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The Gujarat State Financial Corporation, Ahmedabad Vs. Lotus Hotels Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberLetters Patent Appeal No. 79 of 1981
Judge
Reported inAIR1982Guj198; (1982)2GLR49
ActsState Financial Corporations Act, 1951 - Sections 24, 25(1), 25(2) and 30(1); Evidence Act - Sections 115; Constitution of India - Article 226
AppellantThe Gujarat State Financial Corporation, Ahmedabad
RespondentLotus Hotels Pvt. Ltd.
Appellant Advocate J.M. Thakore, Adv. General and; G.N. Shah, Adv.
Respondent Advocate V.B. Patel, Adv.
Cases ReferredIn Premji Bhai v. Delhi Development Authority
Excerpt:
company - promissory estoppel - state financial corporations act, 1951 and section 115 of indian evidence act - respondent made an application to appellant for loan of certain amount which was sanctioned - appellant secured mortgage of land against loan in its favour - appellant did not disburse loan amount as sanctioned on ground of adverse allegations of directors of respondents - facts proved that appellant entered into binding contract despite being aware of allegations - no question of appellants being misled - appellant which is clothed with certain statutory powers can never be permitted to act unilaterally and arbitrary manner and thereby refuse to carry out its obligations - doctrine of promissory estoppel rightly invoked by single judge - held, appellants liable to disburse loan.....a.m. ahmadi, j. 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 see. 3 of the state financial corporations act. 1951, (hereinafter called the act). the said act was enacted to provide.....
Judgment:

A.M. Ahmadi, J.

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 See. 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 S. 2(iii) includes a concern engaged or to be enagaged in the hotel industry. The appellant-Corporation established under Section 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 Section 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. S. 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 that advice of the Industrial Development Bank Of India and except in The case of first appointment also with the Board. By virtue of S. 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. Section 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. Section 25 (1) (9) 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-see. (2) of S. 25 inter alia provides that no accommodation shall be given Under clause (9) of sub-section (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. Section 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 accommodation granted by it is put to the best use by the industrial concern. Sub-section (2) of Section 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, of any other law for the time being in force, etc. Section 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 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 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-section (2), vest in the transferee all rights in of 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 Section 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-

'30. Power to call for repayment before agreed period:-

Notwithstanding anything in any agreement to the contrary, the Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporation-

(a) if it appears to the Board that false or misleading information in any material particular was given by the industrial concern in its application for the loan or advance; or

xx xx xx xx xx (f) if for any reason it is necessary to protect the interest of the Financial Corporation.'

Section 31 provides the machinery for recovering the loan or advance or any installment thereof from the industrial concern which has failed to comply with the terms of its agreement with the Financial Corporation requires it to make immediate repayment under Section 30 and the industrial concern fails to do so. In such a situation, Section 31 empowers the Financial Corporation without prejudice to the provisions of S. 29 of the Act and of S. 69 of the Transfer of Property Act, to make an application 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 Fmancial Corporation as security for the loan or advance; or

(b) for transferring the management of the industrial concern to the Financial Corporation, or

(c) for an ad interim straining the industrial injunction restraining from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.'

