State financial corporation status survives reduced government shareholding; auction sale upheld absent proof of non-disclosure or inadequate price.

An institution established by a State Government and notified under the State Financial Corporations Act remained a State Financial Corporation despite the Government's shareholding falling below 50 per cent, because the statutory character depended on its establishment and notification, not later dilution of shareholding. The exercise of recovery powers under the Act was therefore valid. A challenge to the auction sale of mortgaged assets also failed, as allegations of non-supply of dues particulars and inadequacy of consideration were unsupported by material evidence, and the borrower had been given opportunities to clear dues and improve bids. The completed sale was upheld, subject only to limited liberty regarding surplus proceeds.

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Issues: (i) Whether an institution established by a State Government and notified under the State Financial Corporations Act, 1951 ceases to be a State Financial Corporation merely because the Government's shareholding falls below 50 per cent; (ii) Whether the sale of the mortgaged assets was liable to be set aside on the grounds of non-supply of particulars of dues and inadequacy of consideration.

Issue (i): Whether an institution established by a State Government and notified under the State Financial Corporations Act, 1951 ceases to be a State Financial Corporation merely because the Government's shareholding falls below 50 per cent.

Analysis: Section 46 of the State Financial Corporations Act, 1951 empowers the Central Government, on a request of the State Government, to apply the Act to an institution established by a State Government for financing industrial concerns, and on such notification the institution is deemed to be a financial corporation within the meaning of the Act. The respondent had been established by the State Government for industrial financing and had been notified under the Act. The subsequent reduction in Government shareholding did not alter the fact of its establishment by the State Government or the continuing governmental control relevant to its character under the Act.

Conclusion: The respondent continued to be a State Financial Corporation, and the exercise of powers under Section 29 of the State Financial Corporations Act, 1951 was valid.

Issue (ii): Whether the sale of the mortgaged assets was liable to be set aside on the grounds of non-supply of particulars of dues and inadequacy of consideration.

Analysis: The objections regarding non-furnishing of the outstanding account details and alleged inadequacy of the sale price were unsupported by material evidence. The borrower had been given repeated opportunities to clear the dues and to match or improve the bids, but failed to do so. In the absence of substantiation, the vague allegations could not displace the completed auction and sale process.

Conclusion: The challenge to the auction and sale on these grounds failed.

Final Conclusion: The challenge to the respondent's authority and to the auction sale was rejected, and the dismissal of the writ petition was sustained, with only a limited liberty regarding any surplus sale proceeds.

Ratio Decidendi: An institution established by a State Government and notified under Section 46 remains a financial corporation under the Act notwithstanding a later reduction in government shareholding, and a completed sale under Section 29 will not be invalidated on unsubstantiated allegations of non-disclosure of dues or inadequate price.

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