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Judgment
A.R. Lakshmanan, J.—The prayer in W.P. No. 1091 of 1992 is to direct the Tamil Nadu Industrial Investment Corporation (hereinafter
referred to as the Corporation) to accept the proposal of the petitioner/S. Balasubramanian dated 29-10-1991 for repayment of the term loan of
Coimbatore Paper and Board Company, which had borrowed from the Corporation. W.P. No. 1092 of 1992 is to forbear the Corporation from
accepting the bid amount of Rs. 1.57 lakhs pursuant to the auction of the assets of the Coimbatore Paper and Boards Company conducted on 4-
10-1991 by the Corporation in exercise of its powers under S. 29 of the State Finance Corporation Act. Both the writ petitions were filed by one
S. Balasubramanian, claiming to be the sole proprietor of Coimbatore Paper and Boards Company. W.P. No. 1928 of 1992 is filed for a
declaration that the sale of the factory premises bearing S.F. No. 29 in Deenampalayam Village, Thondamuthur, Coimbatore, pursuant to the
auction conducted on 4-10-1991 by the Corporation is illegal and arbitrary. The prayer in W.P. No. l2203 of 1993 is to forbear the Corporation
from selling the collateral security. Both these writ petitions have been filed by one M. Nagarajan as a retired partner of Coimbatore Paper and
Board Company.
For appreciating the issues involved in all the writ petitions it is necessary to refer to the following relevant facts. A partnership firm caller
Coimbatore Paper and Boards Company consisting of P. Ramesh, M. Nagarajan, P. Balasubramaniam and M.P. Ramachandran as partners, was
sanctioned a term loan of Rs. 5 lakhs by the Corporation on 21-1-1983. As security for the due repayment of the loan by the said company to the
Corporation, one M. Nagarajan, who is the petitioner in W.P. Nos. 1928 of 1992 and 12203 of 1993, created a mortgage over his personal
house property as collateral security in addition to the securities offered by the company including a mortgage on the factory premises in S.F. No.
29, Kalikkanaickenpalayam, Thondamuthur, Coimbatore.
Two of the partners of the borrower company viz., P. Balasubramainam and M.P. Ramachandran retired from the firm on 20-8-1983 after
obtaining necessary permission and approval from the Corporation. Necessary security documents for the term loan were executed on 31-10-
1983 by the firm represented by its partners and the firm availed a sum of Rs. 2.60 lakhs as loan, As already seen, M. Nagarajan has offered his
house property as a collateral security in respect of the loan availed by the firm from the Corporation. The firm viz., the Coimbatore Paper and
Boards Company did not keep up the schedule of repayment as agreed. At that stage, one S. Balasubramanian, petitioner in W.P. Nos. 1091 and
1092 of 1992 and Proprietor of M/S. B and B Equipments, submitted a proposal to the Corporation to take over the business of Coimbatore
Paper and Boards Company as a sole proprietor. On 16-6-1988, the Corporation accepted the proposal submitted by S. Balasubramanian
subject to the condition that the collateral security offered by M. Nagarajan should continue to remain as security till the entire loan is discharged.
It transpires that the said S. Balasubramanian could not comply with the said condition imposed by the Corporation. However, the said S.
Balasubramanian gave another proposal on 9-8-1988 to the Corporation to take one G.R. Mohan as a partner and run the Coimbatore Paper and
Boards Company as a partnership firm consisting of himself and the said G.R. Mohan. This proposal was not approved by the Corporation since it
did not contain any provision for continuing the collateral security offered by M. Nagarajan. Since the borrower did not comply with the terms and
conditions of loan in regard to repayment, the Corporation fore-closed the loan and brought the property offered by the borrower firm viz, the
factory premises in S.F. No. 29, Thondamuthur, Coimbatore for public auction on 27-7-1990 in exercise of its powers vested tinder S. 29 of the
State Finance Corporation Act. The highest bid was made by the petitioner S. Balasubramanian for Rs. 2.50 lakhs. Since the highest bid amount
did not confirm to the norms laid down by the Corporation, the Corporation did not accept the bid of the petitioner S. Balasubramanian.
For the second time, the property was brought to sale during February, 1991. There was no bidder. Therefore, for the third time the property
was brought for auction on 6-8-1991 by the Corporation. Unfortunately, there was no bidder even in the third auction. Hence, the Corporation
brought the property of the borrower firm for auction on 4-10-1991. One M. Palaniswami made an offer of Rs. 1.51 lakhs. Since the highest bid
offered by M. Palaniswami was lower than the earlier bid offered by the petitioner S. Balasubramanian in the auction held on 27-7-1990, the
Corporation did not immediately accept the offer of M. Palaniswami.
Meanwhile, the petitioner S. Balasubramanian paid a sum of Rs. 1 lakh on 29-10-1991 and offered to pay the balance principal of Rs. 1.60
lakhs before 15-12-1991 and take over and run the unit. The Corporation sent reminders on 2-12-1991 and 9-12-1991 to the petitioner S.
