Supreme Court- Everest Wools Pvt. Ltd. and Ors. v. U.P. Financial Corporation and Ors.

The Appellant-company applied for re-scheduling of loan and the same was granted. However, the entire loan was recalled not only because the Appellants were defaulters but also on the allegation that they had purchased second hand plant and machinery from another financial institution in breach of the contract. On enquiry, the allegations against the Appellant-company were found to be incorrect; where after a request was made by the Appellant-company to the Financial Corporation for handing over the possession of the unit to it as also for waiver of interest etc. The Corporation, however, invoked the guarantees executed by the Directors of the Appellant-company. During this period, there were reported cases of theft of machinery. On appeal, a Division Bench of the High Court, on a finding that the Appellants had been trying to evade payment of the amounts under the personal guarantee bonds, which had been invoked by the Corporation, the recovery proceedings initiated by it cannot be stopped, dismissed the Writ Petition. Hence, the present appeal. The Apex Court held that when the Corporation takes over possession of the plant and machinery in exercise of its statutory power, apart from its obligation as a "bailee", it also acts as a "trustee" - for taking recourse to sale of the unit, where the possession of the plant and machinery had been taken of an on-going concern, an extra care on the part of the authorities of the Financial Corporation is expected. The impugned judgment was accordingly set aside. Matters were remitted back to the High Court for fresh consideration.

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