ORDER 1. The Industrial Finance Corporation of India, a public financial institution and otherwise a body corporate established under the Industrial Finance Corporation Act 1948 (Act No. XV of 1948), hereinafter referred to as IFCI, and the Act, respectively, has brought this petition in the original jurisdiction of this Court u/ S. 30 of the Act, praying for reliefs on the sale of properties of the Company known as PVK Papers Limited, having its registered office at 2 Manuk's Lane, Calcutta, and its factory at Basti in Uttar Pradesh; appointment of a Receiver, attachment of properties and an injunction restraining the Company and its Directors, Officers, servants and agents from interfering or incumbering or in any way alienating the properties of the Company. Other consequential reliefs have also been sought. 2. By an order of the High Court, a Receiver was appointed. The properties were attached and an exercise for the sale of the properties was put in motion, as suggested by the IFCI. 3. The concern of the court is that the parties in this petition in the original jurisdiction of the Court, are public finance institutions, all instrumentalities of the State, and no headway has been made to report to the court with confidence that the loans given to the Company are being retrieved or in the process of being retrieved. No serious interest has been shown in these proceedings by any other public finance institutions, except the State Bank of India. 4. This is a case of monies distributed by public finance institutions which have become so difficult to retrieve. Loans of the nature disbursed in this case are only an example of putting at risk public monies and unjust enrichment of those who received it. There has been no business like effort to check, or recover loans not being paid by the Company or their Directors or the guarantors or sureties on whose confidence the loan was given. There are guarantors who bound themselves by a contract to facilitate the disbursement of the loans. None have come forward to honour their guarantee. 5. This petition is also a halfhearted exercise to retrieve the loans. The assets of the Company since this petition has been pending was reported to be a little over Rupees one crore. There are guarantors who bound themselves by a contract to facilitate the disbursement of the loans. None have come forward to honour their guarantee. 5. This petition is also a halfhearted exercise to retrieve the loans. The assets of the Company since this petition has been pending was reported to be a little over Rupees one crore. A failure report has now been placed by the Receiver that no one is prepared to pay even fifty lacs for the plant and machinery of the Company. The amount which is due to the finance institutions today, has reached a staggering amount of approximately over four crores. On record the debt due to the financial institutions, the figures are available. Though the date upto which the information is available, is not as of date, yet it does give some idea of the debt not discharged by the debtor. Name of the financial institution or Bank Amount As on Reference Paper No. Industrial Finance Corporation of India Rs.84,53,243.50 8.5.1987 A-3 P. I. C. U. P. Rs.73,33,581.35 22.7.1987 A-31 U. P. F. C. Rs.48,27,547.00 30.6.1987 A-25 Punjab National Bank Rs.89,05,128.30 30.1.1988 A-33 State Bank of India Rs.69,36,048.40 30.9.1991 A-210 6. Today, the amount outstanding and as due to each of the creditor, as above, will be more than shown, as above. 7. By now it is clear that beyond the attachment of the properties no firm offer is being received for the sale of the plants and machinery and the land; the assets of the Company. As the Receiver has submitted a failure report that the only offer available as of date is from a party, one Goel & Company, Kanpur, even on this offer, without earnest money, there is no commitment and even if this price is available, it will be made available in four installments. A price of Rs. 50,00,000/-lakhs is for the entire assets, plant, machinery and land. The offer is so vague that it does not specify what amount is offered for plant and machinery and what has been offered for the land. 8. A price of Rs. 50,00,000/-lakhs is for the entire assets, plant, machinery and land. The offer is so vague that it does not specify what amount is offered for plant and machinery and what has been offered for the land. 8. The proceedings for the sale of property through the Receiver is not making any headway; The Court does find it surprising that a premier public finance institution, sought and was granted an order to sell through a Receiver, but this public finance institution cannot formulate a scheme for the sale of the properties and the assets of the Company or a scheme to transfer the management of the industrial concern to the IFCI. 9. It is now clear that the proceedings as have been filed cannot go beyond the attachment and sale through the Receiver. There is a basic flaw in the petition as presented before the High Court. The guarantors to the contract by which the loan was granted have not been made a party to the proceedings by IFCI. The proceedings initiated by public financial institutions or banks to retrieve loans will be ineffective if the parties to the contract agreement are not made parties to the suit. The guarantors to the loan agreement have a major say in giving an assurance to the creditor that if there be a default it is their guarantee that the loan will be discharged. In fact, it is on the documents exchanged by parties to the contract that banks and public finance institutions, process loans. A guarantor's assurance has much to do with the confidence which is given to the creditor that a loan be considered for being available. 