1975 (4) TMI 138 - HC - Companies Law

Court upholds constitutionality of State Financial Corporation Act Section 29, dismisses writ petition.

Srinivasa Kandasari Sugars, Versus Government Of Andhra Pradesh And

The court dismissed the writ petition challenging the constitutional validity of Section 29 of the State Financial Corporation Act, 1951. It held that ... - Issues Involved:1. Constitutional validity of Section 29 of the State Financial Corporation Act, 1951.2. Whether the Financial Corporation can resort to Section 29 after initiating proceedings under Section 31.3. Whether the action taken under Section 29 violates principles of natural justice.Detailed Analysis:1. Constitutional Validity of Section 29 of the State Financial Corporation Act, 1951:The petitioner contended that Section 29 of the Act is violative of Article 14 of the Constitution of India. The principal grounds of attack were that the special procedure under Section 29 is more drastic and prejudicial compared to Section 31, and there are no guidelines provided as to when the procedure under Section 29 can be resorted to, thereby permitting discrimination among industrial concerns.The court analyzed the provisions of Sections 29 and 31 of the Act. It noted that Section 29 allows the Financial Corporation to take over the management of the defaulting industrial concern and sell the property without court intervention, whereas Section 31 involves court proceedings. The court held that the mere existence of two remedies, one more drastic than the other, does not by itself amount to an infringement of equality guaranteed under Article 14.The court referred to several Supreme Court judgments, including State of West Bengal v. Anwar Ali Sarkar, Kathi Raning v. State of Saurashtra, Kedar Nath Bajoria v. State of West Bengal, Ram Krishna Dalmia v. Justice Tendolkar, and M. Chhagganlal v. Greater Bombay Municipality. It concluded that a statute providing for a more drastic procedure does not automatically violate Article 14 if there are guidelines or a clear legislative policy. The court found that the necessary guidance for the Financial Corporation can be inferred from the preamble, surrounding circumstances, and the provisions of the Act itself.The court held that Section 29 is not violative of Article 14, as the statute provides sufficient guidance and the Financial Corporation is a responsible body expected to act in a realistic manner, keeping in view the interests of the Corporation, industry, commerce, and the general public.2. Whether the Financial Corporation Can Resort to Section 29 After Initiating Proceedings Under Section 31:The petitioner argued that the Financial Corporation, having initiated proceedings under Section 31, cannot have recourse to Section 29. The court held that since Section 29 is a valid provision of law, the Corporation has the choice to resort to either of the procedures. The court noted that the Corporation withdrew its application under Section 31 and proceeded under Section 29, which is not illegal. The court emphasized that the petitioner has no right to dictate the procedure the Corporation should follow, as long as the Corporation acts within the bounds of the law and does not act arbitrarily or maliciously.3. Whether the Action Taken Under Section 29 Violates Principles of Natural Justice:The petitioner contended that the action of the Financial Corporation under Section 29 violated principles of natural justice. The court held that the petitioner, who stepped into the shoes of the original borrower, was bound by the terms of the agreement, which included the powers and conditions under the State Financial Corporation Act. The court found that the petitioner was aware of the likelihood of the Corporation proceeding under Section 29, as indicated by the correspondence and advertisements calling for tenders.The court referred to A.K. Kraipak v. Union of India and held that the concept of natural justice depends on the facts and circumstances of each case. The court concluded that the petitioner had knowledge of the proposed action and that the Corporation acted in good faith and did not act arbitrarily.Conclusion:The writ petition was dismissed. The court held that Section 29 of the State Financial Corporation Act, 1951, is not violative of Article 14 of the Constitution. The Financial Corporation's action under Section 29 was legal and valid, and it did not violate principles of natural justice. The petitioner's contention that the Corporation acted arbitrarily was rejected. The court awarded costs to the respondents.