down the policy and indicates the rule or the line of action which should serve as a guidance to the authority. Where such guidance is expressed in the statutory provision conferring the power, no question of violation of Art. 14 could arise, unless it be that the rules themselves or the policy indicated lay down different rules to be applied to persons or things similarly situated. Even where such is not the case, there might be a transgression by the authority of the limits laid down or an abuse of power, but the actual order would be to set aside in appropriate proceedings not so much on the ground of a violation of Art. 14 but as really being beyond the power.'

It is not, however, essential for the legislation to comply with the rule as to equal protection that the rules for the guidance of the designated authority, which is to exercise the power or which is vested with the discretion, should be laid down in express terms in the statutory provision itself.

Such guidance may thus be obtained from or afforded by the preamble read in the light of the surrounding circumstances which necessitated the legislation taken in conjunction with well-known facts of which the Court might take judicial notice or of which it is appraised by evidence before it in the form of affidavits.'

9. In all the abovementioned cases it will be noted that the Supreme Court did not hold that merely because two procedures are in existence, one more drastic than the other, that by itself is a circumstance to condemn the provision providing for such procedure as unconstitutional. On the other hand, it is very much pointed out that even in cases where the power is vested in the executive authority for the selection of a particular person and where certain guidance is available to him to so choose, the provision, does not suffer from the vice of discrimination. The learned counsel however particularly relied on State of Orissa v. Dhuirendranath Das, AIR 1961 SC 1715 wherein it is observed :

'If against two public servants similarly circumstanced enquiries may be directed according to procedure substantially different at the discretion of the executive authority, exercise were of is not governed by any principles having any rational relation to the purpose to be achieved by the enquiry, the order selecting a prejudicial procedure, out of the two open for selection, is hit by Art. 14 of the Constitution.'

Again in paragraph 5 of the judgment it is observed :

'If the two sets of rules were in operation at the material time when the enquiry was directed against the respondent and by order of the Governor, the enquiry was directed under the Tribunal Rules which are 'more drastic' and prejudicial to the interests of the respondent, a clear case of discrimination arises and the order directing enquiry against the respondent and the subsequent proceedings are liable to be struck down.'

It may be noticed that their Lordships were referring to a case of clear discrimination resorted to without any reasonable basis. The learned counsel for the petitioner also relied on Northern India Caterers (Pvt) Ltd., v. State of Punjab, : [1967]3SCR399 . The majority in that case took the view that :

'If the ordinary law of the land and the special law provide two different and alternative procedures one more prejudicial than the other, discrimination must result if it is left to the will of the authority to exercise the more prejudicial against some and not against the rest.'

10. But the decision is examined and scrutinised in the light of many other decisions by the Supreme Court, in M. Chhagganlal v. Greater Bombay Municipality, : [1975]1SCR1 and ultimately the Supreme Court disagreed with the view of the majority in Northern India Caterers (Pvt.) Ltd., v. State of Punjab, : [1967]3SCR399 . So this judgment of the Supreme Court by itself is of no help to the petitioner.

11. In m. Chhagganlal v. Greater Bombay Municipality, : [1975]1SCR1 the Supreme Court reviewed and summarized all the earlier decisions and held :

'Where a statute providing for a more drastic procedure different from the ordinary procedure covers the whole field covered by the ordinary procedure, as in Anwar Ali Sarkar's case : 1952CriLJ510 and Suraj Mall Mohta's case : [1954]26ITR1(SC) without any guidelines as to the class of cases in which either procedure is to be resorted to, the statute will be hit by Article 14. Even there, as mentioned in Suraj Mall Mohta's case, a provision for appeal may cure the defect. Further, in such cases if from the preamble and surrounding circumstances, as well as the provisions of statute themselves explained and amplified by affidavits, necessary guidelines could be inferred in Saurashtra case : 1952CriLJ805 and Jyoti Pershad's case : [1962]2SCR125 the statute will not be hit by Article 14. Then again where the statute itself covers only a class of cases as in Haldar's case : [1960]2SCR646 and Bajoria's case : 1953CriLJ1621 the statute will not be bad. The fact that in such cases the executive will choose which cases are to be tried under the special procedure will not affect the validity of the statute. Therefore, the contention that the mere availability of two procedures will vitiate one of them, that is the special procedure, is not supported by reason of authority.

