TaxTMI 
TaxTMI 
1982 (1) TMI 212
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 engaged 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., . 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 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overnment 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, café, etc. Shri Chandulal Jethalal Jaiswal the sole proprietor of Ramprakash Estate Corporation is the promoter-director of the Company. He had entered into an agr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 resubmitted 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 e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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, Thes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 functions 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, Ahmedabad, 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 lette....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ven 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 sponsor director 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., the principle of promissory estoppel laid down in M. P. Sugar Mills v. State of U. P. cannot apply. By the subsequent decision the Supreme Court has held that the plea of estoppel is not available against the State in exercise of its leg....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 multiplied manifold during the last two years as land prices have gone up c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....toms 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 were 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 nomine....