10. The court questioned the IFCI through its counsel, on what does it expect from the proceedings as from now, beyond the attachment and a Receiver on the properties, and steps for the sale of assets bringing an unsatisfactory result. The plant and machinery, the Receiver reports, is not bringing a satisfactory price. 10. The court questioned the IFCI through its counsel, on what does it expect from the proceedings as from now, beyond the attachment and a Receiver on the properties, and steps for the sale of assets bringing an unsatisfactory result. The plant and machinery, the Receiver reports, is not bringing a satisfactory price. There is a limit beyond which the court cannot go and if the Receiver has submitted a report which is not encouraging, it is up to the plaintiff in the present case -- Industrial Finance Corporation of India -- to suggest ways and remedies within and arising out of the agreement, upon which the loan was taken out, for more effective steps to retrieve its loan within the remedies available to it under the Act. 11. The only argument raised before the court is that under S. 30 of the Act, the Court is obliged to arrange for sale of the properties of industrial concern and that once a petition has been brought before the High Court, it is a final decree. Beyond this argument, there is no perceptivity in even considering any other mode for the recovery of the loan. It is submitted that once a Receiver has been appointed and the property has been attached, the Corporation is a decree holder and the High Court cannot go behind the decree. The reference to such an arrangement, it appears, may be to sub-sec. (10) of S. 30 of the Act. The argument of learned counsel for IFCI is, the Court is afraid, misconceived and too general. This submission cannot be seen in isolation. Section 30 of the Act, has to be seen as a whole. The claim of IFCI is to be investigated, and there can be no decree without investigation. There may be attachment of the security or the property of the industrial concern under sub-sec. (3), Yet there may also be orders transferring the management of the industrial concern to the IFCI, as prescribed by sub-sees. (4), (7) and (9), a relief which has not even been asked. If there be an order of attachment or sale, such an order shall be carried into effect as far as may be practical in the manner provided in the Code of Civil Procedure, 1908, for the attachment and sale of the property in execution of a decree, as if the Corporation is a decree holder. If there be an order of attachment or sale, such an order shall be carried into effect as far as may be practical in the manner provided in the Code of Civil Procedure, 1908, for the attachment and sale of the property in execution of a decree, as if the Corporation is a decree holder. Transferring the management is one relief and sale of property is another. The crucial question is which property? As a consequence of the loan agreement, there is the property of the industrial concern, the security and the guarantor or the surety. Each one of these factors are part and parcel of the loan agreement. There cannot be an effective decree either for attachment or sale or transferring the management without parties to the loan agreement being made parties to an action or a suit brought into court. The argument has even gone to the extent that the persons to whom the loans were given are politically so powerful that no officer is prepared to take the responsibility to suggest any other mode than the one taken. The submission before the court, is even stated in an application filed during consideration of the Receiver's report. The affidavit to the application has been sworn by the clerk of learned counsel for the IFCI that the Receiver be permitted to sell the assets of the 'industrial concern' separately or piecemeal. But, why would not the Industrial Finance Corporation of India take the responsibility and the accountability that it will not explore any other avenue to retrieve its debt, beyond what has been asked in its petition. The application under reference in the interest of a public finance institution dealing with loans which are public monies, is rejected, 12. This leave the court with no option but to lift the corporate veil and personality of the Company. The law permits the court to lift the corporate veil which camouflages the personality of the Company. Upon this being done, it was found that those who signed the documents for and on behalf of the Company, are no other than the guarantors, Messrs P.K.Tiwari and V. K. Tiwari. Counsel for the IFCI disclosed their identity to be as kinsmen of an ex-Chief Minister of this State and later a Cabinet Minister. Upon this being done, it was found that those who signed the documents for and on behalf of the Company, are no other than the guarantors, Messrs P.K.Tiwari and V. K. Tiwari. Counsel for the IFCI disclosed their identity to be as kinsmen of an ex-Chief Minister of this State and later a Cabinet Minister. Hesitation has already been expressed before the Court, and thus, the half-hearted attempt by IFCI, to seek recovery from the sale of assets of the Company only, and without any other relief and then again without impleading the guarantors to the suit nor seeking reliefs against them. A legal argument has been raised that the Act does not contemplate making guarantors parties to the action brought by the IFCI. 13. If the contention of learned counsel-for the IFCI is accepted then it makes S. 30 of the Act, aforesaid, as an effective remedy, by reference to a summary procedure, ineffective and it would camouflage the accountability of those, who give loans as well as those who stood guarantee for loans, but were never confronted on their obligations. The argument is misconceived. 