Section 32 lays down the procedure which the District Judge must follow on receipt of an application under Section 31 of the Act. Section 32-A empowers the Financial Corporation to appoint Directors or Administrators of an industrial concern the management whereof is taken over under the provisions of the Act. These are in brief the Powers and duties of the Financial Corporation to be exercised through the Board. We may lastly refer to Section 39 which lays down that the Board shall in the discharge of its functions be guided by such instructions on questions of policy as may be given to it by the State Government in consultation with and after obtaining the advice of the Development Bank. If any dispute arises between the State Government and the Board as to whether a question is or is not a question of policy the decision of the State Government is made final. If the Board fails to carry out the instructions on the questions of policy laid down by the State Government, the State Government is empowered to supersede the Board and appoint a new Board in its place to function until a properly constituted Board is set up and the decision of the State Government as to the grounds for superseding the Board is not liable to be questioned in any Court. This is in brief the scheme of the Act which clearly shows that the Corporation was established with a view to providing medium and long-term credit to industrial concerns on certain terms and conditions. In discharging its obligations under the Act, the Board must act on business principles due regard being had to the interests of industry, commerce and general public. The Act empowers the Financial Corporation to grant loans or advances to an industrial concern repayable within a period not exceeding twenty years from the date of grant on the security of immovable property by way of a mortgage in the manner prescribed by the regulations. The Financial Corporation while granting the loan has been given wide powers to impose such think necessary or expedient for protecting its interests the accommodation to the best use by conditions as it may expedient for pro and securing that granted by it is put the industrial concern. The Act also empowers the Financial Corporation to enter into an arrangement whereby the industrial concern is obliged to have one or more Directors on its Board of Directors nominated by the Financial Corporation. In case the industrial concern fails to perform its part of the contract and commits a default in the repayment of the loan or advance or any installment thereof, the Financial Corporation is invested with the drastic remedy of taking over the management or possession or both of the industrial concern with a right to transfer by way of lease or sale the property of the industrial concern or to realise the mortgaged property. Such a transfer by the Financial Corporation is bestowed statutory protection in that by virtue of sub-section (2) of Sec, 29 the property vests in the transferee as if the transfer was made by the owner of the property, that is, the industrial concern. Power is also granted to the Financial Corporation to require the industrial concern to which it has granted a loan or advance to discharge the same forth with in full if any of the conditions catalogued in cls. (a) to (f) of Section 30 are satisfied. A special machinery has also been provided by Section 31 of the Act for recovering the loan or advance amount or any installment thereof which has not been repaid. Certain duties have also been cast on the District Judge under Section 32 on receipt of an application under Section 31 of the Act. It is. Therefore clear that the Act confers wide powers on the Financial Corporation with a view to securing its own interests vis-a-vis the industrial concern to which it has advanced a loan for the development of its business. It is also clear from the scheme of the Act that the State Government has a voice in the conduct of the business by the, Financial Corporation in that in the constitution of the Board of Directors it has the right to nominate four Directors and further to nominate the Managing Director, albeit in consultation with and after obtaining the advice of the Development Bank and the Board except in the case of the first appointment of the Board. All policy decisions have to be taken by the State Government in consultation with and after obtaining the advice of the Development Bank in relation to the functions to be discharged by the Board. The State Government has the power to supersede the Board if it fails to carry out the instructions of the State Government in regard to policy matters. In view of these provisions of the Act there can be little doubt that the appellant-Corporation has the trappings of a State within the meaning of Article 12 of the Constitution. The learned Advocate General, therefore, rightly did riot dispute before us that the appellant-Corporation was a State or would fall within the comprehension of other authority within the meaning of Art. 12 of the Constitution,

3. The respondent, Messrs Lotus Hotels Private Limited, was incorporated as such under a Certificate of Incorporation dated 7th Oct. 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, caf, 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 15th April 19,10 with one Chhaganbhai Desaibhai Patel for the acquisition of land admeasuring about 10,600 square feet on Race Course Road, Baroda, bearing Survey No. 512/2/1 in Tikka No. 7 of Registration District and Sub-District Baroda. One of the objects of the Company incorporated on 7th Oct 1971 was to acquire the rights under the aforesaid agreement in respect of the land in question. It appears that Messrs Ramprakash Estate Corporation had obtained on 21st July 1973 permission from the Municipal Cor-Poration of Baroda for constructing a Four Star Hotel an the said parcel of land. Thereafter on 7th Dec. 1977 the Company made an application to the appellant-Corporation for a loan of Rs. 30 lakhs. The appellant-Corporation by its letter dated 24th July, 1978 sanctioned the loan of Rs. 29.93 lakhs. On 2nd Aug , 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 31st Aug. 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 Oct. 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 3rd Jan. 1979 a copy of the letter of Chandrakant Pandya bearing the date 17 Oct. 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 1st Feb, 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 13th Feb. 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 resumbitted on receipt of satisfactory report from the concerned authorities in regard to the pending inquiries against the main promoter of the hotel. I 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 Oct. 1978, After the creation of the equitable mortgage and the execution of the various documents set out in para. 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 psedonymous applications the Assistant Collector (Headquarters), Customs and Central Excise, Ahmedabad, wrote a letter to the Managing Director of the Corporation on 4th April 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 15th July 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/- as Profit from illicit business carried on in French Polish Thiner 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 26th April 1976 Messrs Shirgaonkar and Associates, Architects, wrote a letter to the Director of the respondent-Company pointing out. that the delay in the progress or 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 27th April 1979 requesting the appellant-Corporation for disbursement of the loan on the next day, that is, 28th April 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 4th April 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 oil 29th April 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 Oct. 1980. It is mentioned in para 19 of this affidavit that the respondent-Company was informed about the Board Resolution of 29th April 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 not have dispatched another telegram on 3rd May 1979 calling upon the 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 7th May 1979.

