Holding

The Supreme Court set aside the High Court judgment and declined to issue a writ of mandamus directing the Bihar State Financial Corporation to disburse Rs 15 lakhs, finding no basis for promissory estoppel and deeming the relief futile given the factory’s closure.

Summary

The Bihar State Financial Corporation, a statutory body under the State Financial Corporations Act, 1951, approved a loan to a small‑scale industrial unit and later agreed to an additional term loan of Rs 15 lakhs conditioned on the submission of a DGTD registration certificate. The loan agreement was registered without the certificate, and the corporation refused to disburse the amount, citing non‑compliance. The unit filed a writ petition and the Patna High Court directed the corporation to pay the loan, holding that the corporation had waived its right to insist on the certificate. On appeal, the Supreme Court examined whether a statutory organization could be compelled by a writ of mandamus and whether the doctrine of promissory estoppel applied. The Court held that, given the commercial nature of the transaction, the statutory body is not ordinarily amenable to writ interference and that promissory estoppel was not established; moreover, the factory had been closed for years, making the relief futile. Consequently, the Supreme Court set aside the High Court order and allowed the appeal, refusing to issue a mandamus directing payment of Rs 15 lakhs.

Issues considered

The extent to which a statutory organization can be compelled by a writ of mandamus to honor a loan agreement when contractual conditions are not fulfilled.
Whether the doctrine of promissory estoppel applies to a State Financial Corporation in the present facts.
Whether the Supreme Court may set aside a High Court order in view of subsequent events affecting the viability of the loan recipient.
The appropriateness of judicial interference in commercial transactions of a statutory body.

Legislation cited

Subjects

statutory organizationwrit jurisdictionpromissory estoppelmandamusloan agreementState Financial Corporationcommercial transactionArticle 136Article 226high courtsupreme courtDGTD registration certificatesmall scale industry

Judgment

A BIHAR STATE FINANCIAL CORPN. AND ORS.
v.
MIS. CHEM ICOT INDIA PVT. LTD. AND ORS.

AUGUST 24, 2006

B [S.B. SINHA AND DAL VEER BHANDARI, JJ.]

Constitution of India, 1950:

Articles 136 and 226-Statutory organization-Orders-Judicial review
C of-State Financial Corporation-Entering into agreement with a small scale
unit to disburse loan to it-Later, refusal to disburse the loan on the ground
that the condition of producing DGTD registration certificate not fit!jilled by
the Unit-Writ petition of the Unit allowed by High Court-Held, Corporation
being a statuto1y organization, ordinarily Court in its writ jurisdiction should
D not interfere wirh a decision taken by Corporation, but doctrine of promissory
estoppel would apply against Financial Corporation if a case is made out
therefor-However, in view of the subsequent events i.e., Unit lying closed for
years and its revival disputed, it would be futile to issue a writ of mandamus
directing the Corporation to pay the amount lo the Unit-Administrative La11~
Promissory Estoppe/-Subsequent events.
E .
Respondent no. I, a small scale industrial unit, applied to the
appellant-State Financial Corporation, for sanction of loan. The loan was
approved and agreements for loan were executed. Later, the respondent
decided to expand its existing unit, and the Corporation agreed to sanction
an additional amount of Rs.IS lakhs on the terms and conditions, inter
F alia, that the concern would submit DGTD Registration Certificate. The
agreement was registered though no DGTD certificate was furnished.
However, the Corporation refused to advance the amount as respondent ...
no. I had failed to furnish the requisite certificate. Respondent no. I filed
a writ petition before the High Court which directed the Corporation to
G disburse the loan to respondent no. I. Aggrieved, the Corporation filed
the present appeal.