The statute itself in the two classes of cases before us clearly lays down the purpose behind them, that is that premises belonging to the Corporation and the Government premises belonging to the Corporation and the matter of evicting unauthorised persons occupying them. This is a sufficient guidance for the authorities on whom the power has been conferred. With such an indication clearly given in the statutes one expects the officers concerned to avail themselves of the procedures prescribed by the Acts and not resort to the dilatory procedure of the ordinary Civil Court. Even normally one cannot imagine an officer having the choice of two procedures, one which enables him to get possession of the property quickly and the other which would be prolonged one, to resort to that latter. Administrative officers, no less that the courts, do not function in a vacuum. It would be extremely unreal to hold that an administrative officer would in taking proceedings for eviction of unauthorised occupants of Government property or Municipal property resort to the procedure prescribed by the two Acts in one case and to the ordinary Civil Court in the other. The provisions of these two Acts cannot be struck down on the fanciful theory that power would be exercised in such an unrealistic fashion. In considering whether the officers would be discriminating between one set of persons and another, one has got to take into account normal human behaviour and not behaviour which is abnormal. It is not every fancied possibility of discrimination but the real risk of discrimination that we must take into account. This is not one of those cases where discrimination is writ large on the face of the statute. Discrimination may be possible but is very improbable. And if there is discrimination in actual practice this Court is not powerless. Furthermore, the fact that the Legislature considered that the ordinary procedure is insufficient or ineffective in evicting and Corporation property and provided a special speedy procedure therefore is a clear guidance for the authorities charged with the duty of evicting unauthorised occupants. We therefore, find ourselves unable to agree with the majority in the Northern India Caterers' case : [1967]3SCR399 '

12. In the same case Bhagwati, J., speaking for himself and for Justice Krishna Iyer, in a separate judgment observed :

'The view of discrimination, it was argued, consists in the unguided and unrestricted power of singling out for being subject to the special procedure some amongst a class of persons, namely, occupiers of Government or Municipal premises, all of whom are similarly situate and circumstanced, leaving others to be dealt with according to the ordinary procedure. The argument was sought to be supported by the majority decision of this Court in : [1967]3SCR399 . We do not think this argument is sound. The majority decision is : [1967]3SCR399 has no application in the present case, and din any event, we are of the view that that decision does not represent the correct law.'

13. It is opposite to refer to another judgment of the Supreme Court in Pandia Nadar v. State of Tamil Nadu, : [1975]1SCR333 . The Bench which heard this case, after referring to M. Chhgganlal v. Greater Bombay Municipality, : [1975]1SCR1 and following the same, unanimously held that the fact that in some cases the Executive will have the power of selection of the drastic procedure will not affect the validity of the statute, and rejected the contention that the mere availability of two procedures will invalidate the said provision of law. So it is necessary that various principles laid down in the aforesaid judgments of the Supreme Court and mainly in Chhagganlal v. Greater Bombay Municipality, : [1975]1SCR1 , have to be borne in mind in resolving the question in this writ petition.

14. From an examination of the aforesaid authorities of the Supreme Court, it is clear that every statute providing for two different procedures covering the same filed and making one of them drastic, does not ipso facto become violative of Article 14 of the Constitution of India. The guidelines as to when and under what circumstances the administrative authority can resort to a drastic procedure may sometimes be incorporated specifically in the statute itself. But in the tempo of the prevailing conditions in the modern society it is impossible for any legislature to anticipate all events or to provide for all eventualities. So the legislature can validly leave it to the discretion of the Executive Body to select a particular procedure. The discretion conferred on official agencies in such circumstances cannot be condemned outright as an unguided discretion if the statute indicates the guidance for the Executive for exercising such a discretion. Such guidance, although it is not there in the statute in the form of specific provisions, can as well be inferred from the preamble, surrounding circumstances and the provisions of the statute themselves explained and amplified by affidavits. It is only in such cases where there are no guidelines specifically in the statute and where the necessary guidance cannot also be gathered from an examination of the aforesaid aspects, the power conferred on the administrative body to choose one procedure or the other, can be condemned in an unguided one and the provision of law providing for such an unguided power suffers from the view of discrimination. But a statute which satisfied these tests cannot suffer from the vice of unconstitutionality. Further, as pointed out by the Supreme Court in Matalag Dobey v. H.C. Bhari, : [1955]28ITR941(SC) 'a discretionary power is not necessarily a discriminatory power is not necessarily a discriminatory power and that abuse of power is not to be easily assumed where the discretion is vested in the Government and not in a minor official'. When the necessary guidance is inferable from the statute, it cannot be fancied that the authorities vested with the power of selecting the procedure will act arbitrarily and in an unrealistic fashion. If in a given case the authority acts arbitrarily and in unrelated (unrealistic?) manner to the objective of the statute, its action can certainly be annulled by the Court. But that may not be a ground for declaring the statute as unconstitutional.

