Bhim Sain Jindal vs HIMACHAL PRADESH FINANCIAL CORPORATION

IN this Original Petition No. 59 of 1994 Shri Bhim Sain Jindal, Director of M/s. Rosella Plastos (P) Ltd., B -IV/ 41, Ahata Karamgarhia, Barnala District, Sangrur, Punjab is the petitioner and M/s. Himachal Pradesh Financial Corporation and the State Bank of India are the opposite parties Nos. 1 and 2 respectively.

THE petitioner who is the Managing Director of the Company, M/s. Rosella Plastor (P) Ltd., promoted a project for the manufacture of PVC fittings etc., and installed a unit at Paonta Sahib in Himachal Pradesh for this purpose. They negotiated a loan for a sum of Rs. 32 lakhs which was sanctioned by the opposite party No. 1 vide letter No.HPFS/7 -64/86 -6839 of 26.11.86. The loan was subject to certain terms, conditions and stipulations, requiring the petitioner to provide adequate security by equitable mortgage of immovable property and hypothecation of movable assets, margin money at 34.03% of the project cost, and the repayment of the loan in half -yearly installments within 10 years from the date of the execution of the legal documents etc. The loan was to carry interest @ 161/i% with a rebate of 3% per annum for punctual payment. There were many other conditions such as the minimum capital of the promoters at Rs. 7.83 lakhs etc. The project could not be completed in time, and, therefore, the cost over -run increased the requirement of capital. Over -run of time as well as costs also resulted in default in payment of instalments to opposite party No. 1 and they, therefore, being dissatisfied with the Managements failure and financial indiscipline of the petitioner -Company issued a notice recalling the outstanding loan of Rs. 30,63,610/ - on 10.5.1990 including interest upto 9.12.1989. The petitioner requested the opposite party No. 1 to reschedule the payment by giving them some time but that too could not materialise, as the cheques issued by the petitioner -Company bounced on presentation. Realising that their financial interests were at risk, the opposite party No. 1 issued a take -over notice on 9.12.1992 and fixed the date for take -over as 14.1.1993. However, as the opposite party No. 1 suspected that the hypothecated assets were being removed from the premises of their unit, on the basis of a report given by their Nahan Office, they took over the unit on 13.1.1993.

THE opposite party No. 2, the State Bank of India, had also agreed to provide working capital for the Company as follows : (A) Cash Credit (Hyp) Limit Rs.8.63 lakhs (B) Cash Credit (Bills) Limit Rs.4.90 lakhs (C) Cash Credit (Book Debts) Limit Rs.0.80 lakhs Total Rs. 13.33 lakhs These credit limits were also subject to usual conditions and stipulations. As the unit could not work due to dispute between the petitioner and the opposite party No. 1, no working capital could be released to them by opposite party No. 2. On being approached again, the opposite party No. 2 agreed to release the money provided the petitioner could satisfy that the opposite party No. 1, namely, the H.P. Financial Corporation had agreed to convert the overdue interest into a fresh term loan and to reschedule the payment of instalments of the term loan. But since these two stipulations could not be complied with, no money was released to them. In fact, by the time the petitioner completed the other formalities for obtaining the working capital loan from the State Bank of India, the opposite party No. 1, exercising the powers vested in it, took over the unit of the petitioner and advised the opposite party No. 2 not to release the sanctioned credit facilities.

THE grievance of the petitioner is that by not releasing the amount of loan in time and by not rescheduling the payment of instalments which became inevitable due to over -run of costs because of delay and finally by taking over the unit at a stage when it was on the verge of taking off, the opposite party No. 1 has not only violated the terms, conditions and stipulations of the sanction of the loan, but has caused loss of Rs. 48.71 lakhs to the petitioner and that it amounts to deficiency in service and, therefore, he should be compensated accordingly. Same is the complaint against the respondent No. 2, the State Bank of India. We have heard the learned Counsel for the petitioner and the opposite parties and perused the record of the case carefully. We find that this is a case of project financing by a financial institution and provision of working capital by a nationalised Bank. Both are in the nature of financial transactions and, therefore, their sanction and implementation is subject to usual terms, conditions and stipulations in the relevant sanctions. Moreover, the relationship in these transactions between the petitioner and the opposite parties is clearly that of borrower and lender, as the loans are secured by way of assets, trade debts and stock in trade, etc. As the financial institutions are the custodian of public funds, and so is the Bank, they are expected to exercise due caution and prudence to ensure that these funds are not put to risk in a way that they turn into bad debts or irrecoverable debts. For this purpose, they, from time to time, have to assess the prospects of the project, which they undertake to finance, to find its viability for the safety of their investment. This assessment is a continuing exercise and should be so. As any prudent financier will not like to sink its funds in a losing proposition; the sound financial management also requires that timely steps are taken to secure recovery of the funds released by the public financial institutions, including the Banks. In this scheme of things, the judgment of the financial institution and the Bank arrived at in good faith is crucial and unless we find that there has been an act of intentional and deliberate negligence to cause loss, it is not proper to interfere merely on allegations made in a petition of this nature. We, therefore, see no merit in this petition and dismiss it. The Petitioner is at liberty to seek relief in any other manner available to him in law. There is no order as to costs. Petition dismissed.