14. Section 30 of the Act does not say who will be a party to an action brought into Court, by the IFCI. The very purpose of a Speedy and an effective procedure prescribed by the legislature, to recover public monies will be rendered redundant if proceedings against the guarantors, sureties and those bound by a contract of indemnity were saved after watching the result of an action brought under S. 30 of the Act. The very purpose of S. 30, in that case, would be defeated. The courts will interpret enactments which create public finance institutions and obliges them to encourage trade and industry with working capital, in a manner by which a man of prudence would act either when granting loans or taking steps to recover them. In todays context of efforts by the Government to liberalise commerce and rid it from bureaucracy, it is a necessary corollary that trade and business will honour their debts, obligations not excluded, in as much as public sector or financial institutions would also be under public accountability to explain their indebtedness. 15. Diligence in recovering debts is, thus a matter of accountability in reference to the context. 15. Diligence in recovering debts is, thus a matter of accountability in reference to the context. Section 30 of the Act only provides a favoured procedure to the IFCI to seek recoveries on loans with a summary procedure. The principles on the obligations of an agreement by which the loan was disbursed, continue to be governed by the Indian Contract Act, 1872. If, on a loan agreement there be those who enter into a 'contract of indemnity' or a 'contract of guarantee', sureties not excluded, Chapter V11I of this Act determines the essential and proper parties to the contract, independent of the provisions of the Industrial Finance Corporation of India Act, 1948. Not to include all the parties to the contract in an actionable claim is a matter of public accountability-Public finance institutions deal with public monies. Monies which bring gains, even if it is a loan, to contribute to national wealth. Monies lost in bad debts of such institutions contributes to deficit financing, inflation, increased incidence of taxation on citizens who have nothing to do with the running and management of public sector or finance institutions. 16. This is a case which arises out of a breach of loan agreement. The loans given by the IFCI, in effect, are to facilitate the setting of a wide range of industries provided it is being set up by any limited company or a co-operative society. The IFCI was set up in 1948 "for the purpose of making medium and long term credits more readily available to industrial concerns in India, particularly circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable." 17. The financial world wants the Government to liberalise controls on trade, commerce and industry. There is a paradox in this which must make a full circle. Laws which govern the commercial world are the codes of conduct more akin to reality in trade and commerce. If the State is to loosen its grips on commerce, then laissez-faire is being suggested. Laissez-faire simply means the theory that Government should intervene as little as possible in the direction of economic affairs. If this should be the policy, courts do not spell out economic policies, only interpret the laws which determine it. But, the morality of those in business, trade and industry, will be judged more strictly in a free economy. Laissez-faire simply means the theory that Government should intervene as little as possible in the direction of economic affairs. If this should be the policy, courts do not spell out economic policies, only interpret the laws which determine it. But, the morality of those in business, trade and industry, will be judged more strictly in a free economy. Business credit will be measured when credit will be respected and discharged. The credibility of public finance institutions will to a large extent, also, depend on how loans are recovered without fear or favour, and when they will not permit themselves to be used as the goose which lays golden eggs, for those who cherish unjust enrichment. 18. On the other hand, in reference to the context, the obligation of an industrial concern are that in pursuance of the contract agreement it will discharge its loan. Should there be a breach of an agreement, the legislature intended that there be a short circuit to a long drawn litigation and the TFC1 should be able to go to the appropriate court and straightway seek an order of attachment and proceed with the sale of properties, thereafter, the provisions of the Act shall be carried, into effect, so far may be practicable in the manner prescribed in the CPC for the sale of properties as if a decree were being executed. 19. But in order that IFCI can take an aggressive attitude in seeking the discharge of the loan it gave, the law also enjoins that it will do so with determination, without fear or favour and question every person who has got involved by the agreement under which the loan was disbursed and should the loan not be paid, those who will not pay shall be answerable to proceedings in Court. But, if the IFCI will come out with an half-hearted exercise and elect and chose the parties to an action, oblivious to the contract agreement, then the court cannot come to its aid if it does not help itself. Mixing up politics with business is frustrating the purpose of the legislation which created public finance institutions. 