15. In the light of the aforesaid principles the constitutionality of Sec. 29 of the Act has to be examined. The State Financial Corporation Act, 1951 was enacted in order to provide immediate and long term credit to industrial undertakings which fall outside the normal activities of the commercial banks, etc. As such from the Statement of Objects and Reasons, the intention is that the State Corporations will finance medium and small scale industries. One of the main feature of the Bill was that the Corporation will be managed by a Board consisting of Directors nominated by the Government, Reserve Bank and the industrial Financial Corporation of India. It is also mentioned that the Corporation will have SPECIAL PRIVILEGES IN THE MATTER OF ENFORCEMENT OF ITS CLAIMS AGAINST BORROWERS Sen 3 of the Act deals with the establishment of State Financial Corporations. Sub-section (2) of Sec. 3 is in the following terms :--

'(2) The Financial Corporation shall be a body corporate by the name notified under sub-section (1), having perpetual succession and a common seal, with power, subject to provisions of this Act, to acquire, hold and dispose of property and shall by the said name sue and be sued.'

From the Objects and Reasons and Section 32 of the Act it is clear that the Financial Corporation is a responsible body vested with the power to discharge various functions under the Act. Section 9 deals with 'management of Financial Corporations' and lays down that the general superintendence, direction and management of the affairs and business of the Financial Corporation shall vest in the Board of Directors and shall be assisted by an Executive Committee and the Managing Director. As we find in Sen. 10, very responsible and highly placed persons will be the Directors of the Board. Section 24 days with the 'general duty of the Board' and lays down that the Board is 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. Again under Section 25 it is the Corporation as managed by the Board, that is empowered to grant loans or advances to the industrial concern, repayable within a period not exceeding 20 years. Section 27 empowers the Financial Corporation to impose such conditions as it may think necessary or expedient for protecting the interests of the Financial Corporation and securing that the accommodation granted by it is put to the best use by the industrial concern. Now having regard to the scheme of the Act and these general provisions, Sections 29 and 31 are incorporated for safeguarding the interests of the Corporation. As already mentioned the two procedures mentioned in Sections 29 and 31 are different and there are no provisions by way of guidelines in these two sections as to when a particular procedure can be resorted to. The choice is left to the Corporation. It may also be noted that under Section 29 the Financial Corporation shall have the right to take over the management of the defaulting industrial concern as well as the right to transfer by way of lease or sale. Normally one would expect a responsible body like the Financial Corporation, to take action under this section when it becomes necessary depending on the circumstances. From a combined reading of the Objects and Reasons and Sections 8, 9, 10, 24, 25 and 27, the requisite guidance can be inferred and a very responsible authority is vested with the power of selecting either of the procedures under Sections 29 and 31 respectively. So the statute itself discloses a definite policy and objective and it confers authority on the Corporation to make selection of the procedure. When that is so, a responsible body like the Financial Corporation will act in a realistic manner keeping in view the interests of the Corporation, industry, commerce and the general public. For these reasons, we are of the opinion that there is a guiding policy and principle available from the statute for the Corporation to act in this regard and accordingly we hold that Section 29 is not violative of Article 14 of the Constitution. Further, we are also of the view that in this case the Corporation acted with due care and caution and that it did not act arbitrarily or capriciously, and we will be considering this aspect in detail at a later stage.