Balasubramanian calling upon him to remit the balance amount as undertaken by him. Unfortunately, he did not pay balance amount of Rs. 1.67
lakhs on or before 15-12-1991. Therefore, the Corporation sent a telegram on 18-12-1991 to him and requested him to pay the balance amount.
There was no response from him. Therefore, left with no other option, the Corporation confirmed the sale in favour of M. Palaniswami, who made
the highest bid in the auction held on 4-10-1991. On 20-1-1992 the sale deed was executed by the Corporation in favour of M. Palaniswami and
possession of the unit was handed over to him on the very same day. It is thereafter, the petitioner S. Balasubramanian has filed W.P. Nos. 1091
and 1092 of 1992.
M. Nagarajan filed W.P. Nos. 1928 of 1992 and 12202 of 1993 for declaring the sale of the factory premises on 4-10-1991 as illegal and
arbitrary and for forbearing the Corporation from selling the collateral security offered by him. It is seen that on 2-7-1993 in W.M.P. No. 18601
of 1993 in W.P. No. 12203 of 1993 a conditional order was passed by J. Kanakaraj, J., restraining the Corporation from selling the collateral
security, the conditional order being the said M. Nagarajan should pay a sum of Rs. l lakh on or before 9-7-1993 to the Corporation. It is stated
by Mr. A.L. Somayaji, learned Senior Counsel for the Corporation, that the said condition was not complied with by the petitioner M. Nagarajan,
Mrs. Nalini Chidambaram, learned Senior Counsel appearing for the petitioner, would place heavy reliance on the decision of the Supreme
Court in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, and a recent decision of ours and submit that the
Corporation acted arbitrarily and unreasonably and the writ petitions should be allowed.
Mr. A.L. Somayaji, learned Senior Counsel for the Corporation would submit that there is no scope at all for applying the principles laid down
in Mahesh Chandra''s case. According to him, the petitioner S. Balasubramanian has no locus standi to forbear the Corporation from accepting the
highest bid amount offered by M. Palaniswami. It is submitted that the petitioners have initiated the above legal proceedings as a method to defeat
the rights of the Corporation. He would place strong reliance on a decision of the Supreme Court reported in A.P. State Finance Corporation v.
M/S. Gar Re-rotting Mills Judgment To-day, 1994(1) S.C. 586.
We have given our anxious consideration to the above submissions made by the learned Senior Counsel on either side. We have already
noticed that the petitioner S. Balasubramanian made an offer to take over the unit and the Corporation agreed for the same on condition that the
collateral security offered by M. Nagarajan should continue to remain as a collateral security till the entire loan is discharged. Admittedly, this
condition was not complied with. Consequently, the proposal made by the petitioner S. Balasubramanian fell through. The subsequent proposal
made by the said S. Balasubramanian on 9-8-1988 was not approved by the Corporation. Thereafter, the Corporation had fore-closed the loan
and had taken over the unit on 21-6-1990. The petitioner S. Balasubramanian made another vain attempt to purchase the unit the public auction
conducted by the Corporation. In fact, the said S. Balasubramanian was given ample opportunity to pay the amounts as undertaken by him in his
letter dated 29-10-1991. However, it is contended by the learned Senior Counsel appearing for the Corporation, that he committed default and
did not remit the balance sum of Rs. 1.67 lakhs either on 15-12-1991 as undertaken by him or subsequently which necessitated the Corporation
to accept the highest bid of M. Palaniswami and confirm the sale in his favour. Necessary sale documents have been executed by the Corporation
on 20-1-1992 in favour of M. Palaniswami and the possession of the unit was handed over to him. Hence, we are of the view that there is no
infirmity in the action taken by the Corporation.
As rightly contended by Mr. A.L. Somayaji, learned Senior Counsel for the Corporation, S. Balasubramanian is not one of the partners of
Coimbatore Paper and Boards Company, which has borrowed money from the Corporation. For the reasons mentioned supra, we are of the view
that it is not open to him to ask for a mandamus to forbear the Corporation from accepting the bid of M. Palaniswami/5th respondent in W.P. No.
1928 of 1992. Consequently, we are of the view that W.P. No. 1092 of 1992 is liable to be dismissed.
Equally, it is not open to the petitioner S. Balasubramanian to seek a direction to accept the proposal made by him on 29-10- 1991. It is seen
that the Corporation accepted the above proposal of the petitioner S. Balasubramanian and gave time to him to pay the balance amount as
undertaken by him in his proposal dated 29-10-1991. But, no payment was received from the petitioner S. Balasubramanian either on 15-12-
1991 or subsequently. Thus, as rightly contended by the learned Senior Counsel for the Corporation, the petitioner S. Balasubianianian did no;
fulfil his own undertaking contained in the proposal submitted by him. Consequently. W.P. No. 1091 of 1992 is also liable to be dismissed.
Next we will come to W.P. No. 12203 of 1993. So far as the prayer in this writ petition is concerned, it has to be held that M. Nagarajan
who offered his personal property as collateral security, has not complied with the conditional interim order dated 2-7-1993 in W.M.P. No. 1860
of 1993 in W.P. No. 12203 of 1993. Therefore, he cannot be granted any relief in W.P. No. 12203 of 1993.
