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Bihar State Financial Corpn. And Others v. Chemicot India (P) Ltd. And Others
Factual and Procedural Background
The first respondent established a small-scale industrial unit and obtained several loans from the Bihar State Financial Corporation (“the Corporation”) under the State Financial Corporations Act, 1951. In 1988 the Corporation sanctioned an additional term loan of Rs 15 lakhs for expansion, subject—inter alia—to production of a DGTD Registration Certificate. Although the loan agreement was registered on 31 March 1988 without the certificate, the Corporation refused to disburse any amount because the document had not been furnished.
The respondent filed Writ Petition CWJC No. 1691 of 1990 before the Patna High Court, which held that the Corporation had waived the certificate requirement and directed immediate disbursal of the loan. The Corporation appealed to the Supreme Court of India. During the pendency of the appeal the unit remained closed for over 15 years, and the parties filed conflicting affidavits regarding the factory’s current condition and revivability.
Legal Issues Presented
- Whether the Corporation was estopped from refusing to disburse the sanctioned loan after registering the agreement notwithstanding the respondent’s failure to furnish a DGTD Registration Certificate.
- Whether the High Court was correct in issuing a writ of mandamus compelling disbursal despite the respondent’s alleged defaults on earlier loans and subsequent deterioration of the industrial unit.
- Whether, in exercise of jurisdiction under Article 136 of the Constitution, subsequent events rendering relief futile justified setting aside the High Court’s order.
Arguments of the Parties
Appellant – Bihar State Financial Corporation
- The respondent defaulted on instalments for earlier loans (10-3-1983, 20-3-1986 and 24-3-1987); hence no writ of mandamus should issue.
- Allahabad Bank had already instituted a recovery suit against the respondent, indicating financial incapacity.
Respondent Company
- The Corporation made a binding promise to advance the additional Rs 15 lakhs and could not renege.
- The DGTD certificate requirement did not apply to small-scale industries; in any case, registration of the loan agreement constituted waiver of that condition.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court acknowledged that a statutory financial corporation is ordinarily granted deference in commercial matters, yet accepted that the doctrine of promissory estoppel can bind such bodies. It noted, however, that the High Court had focused solely on estoppel without addressing the commercial nature of the transaction or statutory constraints.
Exercising its power under Article 136, the Supreme Court considered subsequent events. More than fifteen years had lapsed without disbursal; the unit was closed, and there was a serious factual dispute over its feasibility. Determining responsibility for the closure lay beyond the writ proceedings. The Court concluded that compelling payment of Rs 15 lakhs at this stage would serve no practical purpose and could not revive the dormant enterprise.
While refraining from adjudicating the parties’ mutual financial claims, the Court left the Corporation free to pursue recovery of earlier loans, and allowed the respondent to raise any defences, including estoppel, in those proceedings.
Holding and Implications
Holding: The appeal is allowed; the Patna High Court’s judgment directing disbursal of the loan is set aside. No costs were awarded.
Implications: The Corporation is not required to release the additional loan. Any future recovery actions by the Corporation may proceed, with the respondent entitled to assert its defences. The decision underscores that courts may deny mandamus where subsequent events render the relief ineffectual, and that promissory estoppel does not automatically override statutory or commercial considerations.
S.B Sinha, J.— The 1st respondent herein had set up a small-scale industrial unit. The appellant herein is an establishment constituted under the State Financial Corporations Act, 1951. An application for sanction of loan in the Corporation was submitted by the respondent Company. It was approved. The necessary agreements for loan were executed in terms whereof the properties of the 1st respondent were mortgaged.
2. It was decided to expand the existing unit and procure some machinery therefor. The respondent also placed orders for other and further equipments/machinery necessary for expansion of the said scheme. Allegedly, the Managing Director of the Corporation visited the 1st respondent's factory on 29-1-1988 and having satisfied himself that there existed justification for expansion of the capacity utilisation had agreed to sanction an additional term loan to the tune of Rs 15 lakhs on the terms and conditions mentioned therein, some of which are as under:
“Clause 7.—The concern will have to submit the following papers before the execution of the legal documents:
(a) Income Tax Clearance Certificate under Section 230-A of the Income Tax Act, 1961 in respect of the Directors.
(b) Original title deed in respect of land.
(c) Valid SSI Registration Certificate.
Clause 24.—The concern shall have to submit DGTD Registration Certificate.”
3. The agreement was registered on 31-3-1988, although no DGTD certificate had been furnished. According to the 1st respondent, its unit being a small one, furnishing of such certificate was not necessary and in any event, the same was not granted by the authorities concerned. The Corporation refused to advance any amount on the terms that the 1st respondent had failed to furnish the said certificate, which according to it was necessary.