16. Now it remains to be seen whether there is any substance in the second contention, viz., that the Financial Corporation, having proceeded under Section 31 , cannot again resort to Section 29. We have already held that Section 29 is a valid provision of law. When the Corporation has the choice, which is not unguided, to resort to either of the procedures, and if the Corporation in a given case, having withdrawn its application under Section 31 , proceeds under Section 29, it cannot be said that such an action is illegal. As pointed out by the Supreme Court in T.K. Mudaliar v. Venkatachalam, : [1956]29ITR349(SC) 'it is to be presumed, unless contrary were shown, that the administration of a particular law would be done 'not with an evil eye and unequal hand' and the selection made by the Government of the cases of persons to be preferred for investigation by the Commission would not be discriminatory'. However, the petitioner has no right to say that the Corporation should have no choice of proceedings when such a course is not barred from withdrawing its own application filed under Section 31 of the Act. As long as Section 29 is a valid piece of legislation, the Corporation has every right to proceed under Section 29, unless it is shown that it has acted arbitrarily or maliciously. Having held that Section 29 of the Act is not violative of Article 14 of the Constitution, now it remains to be seen whether in the instant case the Corporation has acted arbitrarily.

17. As already mentioned, the petitioner wrote a letter to the 2nd respondent on 23-10-1967 mentioning that they have agreed to purchase the Khandasari unit from the 5th respondent and they are agreeable to pay the amount due to the 2nd respondent in instalments. On 28-11-1967 the 2nd respondent wrote to the petitioner complaining that the petitioner did not furnish their said partnership deed and other records to enable the 2nd respondent to take further action and also requested the petitioner to take immediate action, so that the affairs could be regularised. Again on 16-12-1967 the 2nd respondent reminded the petitioner and it is pointed out in that letter as follows :---

'We invite your attention to our letter No. VKS/67/7579, dated 29th November, 1967 and regret very much to note your indifference in the matter Kindly note that if you do not furnish all the documents and information and complete the transfer before the 2nd of this month, we shall be forced to treat you as an unauthorised person in relation to properties mortgaged to us and proceed against the proprietor and the mortgaged properties.

Please treat this as specially urgent.

Sd/- xx

MANAGING DIRECTOR.'

Again by letter dated 5-1-1968 the 2nd respondent wrote to the petitioner that finally the petitioner is called upon to take immediate action to regularise the matter, failing which the 2nd respondent has no other alternative except to proceed against the owners and the mortgaged properties of the defaulting concern. On 14-8-1968 the 2nd respondent addressed another letter to the petitioner which reads thus :

Please note that if the mortgage agreement is not immediately taken up and finalised and the arrears cleared on or before 26-8-1968, we will be compelled to proceed against you and the owners of the above unit and the mortgaged properties xx xx xx

To this ultimately the petitioner cared to reply on 23-8-1968 stating that he would come in the first week and would take necessary steps for registering the deed. On 19-11-1968 the 2nd respondent again wrote to the petitioner that the season was fast approaching and that the petitioner should expedite the things to regularise the affairs, and again reiterated that the proceedings for the sale of the entire unit for recovering the outstanding loans would be launched. Some ore correspondence passed between the 2nd respondent and the petitioner. Then on 15-7-1970 a registered notice was issued by the 2nd respondent to the petitioner to the effect that if the petitioner failed to pay the 2nd respondent the sums due by way arrears, necessary steps would be taken to recover the entire loan amount. Similar notices were issued on 4-12-1970 and 15-12-70 and being unsuccessful the 2nd respondent was compelled to file O.P. No. 47 of 1972 on 10-8-1972. As already mentioned, during the pendency of the O.P. also the attempts of the 2nd respondent to safeguard the interests of the Corporation were not fruitful. The petitioner, in spite of being in possession and running the unit failed to make the payment of the arrears due and thus committed wilful default. The proceedings in O.P. 47 of 1972 disclose that the matter dragged on till 27-8-1973. During the pendency of the O.P. the 2nd respondent-Corporation being anxious to safeguard its own interests, brought the matter before the Board of Directors at a meeting held on 27-7-1973 and the Board after considering the facts and circumstances authorised the Managing Director to take action under Section 29. A true copy of the resolution attested by the Managing Director is placed before us and the resolution is numbered as 25 (e) which reads as follows:

'25 (e) SRI VENUGOPALA KHANDASAI SUGARS NARASIMHUNIPETA, BIBBILI TALUK PROCEEDINGS FILED UNDER SECTION 31 OF THE STATE FINANCIAL CORPORATIONS ACT -- PENDING THIRD PARTIES INTERESTED IN PURCHASE OF THE UNIT -- UNDER SECTION 29 OF THE STATE FINANCIAL CORPORATION ACT AND SELL THE SAME SOUGHT.

---------------------

Read Managing Director's Memorandum.

