M D MISHRA Vs. STATE OF ORISSA

JUDGEMENT

(1.) The seizure of the industrial unit called M /s. Incast Metals (P.) Limited, in exercise of power under Section 29 of the State Financial Corporations Act, 1951 (hereinafter referred to as the "Act") by opposite parties 2 and 3 is being assailed by the petitioner with the further prayer that they may be directed to release the unit in favour of the petitioner and opposite parties 1 to 6 be directed to implement the rehabilitation package for revamping the unit.

(2.) The petitioner's case in nutshell is that the industrial unit in question is a joint venture of the petitioner and the Orissa Small Industries Corporation. It manufactures sophisticated high-precision castings in stainless steel and other special alloys which are supplied to vital industries in the national sector like Defence, Aerospace, Telecommunication, Railways etc. The entrepreneur has been successful in utilising materials available in the State of Orissa for the manufacture of the goods which has helped in minimising the project cost. The petitioner himself is a Metallurgical Engineer who had rich experience by serving in Hindustan Steel Limited, Hiudustan Aeronautics Limited, Industrial. Development Corporation of Orissa Ltd. and while he was continuing as the Chief Engineer in Hindustan Aeronautics Limited, he conceived the project and applied for a licence to the Government of India. The licence was immediately granted, but as finances could not be arranged, the petitioner could not run the risk of resigning his post and take up the project. The project remained in a dormant stage until the Scientific Adviser to the Government of India initiated the matter by writing a letter to the Managing Director, IPICOL, to provide assistance to the petitioner for setting-up the industry which would be in the national interest. After some negotiation the petitioner finally decided to set up the industry and accordingly resigned from his service in the year 1983. The Orissa State Financial Corporation (OSFC) as well as the IPICOL sanctioned different amounts and I. D. B. I. sanctioned a seed capital assistance of Rs. 8.3 lakhs interest free. The project cost at that stage was only Rupees 71 lakhs. The land was acquired in 1985 July and building was constructed in June, 1986. The plants and machinery were installed in. December, 1986, but on account of lack of funds for working capital, the goods could not be produced till March, 1987. The State Bank of India sanctioned working capital to the extent of Rs. 7.5 lakhs as against the requirement of Rs. 28 lakhs and commercial production started in December, 1987. The entrepreneur could face the difficulty of continuing production in the absence of working capital and intimated the Bank for increase of the working capital which was ultimately increased to Rs. 19.5 lakhs in March, 1988. The unit in question could raise the capacity utilisation to only 20 per cent of the rated capacity. As the petitioner was facing difficulties in having the finance, he apprised all concerned and on the intervention of the Government of Orissa, the State Bank of India convened a joint meeting of OSFC, IPICOL, OSIC and the Promoter. The reasons for sickness and the prospects of viability were discussed threadbare and it was unanimously accepted that inadequacy of the working capital has the main cause of sickness and it was decided that a rehabilitation package would be provided to the unit by all concerned including the State Bank of India. But as a condition precedent, they wanted an additional equity of Rs. 5 lakhs from the promoter. The petitioner, therefore, inducted some new Directors and collected the additional equity of Rs. 5 lakhs and requested the financial institutions to provide the rehabilitation package. But to the utter misfortune, the rehabilitation package as promised was never put into effect and the unit in question became sick day by day. The petitioner also with the hope of getting the rehabilitation package brought in further Directors to keep the unit alive, but when the new Directors lost hope of any financial assistance from the financial institutions in accordance with their decision for rehabilitation package, they got fed-up and a dispute arose amongst the Directors of the unit. They wanted to take out their money which they had put and there was in fighting among the Directors. The petitioner, therefore, sought the intervention of the State Government and, in fact, a second meeting was initiated by the Director of Industries which was attended by the OSFC, State Bank of India and IPICOL. Some decision was taken for revamping the unit, but ultimately, that was not given effect to and, therefore, by December, 1991, there was a serious conflict between the petitioner and the new Directors. The industry in question was accumulating loss and its liabilities grew day by day. The OSFC sanctioned a package in February, 1992, but that was a conditional one subject to the Bank sanctioning its part in accordance with the decision. The Bank, however, did not show, any sign of its sanction though petitioner has been persuading the Bank time and again. The dispute between the petitioner and the new Directors was also resolved to some extent by mediation of the Chairman, O. S. I. C., and the new Directors were declared to be financiers. The two other Directors Shri K. C. Tripathy and Shri S. K. Chatterjee were paid back a sum of Rs. 10 lakhs and Dr. N. K. Das decided to continue in the Company. The O. S. I. C. had agreed to provide short-term credit against bill purchase facilities, but the procedure adopted was so cumbersome that timely finance was a problem and the petitioner with all his efforts failed to achieve the desired production for survival of the unit and ultimately for default on his part in the payment of the installment dues, the unit has been seized by the State Financial Corporation in exercise of its drastic power under Section 29 of the Act. The petitioner alleges that incapacity of the industry to repay the installment dues is basically because of the fact that the financial institutions including the Bank did not sanction the necessary funds though it was unanimously agreed to revamp the unit as a rehabilitation package and ultimately an industry with great potentiality is being wasted. It is further alleged that the petitioner having made all out efforts and yet having failed, the authorities should have come forward with a helping hand to promote the industry in question and should not have taken the drastic action of seizing the unit and thereby impeding the manufacturer of a most sophisticated item which is essentially required in Defence installations According to the petitioner, the State Financial Corporation has not acted with a business-like manner and with an attitude to help the promotion of the industry as decided by the apex Court in the case of Mahesh Chandra v. Regional Manager, U. P. Financial Corporation, AIR 1993 SC 936.

(3.) The OSFC has filed a counter-affidavit indicating therein that it sanctioned a term loan of Rs. 28 lakhs and a soft loan of Rs. 2 lakhs. Similarly, the IPICOL also sanctioned Rs. 25 lakhs and the IDBI had sanctioned Rs. 8.3 lakhs as seed loan. The working capital had been given by the State Bank of India, the Q. S. I. C. participated as a shareholder, but on account of gross mismanagement and internal misunderstandings between the Directors, the Company became sick from the beginning. Even the Company took personal loan from the market, but that did not improve the matter. The repayment to the financial institutions was meagre and as on 31-3-1993, the default position so far as OSFC was concerned, was to the tune of Rupees 27,19,506 / - in respect of the term loan and Rs. 99,347 /- in respect of the soft loan. So far as the IDBI Seed capital loan is concerned which was disbursed through OSFC, the default position was to the extent of Rs. 2,50,962/ -. The State Financial Corporation having requested several times to the petitioner to repay the defaulted amounts, but the petitioner having failed, finally a recall notice was issued on 7-5-1993. But even then when there was no response, the Corporation had no other option than to take possession of the unit in exercise of power under Section 29 of the State Financial Corporations Act on 14-6-l992. The Corporation then decided to sell the unit and issued advertisement on 19-6-l993, but because the petitioner approached this Court there has been no sale of the unit in question. It has also been stated in the said counter-affidavit that there was internal dispute amongst the Directors and it being established that the petitioner misappropriated the Company's money, the financial powers of the petitioner were taken away and he was not allowed to manage any financial matter of the Company in accordance with the decision of the Board of Directors dated 3-5-1993. In this view of the matter, it is stated that the petitioner does not deserve any sympathetic consideration and the discretion of this Court cannot be invoked in favour of such a person.