4. The above facts indisputably establish that so far as the respondent Company is concerned, it has performed its part of the contract in letter and spirit whereas so far as the appellant-Corporation is concerned, even though it in exercise of its statutory function under S. 25(1) (g) undertook to grant a loan of Rs. 29.93 lakhs to the respondent-Company and entered into an agreement in that behalf, failed to disburse the loan in accordance with the time schedule and thereby failed to fulfill its statutory as well as contractual obligations. One of the reasons put forward before the learned single judge for its failure to disburse the loan was that as a result of the pseudonymous letters written under the signatures of Ramanlal V. Patel and C'nandrakant Pandya, the Industrial Development Bank of India had by its letter of 13th Feb. 1979 refused to refinance the loans which the appellant Corporation had sanctioned in favour of the respondent-Company. The Manager (Law) of the appellant-Corporation in his affidavit dated 11th May 1979 states: ' ............. having regard to the large financial assistance commitments respondent (the appellant-Corporation herein) has of necessity to depend upon refinance from Industrial Development B311k, of India (IDBI).' Proceeding further, the deponent states. ' ....... respondent will not be able to grant financial assistance unless re-finance is available from IDBI'. In para 4 of the affidavit he states that the loan was sanctioned to the Company on the basis that it will be refinanced in normal course by IDBI. Since IDBI has refused to refinance the loan, the Corporation is unable to make the disbursements in favour of the Company. This contention raised on behalf of the Corporation is clearly untenable having regard to cls. 2 and 5 of the terms on which the loan was sanctioned by the Corporation by its letter dated 27th July 1978. These two clauses of the letter sanctioning the loan read as under:-

'2. Rate of interest will be 12 1/2% p. a. if refinance is available from Industrial Development Bank of India @ 9% p. a. otherwise it will be @ 13% p. a. Higher rate of interest at 6 % over the normal rate of interest will be charged on the amount in default.

5. Commitment charge @ 1% p. a. on the amount of loan not drawn out of the loan sanctioned shall be paid from the date as advised by the Industrial Development Bank of India, if refinance is sanctioned. In case, refinance is not sanctioned by the Industrial Development Bank of India, commitment charge @ 1 % p. a., on the amount of loan un-drawn out of loan sanctioned shall be paid from the expiry of six months from the date of sanction.'

On a plain reading of these two terms on the basis whereof the loan was sanctioned by the Corporation, it becomes obvious that the Corporation was aware of the possibility of the Industrial Development Bank of India refusing to refinance the loan. Mindful of this possibility, the Corporation while sanctioning the loan by its letter of 24th July 1978 provided for the payment of interest at a higher rate if refinance was not forthcoming. It further provided that in the event of the Industrial Development Bank of India refusing to refinance the loan, the Company will be liable to pay commitment charge at 1% p. a. on the amount of loan un-drawn out of the loan sanctioned after the expiry of six months from the date of sanction, These two terms contained in the letter of sanction make it abundantly clear that the reason put forward by the Corporation that it was unable to disburse the loan as the Industrial Development Bank of India had refused to refinance the same was to say the least flimsy. The learned Advocate General, therefore rightly did not press this contention at the hearing of the appeal before us.

5. It was, however, vehemently argued by the learned Advocate General that having regard to the principle underlying S. 30 of the Act, the Corporation is entitled to refuse to disburse the loan if it appears to it that the loan was sanctioned on the basis of false or misleading information supplied by the industrial concern on any material particular with a view to protecting its interests. He conceded that on a strict reading of S. 30 of the Act the right to demand repayment from an industrial concern can be exercised on the grounds set out in cls. (a) and (f) of that Section after the loan is disbursed but, argued the learned Advocate General it would be an idle formality to require the Corporation to disburse the loan and immediately require the industrial concern to repay the same in exercise of the right or power conferred by S. 30 of the Act. In other words, according to the learned Advocate General, the principle underlying c1s. (a) and (f) of S. 30 of the Act can be invoked by the Corporation even in cases where the loan though sanctioned has not been actually disbursed to the industrial concern. It must be made clear at the outset that the contract does not confer any such right on the Corporation to refuse to disburse the loan on considerations on which repayment of the loan can be demanded from an industrial concern under cls. (a) and (f) of S. 30 of the Act. The right to refuse to disburse the loan already sanctioned on the ground that the loan was sanctioned on the basis of false and misleading information furnished by the Industrial concern in its application for loan must. therefore flow from or be culled out from cls. (a) and (f) of S. 30 of the Act for otherwise there is no provision or term in the contract conferring such right on the Corporation to refuse to disburse the loan once sanctioned. It appears that before the learned single Judge even though in the affidavit filed on behalf of the Corporation reference was made to S. 30 (a) of the Act, a contention in these terms was not canvassed by the learned counsel for the Corporation. We, therefore, do not have the benefit of the view of the learned single Judge on this point. If we turn to the affidavit of Shri Girish J. Trivedi, Manager (Law) of the Corporation dated 25th July 1979 we find that the grievance of the Corporation is that the answer given to question No IV (XI) (a) of the loan application was false and misleading in material particular. In order to appreciate this contention we may reproduce the question as well as the answer given by the promoter-director of the Company thereto.

'XI (a). Please state yes or no as' to whether any Government enquiry has been instituted against the firm/Company/Society/or the proprietor/partners/ members/directors for any economic offence.'