The Managing Director further brought to the notice of the Board that as the matter for the sale of the unit under Section 31 is being delayed for on reason or other in the Court and as the unit may not fetch any price once we lose the sugarcane crushing season, it is desirable that the Corporation should, if necessary withdraw the application from the court and proceed under Section 29 of the State Financial Corporation Act.

The Board agreed with the opinion and authorised the Managing Director to take action under Section 29 of the State Financial Corporation Act and in that behalf authorised the Secretary Sri M.S.Varadachary or the Additional Secretary Sri K. Narayana Rao or the Law Officer Sri K. Chalapati Rao or any other officer to do such acts as necessary for realising the money due to the Corporation and to do such acts like selling the properties by tenders or by negotiation and execution of deeds for and on behalf of the Corporation that are necessary and incidental thereto.'

It is only after this resolution the 2nd respondent advertised in the newspapers on 28-7-1973 and 30-7-1973 calling for tenders. The petitioner was also aware of these advertisements as is admitted in the writ petition. Even then he did not take immediate steps to clear off the arrears showing his bona fides. Now he contends in a futile manner that it was not known to him that the 2nd respondent was going to exercise the rights under Section 29. No weight can be given to such a plea. Having regard to all these circumstances we are of the view that the 2nd respondent justified in taking recourse to Section 29 of the Act and did not act arbitrarily in doing so.

18. It is lastly contended that the action of the 2nd respondent affects the principles of natural justice. We have already held that Section 29 of the Act is a valid provision of law. In entering into an agreement with the 2nd respondent, the petitioner's predecessors viz., the 5th respondent, agreed for all the conditions mentioned in the agreement. Under Clause VI (23) of the agreement a condition is there that the loan secured by the mortgagee shall be subject to the terms and conditions of the sanction accepted by the mortgagor and the powers, provisions and conditions contained in the State Financial Corporation Act including any amendments thereof made from time to time. Clause VII (6) authorises the Corporation to take all the actions permissible including taking over the management as well as the right to sell. The language of the said clause is in substance the same basis found in Section 29. When the parties by way of an agreement, have agreed for such a course which is permissible under Section 29, a valid provision of law, the petitioner who got into the shoes of the 5th respondent who was a party to this agreement cannot complain that he was not given notice of the proposed action under Section 29. As already mentioned, the Corporation under the statute can choose either of the procedures and having regard to the language of Section 29 and clauses VI (23) and VII (6) of the agreement, the question of putting the petitioner on notice does not arise.

19. But in this case we are satisfied that the petitioner in fact was informed and he had knowledge of the likelihood of the Corporation proceeding under Section 29. In A.K. Kraipak v. Union of India, : [1970]1SCR457 it was held that

'The concept of natural justice has undergone a great deal of change in recent years. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case the frame work of the law under which the enquiry is held and the constitution of the Tribunal or the body of persons appointed for that purpose.'

The history of the case, ever since the petitioner came into picture i.e., from 23-10-67, till 28-3-1973, speaks for itself that petitioner was adopting delaying tactics. The letters dated 16-12-1967, 5-1-1968 and 14-8-1968 and the subsequent letters by the 2nd respondent to the petitioner fully show that the petitioner was intimated that the Corporation would be proceeding against him under law. The mere fact that in the first instance, instead of proceeding under Section 20, the Corporation proceeded under Section 31 is by itself not a ground to contend that there was no notice to the petitioner abut the proposed action under Section 29. A perusal of some of the letters would indicate the proposed action by the Corporation under Section 29 also. So, from the facts and circumstances, we are of the view that the petitioner had in fact known that the Corporation would be proceeding against him under Section 29 also, when situation warrant. As already mentioned, even during the pendency of the O.P. advertisements were made in the newspapers calling for tenders, about which the petitioner was aware. For all those reasons, we hold that the Corporation acted in good faith and its action under Section 29 was not done arbitrarily.

20. Sri Sivarama Sastry, the learned counsel for the 2nd respondent contended that the Corporation is at liberty to take over the management of the industrial concern and sell on the basis of the terms of the agreement alone without having recourse to Section 29 of the Act. We have already held that Section 29 is a valid provision and the action taken under the same is legal and valid. So, it is not necessary to consider this contention raised on behalf of the 2nd respondent.

21. No other points are urged before us.

22. This writ petition, therefore, fails and is dismissed with costs. Advocate's fees Rs. 100.

23. Petition dismissed.


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