It was contended for the appellant-Corporation that as respondent
no. I did not fulfil its obligation to repay the amount in terms of the earlier
agreements, no writ of mandamus could issue. It was also submitted that
I-I 312
BIHAR STATEFINANCIALCORPN. v. CHEMICOTINDIA PVT.LTD. [S.B. SINHA,!.) 3 J3
the factory was closed for years and was not in a position of revival. A
Allowing the appeal, the Court

HELD: I. I. The appellant-Corporation is a statutory organization.
Ordinarily, the Court in exercise of its writ jurisdiction, should not
interfere with a decision taken by the Corporation, but, it is well settled,
that the doctrine of promissory estoppel would apply as against the B
Financial Corporation if a case is made out therefor. The High Court
proceeded on the basis that the Corporation being a statutory organization,
could not take a stand different from the one taken in its order. 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. C
Unfortunately, however, the contentions, which have been raised before
this Court, were not raised before the High Court. 1315-G-H; 316-BJ

2.1. 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 has not been paid to D
the Corporation for more than 15 years. Admittedly, now the unit is lying
closed. No purpose would be served by directing the Corporation to pay
unto the respondent the said 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. In the peculiar facts of the case, it would be futile E
to issue a writ of or in the nature of mandamus directing the Corporation
to pay the amount of Rs.15 lakhs to the respondent-Company. The
impugned judgment cannot be sustained and is set aside. 1316-C-GJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 908 of2000.
F
From the Judgment and Order dated 5.6.1995 of the High Court of
Judicature at Patna, in C.W.J.C. No. 1691/1990.

M.P. Jha, Ram Ekbal Roy, Harshwardhan Jha and Anil K. Chopra for
the Appellants.

S.B. Sanyal, Ranjan Mukherjee, Gopal Singh and Anukul Raj (for B.B. G
Singh) for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. The I st respondent herein had set up a small scale
industrial unit. The appellant herein is an establishment constituted under the H
314 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A State Financial Corporation 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 Ist respondent were mortgaged.

It was decided to expand the existing unit and procure some machinery
B 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 I st respondent's factory on
29.1.1988 and having satisfied himself that there existed justification for
expansion of the capacity utilization had agreed to sanction an additional
C term loan to the tune of Rs.15 lakhs on 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
D 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.
E Clause 24 : The concern shall have to submit D.G.T.D., Registration
Certificate."

The agreement was registered on 31.3.1988, although no D.G.T.D.
Certificate had been furnished. According to the l st respondent, its unit being
F 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 l st respondent had
faikd to furnish the said certificate, which according to it was necessary.

A writ petition was filed by the respondent before the Patna High Court
G which was marked as C.W.J.C. No.1691/1990. 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.
H Mr. M.P. Jha, learned counsel appearing on behalf of the Corporation,
BIHAR STATE FINANCIAL CORPN. ,. CHEMICOTINDIA PVT LTD. [S.B. SINHA.l] 3 J5

submitted that in view of the fact that as the respondent did not fulfil its A
obligation to repay the amount in terms of 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 the Allahabad Bank, from which the 1st
respondent had also taken loan, has also filed a suit for recovery of the loan
granted to it.
B
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 D.G.T.D. Registration Certificate
c
was not applicable in the case of a Small Scale Industry and in any event, the
·• Corpcwetion having registered the said documents, the order sanctioning the
amount could not have been refused to be honoured.

At the outset, we may notice that on a query made by this Court as to D
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, E
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 F
herein, the main gate is locked for years. No one was seen since years
as learnt from the neighbourhood, walls and structure of the factory
are in damaged condition. There is no one attending the factory, there
are no watch and ward staff, generators rooms are locked; machines
rooms are empty, stores are locked, shutters are rotting in rain."
G
The Respondent, however, denies and dispt:tes the said statements.

The Corporation is a statutory organization. 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. H
316 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A 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 installments in time, but
was concerned with the question as to whether the Corporation being a statutory
organization, could take a stand different from the one passed in its order.
B 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 Hi,gh Court.

C 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 has not been paid to the corporation
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
D 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
E proceedings.

We, therefore, in the peculiar facts if 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
F 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
G 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.

The appeal is allowed with the aforementioned observations. No costs.

H R.P. Appeal allowed.