This question was answered by the letters 'N.A' meaning thereby 'Not Applicable'. It is the contention of the Corporation that this answer misled the Corporation in that it thought that those concerned with the Company including the sponsor-director were not in any manner involved in any enquiry instituted for the commission of an economic offence. According to the appellant Corporation it transpired from the two pseudonymous letters received in Oct. 1978 that Shri C. J. Jaiswal the promoter-director of the company was involved in several economic offences which fact was suppressed while answering the aforesaid question contained in the loan application form. In this behalf strong reliance was placed on the letter of the Assistant Collector (Headquarters), Customs and Central Excise, Ahmedabad. dated 4th April 1979 addressed to the Managing Director of the appellant-Corporation. As pointed out earlier by the said letter the Managing Director of the Corporation was informed (i) that five premises with which Shri C. J. Jaiswal, the promoter-director of the Company was either directly or indirectly concerned were searched on 15th July 1976 by the Income-tax authorities and from the residential premises situate at 8, Maharshi Arvind Society, R. V. Desai Road, Baroda, gold ornaments weighing 1305 gms. were recovered out of which ornaments weighing 1112.5 gms. were seized under the belief that they were unaccounted, that after necessary inquiries the income-tax authorities finally arrived at the conclusion that the unaccounted gold ornaments weighed 1018 gms. and the total undeclared income on the basis of evidence recovered from all the aforesaid five premises amounted to Rs. 5,53,113/- relating to the assessment years 1971-72 to 1976-77; (ii) that out of the undeclared income, the income pertaining to the assessment year 1975-76 has been finalised at Rs. 63,165/- as against the declared income of Rs. 24.895/- and that cases relating to unaccounted gold ornaments and undeclared income pertaining to the remaining years were yet to be finalised by the income-tax authorities, (iii) that in the total unaccounted/undeclared income of Rs. 5.53,113/- the income-tax authorities had included a sum of Rs. 1,51,500/- as profit from illicit business in French Polish thinner and forging of denatured spirit permits which were offences under the Prohibition Act; and (iv) that on inquiry it was found that Shri V. A. Patel and his associates contacted Shri C. J. Jaiswal on three telephone numbers at Baroda in furtherance of their smuggling activities in respect of which the statement of Shri Jaiswal was recorded under S. 108 of the Customs Act, 1962 but Shri Jaiswal denied having any association whatsoever with Shri Y. A. Patel and stated that he did not know any such person by name nor had not he spoken to him on phone at any point of time whatsoever. It was, therefore, vehemently argued by the learned Advocate General that since the Corporation has by virtue of S. 24 of the Act to discharge its fLuictions on business principles it cannot be expected to disburse a loan of such a substantial amount of Rs. 29.93 lakhs to a person with such antecedents. According to him no businessman much less a prudent businessman would ever advance a loan of such a large amount to a person like Shri C. J. Jaiswal having dubious antecedents. It must, however, be remembered that the two pseudonymous letters were received by the Corporation long before it finalised the contract in question with the Company on 1st February 1979. It was on that date that the Company executed an equitable mortgage of its lands and the superstructure in progress thereon in favour of the Corporation along with various other documents enlisted in Para 8 of the main petition on the Corporation having undertaken to disburse a loan of Rs. 29-93 lakhs in its favour. On the date of the execution of these documents including the creation of an equitable mortgage, the Corporation was aware of the allegations contained in the two pseudonymous letters despatched under the signatures of Shri R. V. Patel and Shri Chandrakant pandya. In fact, the Government of Gujarat had by its letter of 3rd Jan. 1979 addressed to the General Manager (Finance) of the Corporation forwarded a copy of the application of Shri Chandrakant Pandya dated 17th Oct. 1978 for its remarks. In that letter also it is in terms stated that the Government had learnt from the I. D. B. I. that the Corporation was examining the allegations contained in the said pseudonymous letters. Therefore, when the Corporation entered into an agreement for the grant of loan to the Company on 1st Feb. 1979 it was aware of the allegations made against Shri C. J. Jaiswal, the promoter-director of the Company. It must also be borne in mind that in exercise of the statutory power conferred on the Corporation by S. 27 (2) of the Act, it had nominated Shri U. M. Patel as its Nominee Director on the Board of Directors of the Company. (Vide its letter dated 10th Oct. 1978). Even after the receipt of the letter from the Assistant Collector of Customs and Central Excise, Ahmedabad, dated 4th April 1979, the Corporation by its communications dated 29th Dec. 1980 and 5th Jan. 1981 directed the Company to renew the insurance policy with regard to the properties mortgaged under the equitable mortgage created on 1st Feb. 1979. True the Corparation is supposed to act on business principles. By that what is meant is that it will conduct its affairs in the manner in which a prudent and reasonable businessman of the present day will conduct his affairs. A prudent businessman who advances a loan by way of a rnartgage will consider, (i) whether his money is secure: and (ii) whether the mortgagor has the capacity to repay the loan as promised. So far as the first is concerned, the value of real estate has multiplied in the meantime and so far as the second is concerned, it is well known that the mortgagor is going to receive a steady income from his business. Therefore, if sound business principles are paramount, there being no apparent risk, the Corporation should have no hesitation in disbursing the loan. Besides, it is evident from the facts discussed above that before the Corporation entered into a binding contract with the Company and before it required the Company to create an equitable mortgage in its favour in respect of the lands of the Company, the Corporation was aware of the allegations made against the sponsor-director of the Company and yet with open eyes it entered into the contract in question and, therefore, it does not lie in its mouth now to contend that it was misled by the false information given to the aforequoted question by the sponsor-director of the Company.