20. Under the general principle of law, a person who stood as a guarantor in a contract which witnessed the disbursement of a loan is a proper party. Mixing up politics with business is frustrating the purpose of the legislation which created public finance institutions. 20. Under the general principle of law, a person who stood as a guarantor in a contract which witnessed the disbursement of a loan is a proper party. It is settled law that the liability of a surety is co-extensive with that of the principal debtor, unless it is otherwise provided in the contract. This is S. 128 of the Contract Act, 1872. 21. In these proceedings, the Company entered appearance through counsel Mr. Sunil Gupta, Advocate in June 1987. And this was after issue of notices and publication of notices by advertisement. Counsel, aforesaid, moved an application, A-38, on 13-6-1988 as one of urgency before the Hon'ble Vacation Judge. Thereafter, he did not appear to pursue the application. It was rejected on 3-1-1989. Thus, this is not a case in which the Company or its Directors are unaware of the proceedings. They watch the proceedings but will not join in it. What is the issue? The discharge of a debt. The loan is backed by guarantors and the personal guarantee of the Directors of the Company. The intention to repay the loan is not there. The Company is a fictitious personality and bound by it corporate status. But, then, who is personally liable to discharge the debt ? 22. The documents on record do mention a clause stipulating personal guarantee in the individual capacity of Messrs P. K. Tiwari and V. K. Tiwari for the due repayment of the loan, and other matters mentioned in the contract agreement. This clause refers to those who stood to give faith for the disbursement of the loans, as guarantors. This clause reads: "3. 3 Guarantee The Borrower shall procure the irrevocable and unconditional personal guarantee in individual capacity of S/ Sri P. K. Tiwari and V. K. Tiwari for the due repayment of the loan and the payment of all interest and other monies payable by the Borrower in the form prescribed by the Lenders and to be delivered to the Lenders before any part of loan is advanced. The Borrower shall not pay any guarantee commission to the above mentioned guarantor(s)." 23. Before the loan was disbursed, those who stood guarantee were bound by the agreement. This is the agreement as is referred to in S. 30 of the Industrial Finance Corporation Act, 1948. The Borrower shall not pay any guarantee commission to the above mentioned guarantor(s)." 23. Before the loan was disbursed, those who stood guarantee were bound by the agreement. This is the agreement as is referred to in S. 30 of the Industrial Finance Corporation Act, 1948. This is the agreement, when breached, gives the IFC1 a special right for the enforcement of its claims under S. 30. One aspect is relevant. The IFCI may apply to the court for one or more of reliefs as referred to under clause (a), (b) or (c) of sub-sec. (1) of S. 30. Clause (a) is, in context, important. The IFCI may apply to the Court for an order for the sale of property pledged, mortgaged, hypothecated or assigned to the Corporation as security for the loan as advanced. The crucial question is how effective the remedy u/s 30 of the Act, aforesaid, is to be ? As the legislature has provided a special remedy, it was intended to be more effective than the ordinary remedy. A special and a favoured recourse to retrieve bad loans by an out of ordinary power given to the IFCI. But in the present case the IFCI has not used it effectively. 24. The guarantors have not been made a party. No reasonable and logical explanation . has been given. There is an equitable rule that the moment the principal debtor defaults in the payment or where the subject matter of the guarantee is the conduct of the principal debtor, or there is some breach of duty by the principal debtor causing damage to the holder of the guarantee, then immediately the surety becomes liable, as if he were himself the principal debtor, Chokalinga Chettiar Vs. Dandayuthapani Chettiar, AIR 1928 Mad 1262 . A surety is not entitled to say that the creditor must exhaust his remedies as against the debtor nor is he entitled to notice that the principal debtor has defaulted, for according to law it is the duty of the surety to see that the principal debtor pays or performs his obligation, Swaminatha Pillai Vs. S.L. Lakshmana Ayyar and Another, AIR 1935 Mad 748 There is another aspect of the matter. S.L. Lakshmana Ayyar and Another, AIR 1935 Mad 748 There is another aspect of the matter. The surety will not be liable for the costs of a fruitless action against the debtor, unless the creditor has given previous notice of his intention to sue, Evans v. Pugh, (1834) 2 Dowl 360 , Baker v. Garrat (1825) 130 ER 434. 25. The IFCI, when bringing this action into court ignored the aspect on the identity of the guarantors. The principal debtor is the Company known as 'PVK Papers Limited'. The guarantors are its Directors, in their individual capacity. Why shield them? The IFCI has made every conceivable secured creditor, a party defendant. These are banks and other public finance institutions. They may or may not be necessary parties. These parties will not pay the debt of IFCI. But, to eliminate the guarantors from this action, may be fatal to the proceedings to the extent that it would frustrate the purpose of S. 30 of the Act. 26. In the present case, the IFCI is not prepared to take recourse to questioning all those who drew up the loan agreements with it, and insists that the sale of the properties of the Company must continue as an exercise with the Receiver on it, as the IFCI does not want to take the responsibility, should a low price be received or the suit itself may fail for one reason or another. In other words, whatever offer is received by the Receiver, shall be the price which the IFCI will accept. This is no way to play with public monies, A litigation in which the essential parties are conveniently left out and are being permitted to get away with their guarantees and liabilities is a matter of concern for the Court. The offer which has been received by the Receiver, is firstly, not even a firm offer, and even if it is, only an offer to purchase scrap. The guarantors are being shielded. 