When once a borrower has committed default in repaying the amount, it is always open to the Corporation to take recourse under S. 29 of the
State Finance Corporation Act to realise the amounts due to it by bringing the collateral security for sale. We do not find any arbitrariness or
unreasonableness in the action of the Corporation in bringing the collateral security for sale as contended by Mrs. Nalini Chidambaram, learned
Senior counsel for the petitioners. Consequently, we hold that W.P. No. 12203 of 1993 is also liable to be dismissed.
With regard to W.P. No. 1928 of 1992, there is no ground for granting any relief to the petitioner M. Nagarajan. It is undoubtedly true that the
action of the Corporation while exercising its powers under S. 29 of the State Finance Corporation Act, as laid down by the Supreme Court,
should be fair and not unreasonable. We do not find any unreasonableness in the action of the Corporation in bringing the main security offered by
the borrower for sale. The jurisdiction of this Court is discretionary and no one can claim the same as a matter of right. The relief under Art. 226 of
the Constitution cannot at all be granted in favour of a person who is a chronic defaulter in the repayment of the loan. In this connection, it is useful
and necessary to refer to the decision cited by the learned Senior Counsel for the Corporation Mr. A.L. Somayaji and reported in Andhra Pradesh
State Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, . The following observations of the Supreme Court in paragraph 18 of its
judgment can be usefully referred to:
There is no equity in favour of a defaulting party which may justify interference by the Courts in exercise of its equitable extraordinary jurisdiction
under Art.226 of the Constitution to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate
rights of the Corporation which after advancing the loan lakes steps to recover its dues from the defaulting party. A Court of equity, when
exercising its equitable jurisdiction under Art. 226 must so act as to prevent perpetration of a legal fraud and the Courts are obliged to do justice
by promotion of good faith, as far as it lies within their power. Equity is always known to defend the law from crafty evasions and new subtleties
invented to evade law. Since, the Legislature enacted Ss. 29 and 31 with a view to aid the Corporation to recover its legitimate dues, etc., from the
defaulting party, the saving clause in S. 31, preserving the rights under S. 29 by giving up the pursuit under S. 31. preserving the rights under S. 29
by giving up the pursuit under S. 31 at any stage of the proceedings is available to the Corporation. The two provisions must be so harmonised as
to facilitate the Corporation to recover its dues from the defaulting party. The Act was enacted by Parliament with a view to promote
industrialisation and offer assistance by giving financial assistance in the shape of loans and advances etc., repayable in easy instalments. The
corporation has to recover the loans and advances, so as to be able to give financial assistance to other industries and unless it recovers its dues,
the money will not remain in circulation for long. It is with this end in view that Parliament gave the corporation the right to proceed under S. 31,
preserving at the same time its rights and remedy under S. 29, so that the Corporations are not choked by the defaulting debtors by adopting
frustrating or dilatory tactics in the proceedings in the Court initiated under S. 31 of the Act.
Admittedly, none of the writ petitions has been filed by the borrower of the firm. M. Nagarajan has filed the writ petitions as a retired partner
of Coimbatore Paper and Boards company and it is his claim that S. Balasubramanian and G.R. Mohan have became partners of the firm. The
Corporation has not recognised the reconstitution of the firm inducting S. Balasubramanian and G.R. Mohan as partners. Surprisingly, S.
Balasubramanian would claim to be the sole proprietor of the concern in his writ petitions. Thus, there is inconsistency in the claim of S.
Balasubramanian and M. Nagarajan in their respective writ petitions. There are no merits or bona fides in the writ petitions. The have been filed, as
rightly urged by M.A.L. Somayaji, learned Senior Counsel for the corporation, to frustrate the recovery action initiated by the Corporation.
The decision of the highest Court in Mahesh Chandra''s case will not be of any assistance to the petitioners. That was a case in which the
borrower made a request to the financial Corporation to release one of the plots to enable him to negotiate for private sale to pay off its debts. But
the Corporation was not acceding to the said request, which was found to be arbitrary and unreasonable by the Supreme Court. In the present
case, the borrower firm has not taken any steps to pay the debts due to the Corporation. We have already noticed that the borrower has accepted
the sale of the unit by the Corporation and has not come to this Court challenging the above action of the Corporation. The petitioner S.
Balasubramanian, who was unsuccessful in taking over the unit and who is not in any way concerned with the borrower firm, has filed the writ
petitions raising untenable contentions and pleas. In our view, he has no locus standi to challenge the sale of the unit. So far as M. Nagarajan is
concerned, he has not filed the writ petitions for and on behalf of the borrower firm. The only person who can, if at all, be aggrieved by the sale of
the unit is the borrower firm, who apparently has no grievance against the sale of the unit. In view of the above discussion, we hold that W.P. No.
1928 of 1992 also deserves to be dismissed. For the fore-going reasons, all the four writ petitions are dismissed. However, there will be no order
as to costs.