6. Another feature of the case which must be borne in mind is that even after the corporation at its Board meeting of 29th April 1979 unilaterally resolved not to disburse the loan, it did not rescind the contract. In fact the contract has not been rescinded by the Corporation up to date. The Corporation has already secured a mortgage in its favour, a seat on the Board of Directors and possession of all the title deeds in respect of the mortgaged property, Entries regarding the charge must also have been made in the property register. The Company is thus placed in a predicament because its property is locked by the equitable mortgage and it cannot raise a fresh loan, while the corporation is sitting tight and unfairly refuses to disburse the loan. Can it by any stretch be said that the Corporation is acting on sound business principles by behaving in such an unfair manner In the facts of this case can there be any doubt that its conduct will ruin the Company? Business principles require a business concern to earn a good reputation. Will it earn a good reputation by ruining its customer? Instead of nursing the industry which is the objective of the statute the Corporation is out to throttle it in its infancy. Is the Corporation out to earn for itself such a reputation Once this becomes known the industrialists will be seared away rather than be attracted towards it. Surely such is not the role envisaged by the Act. As stated earlier, not only did the Corporation refuse to rescind the contract but it continued to enforce it by requiring the Company to renew the insurance policy with regard to the mortgaged property by its communications dated 29th Dec. 1980 and 5th Jan. 1981. Admittedly the Company has in obedience to this direction renewed the insurance policy for a sum of Rs. 1,50,000/-. It is distressing that without rescinding the contract and without releasing the property from the equitable mortgage, the Corporation expects the Company to perform its part of the contract by requiring it to renew the insurance policy while it on its part refuses to disburse the loan under its statutory as well as contractual obligations and yet regales in the thought that it is conducting its affairs on business principles.

6A. Now so far as the facts contained in the letter of the Assistant Collector of Customs and Central Excise dated 4th April 1979 are concerned, a reference may be made to the affidavit-in-rejoinder dated 18th June 1979 filed by Shri C. J. Jaiswal, the sponsor-director of the Company. In para 5 of the said affidavit he refers to the two pseudonymous letters written under the signatures of R. V. Patel and Chandrakant Pandya of Baroda. He states that both these letters are perhaps engineered by one Dhirubhai Dhanilal Jaiswal, Ex-M, L. A. of Gujarat who had contested the Assembly elections against Shri Sanatbhai Mehta at which election the deponent had worked for the latter. He states that no such persons by the names R. V. Patel and Chandrakant Pandya , live in Baroda and that they are fictitious persons and the person really responsible is perhaps the defeated candidate Shri Dhirubhai Dhanilal Jaiswal. He states that a case was filed against him in the Court of the learned Judicial Magistrate, Kodinar, alleging that he had provided transport for transporting spirit purchased on false permit. The learned trial Magistrate had framed a charge against him and he had moved the High Court for quashing the said charge. He states that the High Court was pleased to come to the conclusion that there was no evidence against him to connect him with the commission of the alleged offence and that being so the charge framed against him by the learned trial Magistrate was quashed. Accordingly all criminal proceedings, in respect of that case against him terminated.