4. A writ petition was filed by the respondent before the Patna High Court which was marked as CWJC No. 1691 of 1990. On a finding that the Corporation has waived its right to insist upon the respondent to furnish such certificate in view of the fact that the agreement was registered, the Corporation was directed to disburse the term loan to the respondent Company. The Corporation is, thus, before us.
5. Mr M.P Jha, learned counsel appearing on behalf of the Corporation, submitted that in view of the fact that as the respondent did not fulfil its obligation to repay the amount in terms of the agreement in respect of the loan taken by it on 10-3-1983, 20-3-1986 and 24-3-1987, no writ of mandamus could issue. It was submitted that Allahabad Bank, from which the 1st respondent had also taken loan, has also filed a suit for recovery of the loan granted to it.
6. Mr S.B Sanyal, learned Senior Counsel appearing on behalf of the respondent, on the other hand, contended:
(i) The Corporation could not have refused to fulfil its solemn promise to advance the additional subsidy of Rs 15 lakhs.
(ii) The requirement of furnishing of DGTD Registration Certificate was not applicable in the case of a small-scale industry and in any event, the Corporation having registered the said documents, the order sanctioning the amount could not have been refused to be honoured.
7. At the outset, we may notice that on a query made by this Court as to whether the respondent Company would be in a position to start the factory and commence production of absorbent cotton if the amount of loan was directed to be paid to it, an affidavit has been filed on behalf of the respondent Company stating that the Corporation itself was responsible for the present state of affairs of the respondent as the sanctioned loan has not been disbursed in time. It was stated before us that the factory can be revived. The Corporation, however, in its affidavit stated:
“That it is submitted that the whole factory including the machine rooms are in such a bad position that there is no machine available at the site and as per inspection done on 10-7-2006 by U.L Karn, Branch Manager, Bihar State Financial Corporation, the petitioner herein, the main gate is locked for years. No one was seen since years as learnt from the neighbourhood and walls and structure of the factory are in damaged condition. There is no one attending the factory, there are no watch and ward staff, generator rooms are locked, machine rooms are empty, stores are locked, shutters are rotting in rain.”
The respondent, however, denies and disputes the said statements.
8. The Corporation is a statutory organisation. Ordinarily, the Court in exercise of its writ jurisdiction, should not interfere with a decision taken by it, but, it is well settled, that the doctrine of promissory estoppel would apply as against the Financial Corporation if a case is made out therefor.
9. In the writ petition the High Court was not concerned with the question as to whether the respondent had complied with the terms and conditions of the loan agreement in the matter of repaying of the instalments in time, but was concerned with the question as to whether the Corporation being a statutory organisation, could take a stand different from the one passed in its order. The High Court evidently proceeded on the basis that it could not have been done. The High Court may not be entirely correct in its approach as the transactions were governed by a statute and were essentially commercial in character. Unfortunately, however, the contentions, which have been raised before us, were not raised before the High Court.
10. This Court in exercise of its jurisdiction under Article 136 of the Constitution of India, indisputably, can take note of the subsequent events. Rightly or wrongly the amount of subsidy (sic loan) has not been paid to the Company for more than 15 years. Admittedly, now the unit is lying closed. The High Court and this Court having not been called upon to determine the question as to who was responsible therefor. Even otherwise, it is unnecessary to go into the said question. Fact, however, remains that no purpose would be served by directing the Corporation to pay unto the respondent the aforementioned amount of Rs 15 lakhs at this point of time. There is a serious dispute in regard to the viability of revival of the entire unit. This Court evidently cannot determine such a disputed question of fact in these proceedings.
11. We, therefore, in the peculiar facts of this case, are of the opinion that it would be futile to issue a writ of or in the nature of mandamus directing the Corporation to pay the aforementioned amount of Rs 15 lakhs to the respondent Company. We may, however, hasten to add that we have not gone into the question as to whether the respondent Company had paid any amount to the Corporation as against the loan amount which had admittedly been received by it. If the respondent Company had not done so, the Corporation may take such steps in relation thereto, as it may be advised in this behalf but it goes without saying that it would be open to the respondent Company to raise such contentions, including the payment of additional subsidy to it and/or effect thereof in the proceedings, which may be initiated by the Corporation. We are, therefore, of the opinion that the impugned judgment cannot be sustained. It is set aside accordingly.
12. The appeal is allowed with the aforementioned observations. No costs.
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