27. It is difficult for the High Court to assume that public finance institutions can dole out loans with public monies, but when the time comes to retrieve them, they are without expertise or guidance to arrange for the sale of assets pledged against the loans or proceed against those who gave assurance as sureties or guarantors, or take possession of the assets themselves. 28. 28. These proceedings, under S. 30 of the Act have been frustrated for want of effective action and particulars and a weak effort to seek recall of the loans. Such circumstances only encourage the incorporation of companies or co-operative societies, otherwise 'industrial concerns' to dissipate the monies obtained on loans to wrongful seekers and guarantors, without production. The incorporation is on paper only to gel the loan. This cannot go on in a liberalised economy, which is to encourage free trade and commerce, it may in a totally State controlled or bureaucracy rid economic structure. The present proceedings cannot go beyond the stage they have reached, and the litigation or the action was tailored to bring it this far only. A wasting asset will only get the price of rusted scrap while those who were responsible for the loans, and personally and individually responsible for paying it, have the last laugh from out of court as they were left out of litigation, as a measure of formality. 29. Let this matter be brought to the notice of the Government of India, the Ministry of Finance and also the Chairman, Industrial Finance Corporation of India. The Registrar, High Court, shall do so accordingly. 30. In the meantime the State Bank of India, defendant No. 3, has submitted that they have filed a suit for recovery of its loan in which it has made the principal debtor and the guarantors, both defendants. The proceedings which have been filed by the State Bank of India are pending before the Civil Judge, Lucknow. The suit is numbered as Suit No. 73 of 1987; State Bank of India v. P. V. K. Paper Mills Limited and two others. The other two are the aforesaid Messrs. V. K. Tiwari and P. K. Tiwari, otherwise Directors of the Company and in their individual capacity, as the guarantors to the loan. The suit was valued at the time when it was filed at about Rs. 36 lacs. It is submitted that the loan of the State Bank of India as on 30-9-1991 stood at Rs. 69,36,048.40 p. 31. The contention of the State Bank of India, through its learned counsel Mr. Navin Sinha, Advocate, is that the proceedings initiated by the IFCI before this Court cannot be more effective then its petition (plaint) and has reached its limits and cannot go further. 69,36,048.40 p. 31. The contention of the State Bank of India, through its learned counsel Mr. Navin Sinha, Advocate, is that the proceedings initiated by the IFCI before this Court cannot be more effective then its petition (plaint) and has reached its limits and cannot go further. It is submitted that if the IFCI is not prepared to take on the guarantors, then such a state of affairs may not be rendered that the properties may remain without attachment as that would bring an impasse by which the creditors or its agents may fritter away the property which otherwise is attached to the Court and for this purpose the State Bank of India contended before the court that the attachment may continue for a time bound period within which they may be permitted to report to the court that they have proceeded with their suit, and further to enable the Bank to seek an appropriate order from the Court where the suit is pending. 32. Mr. K. L. Grover, Advocate, on behalf of the Punjab National Bank has also submitted that as of date it is unable to report to the court whether the Bank has filed a suit to recover its loan. He has prayed that the time which is being granted to the State Bank of india, for reporting to the Court, may be made available to the Punjab National Bank so that it may, if it has already not done so, take appropriate proceedings for the recovery of the monies loaned to the Company. 33. Thus, at the request of the State Bank of India and the Punjab National Bank, place before the Court on 17-2-1992. 34. The High Court would have dismissed this suit as in its present state it can proceed no further and the IFCI has shown no initiative to take it further beyond the Receiver on the property. Further beyond a relief to sell and an appointment of a Receiver, no other effective relief has been sought. Efforts to sell, by the Receiver, have made no headway. The High Court gives the IFCI an opportunity, within three months from today, either to give further and better particulars to the plaint, if these proceedings are to go on further or seek leave to bring in another action, in keeping with the intern, effectiveness and purpose of S. 30 of the Act. The High Court gives the IFCI an opportunity, within three months from today, either to give further and better particulars to the plaint, if these proceedings are to go on further or seek leave to bring in another action, in keeping with the intern, effectiveness and purpose of S. 30 of the Act. Until the next three months the proceeding shall be in abeyance, unless parties seek that it proceed. 35. Order accordingly.