7. He then refers to another case filed against him in the Court of the Metropolitan Magistrate, 7th Court, Ahmadabad, for the commission of offences punishable under Ss. 77 (b) and 65 (e) of the prohibition Act and Ss. 465 and 471 of the Penal Code. He states that the learned trial Magistrate was pleased to acquit him of all the charges leveled against him by his order dated 31st July 1978, He denies that he ii facing prosecution in the Court of the learned Judicial Magistrate, Bhavnagar, in respect of the seizure of 26 barrels of Lathe as alleged in the aforesaid two pseudonymous letters. In respect of a case filed in the court of the judicial Magistrate, Dholka, he states that he has been falsely implicated and that the said case is pending. He also admits that a case is pending against him in the Court of the learned Magistrate, Savli, since more than a year because the police has not been able to submit a chargesheet against him. All these cases pertain to offences punishable under the Prohibition Act and they cannot be said to be economic offences and. therefore, if he did not disclose these particulars in answer to the afore quoted question, it cannot be said that he was guilty of suppression of material information. As regards the facts contained in the letter of the Assistant Collector of Customs and Central Excise dated 4th April 1979, he deposes that no such seizure was made by the Commissioner of Income-tax from his premises and that in fact the Income-tax Officer, Circle II, Baroda, had on 3rd April 1979 issued a certificate that no tax demands were outstanding against him as on that date. He has denied the allegation that unaccounted gold ornaments weighing about 1018 gms. were found from his custody. He has also denied the allegation that the income-tax authorities had come to the final conclusion that he had been guilty of suppressing income to the tune of Rs. 5,53,113/-. He states that in his wealth-tax return filed in 1974 all the gold ornaments referred to in the said report have been disclosed. According to him the Income-tax Officer, Baroda, had recorded his statements on 14th Feb. 1975 and 1st Mar. 1975 in connection with his assessments for Samvat Years 2026 and 2027. He states that in those statements also he had made a mention about these ornaments. Even insofar as the raid carried out on 15th July 1976 is concerned, in the letter of the Assistant Collector of Customs and Central Excise it is in terms stated that 'during the searches carried out nothing incriminating attracting action under the Customs and Central Excise provisions had been recovered'. It would thus appear from the facts stated by the deponent in his affidavit-in-rejoinder that he had disclosed the fact that he was in possession of gold ornaments which were found during the raid in his wealth-tax return filed in 1974. If that be so, it is difficult to come to the conclusion that the Corporation was justified in refusing to disburse the loan without even giving an opportunity to the sponsor- director of the Company to explain the circumstances appearing against him in the two pseudonymous letters and the letter of the Assistant Collector of Customs and Central Excise dated 4th April 1979. In any case, as stated earlier, the Corporation after being fully aware of these allegations against the sponso-rdirector of the Company entered into the contract with open eyes on 1st Feb. 1979 on the basis of the equitable mortgage created by the Company in its favour. We are, therefore, of the opinion that it cannot be said that the Corporation was misled by false information given by the sponsor director of the Company so as to entitle it, on the analogy of S. 30 (a) and (f) of the Act, to refuse to disburse the loan in favour of the Company.

8. It was next argued by the learned Advocate General that in view of the subsequent decision of the Supreme Court in M/s. Jit Ram Shiv Kumar v. State of Haryana. AIR 1980 SC 1285, the principle of promissory estoppel laid down in M. P. Sugar Mills v. State of U. P., AIR 1979 SC 621 cannot apply. By the subsequent decision the Supreme Court has held that the plea of estoppel is not available against the Stale in exercise of its legislative or statutory function. So far as the present contract is concerned it was not against any statutory law; in fact, it was in conformity with law and hence the learned single Judge committed no error in invoking the said principle as in our op.mion also it has direct application in the facts of this case. After considering the effect of the said decision and applying the principle laid down in Messrs Kasturi Lal Lakshmi Reddy v. State of Jammu, and Kashmir, AIR 1980 SC 1992, the learned single judge rightly observed as under:-

'In my view, therefore, where a public body like the respondent-Corporation in exercise of its statutory powers and in fulfillment of its statutory duties leads a citizen to a particular position in which that person changes its position and incurs certain liabilities or undertakes any expensive activity, the public body like the respondent-Corporation cannot then turn round and take shelter against the specious plea that as a contracting party, it is free to commit the breach of the contract and call upon the citizen to have his recourse in law and by seeking damages in a case like the one on hand.'

Now in the instant case there can be no doubt that after the appellant-Corporation promised to advance a loan of Rs. 29.93 lakhs to the respondent-Company, the respondent-Company did certain acts, whereby it altered its position to its detriment and, therefore, it, is entitled to contend that the doctrine of prornissory estoppel applies in its full vigour and the appellant Corporation should be directed to honour its commitment of advancing the loan in the manner agreed by and between the parties under the agreement of 1st Feb. 1979. Broadly stated the doctrine of estoppel by representation is: where one person has made a representation to another person in words or by acts or conduct or with the intention, and with the result, of inducing the representee on the faith of such representation to alter his position to his detriment, the representer, in any litigation which may afterwards take place between him and the representee, is estopped. as against the representee, from making or attempting to establish any evidence, any averment substantially at variance with his former representation, In this case, on the representation made by the appellant-Corporation the respondent Company after obtaining the title clearance certificate sought permission of the competent authority under the Urban Lands (Ceiling and Regulation) Act. 1976 and thereafter proceeded to execute the various documents enumerated in para. 8 of the main petition and created an equitable mortgage on the security of the land in favour of the appellant Corporation. It was there after that the respondent Company inducted one of the nominees of the appellant-Corporation on its Board of Directors and started the construction at the site after incurring preliminary expenses for the purpose. As per the terms of the agreement it took out insurance policies from time to time and as stated earlier, on the basis of- the subsequent communications of 29th Dec. 1980 and 5th Jan. 1981, the Insurance policies have been renewed as desired by the appellant-Corporation. It has also raised a share capital of Rs. 7.64 lakhs and has now placed itself in such ''a position that, it cannot raise money on the security of the said property in view of the fact that the equitable mortgage executed in favour of the appellant-Corporation subsists. It may also be mentioned that the value of the security has multipli6d manifold during the last two years as land prices have gone up considerably. Under the agreement of loan amount has to be paid according to the time schedule worked out by the. Parties depending on the progress made by the Company in the Construction of the hotel at the site. With the increase in the value of the real estate mortgaged with the appellant-Corporation, the latter is fully secured. So far as a prudent business man is concerned, when he is called upon to advance a loan on immovable property, his main concern is whether security is adequate, The Corporation has to act on business principles in view of Section 24 of the Act and. therefore, having regard to the fact that the value of the property mortgaged has gone up considerably in the meantime. it should have no hesitation in advancing the loan as it is fully secured. If on the other hand the loan is not advanced or disbursed as promised by the appellant Corporation, the respondent Company, apart from suffering a loss on account of delay will need extra finance to combat the increase in the cost of construction due to the increase in the prices of cement and steel in the mean time. It is, therefore, obvious that if the appellant Corporation is now permitted to wriggle out of the promise that it made to the Company, the Company having already changed its position by incurring expenses and starting construction on the site will be prejudiced more so because it is so placed that it cannot raise any loan on the property in question in view of the fact that the equitable mortgage in favour of the appellant-Corporation subsists. In these set of circumstances even on the principle laid down by the Supreme Court in its subsequent decision in Jit Ram's case (supra) which has been considered in detail by the learned single judge. The doctrine of promissory estoppel must be invoked to save the respondent Company from ruination. The Supreme Court in Jit Ram's case has, laid down that the Court can enforce compliance by a Public authoritv of the obligation laid on him if he arbitrarily or on his mere whim ignores the promises made by him on behalf of the Government unless the authority proves that there were special considerations which necessitated his not being able to comply with his obligations in public interest. In the instant case, except for the two pseudonymous letters written sometime in Oct. 1978 and the subsequent letter of the Assistant Collector of Customs and Central Excise dated 4th April 1979 no other ground has been put forward by the appellant-Corporation for backing out of the promise made to the respondent-Company. We have already pointed out earlier that before the creation of the equitable mortgage and the execution of the various documents on 1st Feb. 1979 these facts were within the knowledge of the appellant-Corporation since Oct. 1978, the Corporation had actually embarked on an inquiry insofar as the allegations made in the two pseudonymous letters were concerned and notwithstanding those allegations it had entered into the contract in question and called upon the respondent-Company to create an equitable mortgage and to execute the various documents set out in para 8 of the main petition. Therefore, at the date of the execution of these documents the appellant-Corporation was aware of the allegations made against the sponsor-director of the Company and yet with full knowledge and open eyes it entered into the contract in question and, therefore, it cannot be said that it was misled by the answer given to Question IV (XI) (a) in the loan application by the sponsor-director of the Company. We are, therefore, of the opinion that the learned single Judge was fully justified in invoking the doctrine of promissory estoppel on the facts and in the circumstances of the present case.

9. The learned Advocate General lastly contended that notwithstanding the fact that appellant Corporation is covered by Art. 12 of the Constitution, a petition under Art. 226 of the Constitution is not maintainable and the remedy is by way of a suit in the municipal Court as the relations between the parties are governed under the contract or agreement executed on 1st 'Feb. 1979 and not under any statute. In support of this contention strong reliance was placed on the decision of the Supreme Court in Radhakrishna Agarwal v. State of Bihar. AIR 1977 SC 1496. That decision arose out of the judgment of the Division Bench of the Patna High Court which had held that cases of breaches of alleged obligation by the State or its agents can be divided into the following three types:-

'(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where on assurance or promise made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Art. 299 of the Constitution.

(ii) Where the contract entered into between the person aggrieved anti the State is in exercise of a statutory power under certain Act or Rules framed there under and the petitioner alleges a breach on the part of the State; and

(iii) Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such contract by the State.'

The Patna High Court had taken the view that it is only in the third type of cases that no writ or order can issue under Art. 226 of the Constitution to compel the authorities to remedy the breach of contract pure and simple. This view of the High Court of Patna was approved by the Supreme Court in appeal. In Premji Bhai v. Delhi Development Authority, AIR 1980 SC 738 also the Supreme Court observed (at P. 744) :-

'But after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Art. 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract.'

These observations of the Supreme Court also make it clear that where the dispute lies within the contractual field pure and simple, a petition under Article 226 of the Constitution is not maintainable but if any statute intervenes and imposes certain duties and obligations on the State, a writ under Article 226 of the Constitution can issue.

10. It becomes obvious from the aforesaid pronouncements Of the Supreme Court that if the matter lies purely in the sphere of contract, the remedy would be to file a suit for breach of contract and a writ petition under Art. 226 of the Constitution would not be competent. In the instant case, however, it cannot be said that the matter lies purely in the contractual sphere as submitted by the learned Advocate General. We have already examined the scheme of the Act in the earlier part of the judgment and we have pointed out from the provisions of the Act and particularly Chapter III thereof that certain duties and functions are cast on the Board, one of them being to grant loans and advances to an industrial concern subject to the limitations set out by the statute provided the amount advanced by the Corporation is sufficiently secured by a mortgage, etc., depending on the type of the advance made to the industrial concern. It is in fulfillment of this statutory obligation under Section 25 (1) (g) of the Act that the appellant-Corporation agreed to advance a loan of Rs. 29.93 lakhs to the respondent-Company on the security of immovable property created by the equitable mortgage made in favour of the Corporation. As observed earlier, that mortgage is subsisting even today. The Corporation is also entitled to impose such further conditions as it deems necessary for protecting its interest and securing the Accommodation granted to the industrial concern with a view to ensuring that the amount loaned or advanced is put to the best use for the purpose for which it is advanced by the industrial concern. With a view to safeguarding its interest and with a view to ensuring that the amount advanced is put to the best use by the industrial concerr4 the Corporation in exercise of power conferred upon it by sub-section (2) of Section 27 has inducted Mr. U. M. Patel as its nominee on the Board of Directors of the Company. This could not have been done by the Corporation in the absence of the non obstante clause contained in sub-section (2) of Section 27 of the Act. Now the Director appointed at the instance of the Corporation on the Board of Directors of the Company shall hold office during the pleasure of the Corporation and is liable to be removed or substituted by any other person by an order made in writing by the Corporation, such a Director is not liable to retirement by rotation nor does he incur any obligation or liability by reason of being a Director of the Company in view of sub-section (3) Of S. 27 of the Act. Ss. 29 and 33. of the Act confer special rights on the Corporation for enforcement of its claims against the industrial concern. S. 30 (a) and (f) to which we have referred earlier which provisions were invoked by the learned advocate General for refusing to disburse the loan, also confer statutory powers on the Corporation which would not be available under the contract unless the terms thereof specially provide for the same. It is in virtue of these duties and functions conferred on the Corporation that the Corporation agreed to advance the loan to the Company. It is, therefore, wholly misconceived to say that the relationship is purely contractual. To a large measure it is statutory and contractual only in form and detail, if it was a case of a mere contract, could the Corporation have the power to nominate its Director or take over the management of the Company without the intervention of the Court? The transaction undoubtedly has statutory favour. In our opinion, by agreeing to advance a loan to the Company, the Corporation performed one of its statutory duties under Section 25 of the Act. The terms and conditions on which the loan was to be advanced weve later reduced to writing in the form of an agreement but that does not mean that the Corporation was acting purely in the contractual field when it was performing its statutory duty or function under Section 25 of the Act. Besides, when it inducted one of its nominees on the Board of Directors, it was acting purely in the statutory field in virtue of Section 27 (2) and (3) of the Act. In the matter of recovery of the loan amount or the installment, as the case may be, it is entitled to invoke its rights under Secs. 29 and 31 of the Act. Bearing in mind the scheme of the Act, the nature of the duties and obligations imposed on the Corporation and the rights and privileges conferred on it in the matter Of recovery or repayment of the loan amount/installments. etc., it is difficult to agree with the learned Advocate General that the Corporation was acting purely in the contractual field when it agreed to advance the loan to the respondent-Company. In fact, it was on the basis of Section 30 (a) and (f) of the Act that the learned Advocate General argued that on principles analogous to those engrafted in the said two clauses the Corporation is entitled to refuse the loan. This contention advanced on behalf of the Corporation itself suggests that when the Corporation refuses to disburse the loan it is seeking to invoke the right conferred upon it by the statute and not the contract. A Corporation which is a State or other authority under Art. 12 and which is clothed with certain statutory powers can never be permitted to unilaterally and in an arbitrary and unfair manner refuse to carry out its obligations and thereby wreck. During proceedings Corporation was prepared to disburse the loan if refinance was available. That means the Corporation did not consider it risky to disburse the amount provided it stood refinanced. We have already pointed out earlier that the parties did contemplate a situation where refinancing may be refused. It is, therefore, obvious that, this rider is being placed as a mere excuse. In the circumstances, we are in agreement with the learned single Judge that this is a fit case in which the jurisdiction of the Court under Art. 226 of the Constitution should be invoked to assist the Company, an innocent victim

11. These were all the submissions made before us by the learned Advocate General on behalf of the appellant Corporation. As we did not find any merit in these submissions, we passed the order dismissing the appeal with costs on 12th Oct. 1981.

12. Appeal dismissed.


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