JUDGMENT 1. - This Special Appeal is directed against the judgment of the learned single Judge dated 3.4.1991 whereby the learned single Judge, without going into the merits of the case has ordered the appellant Company to pay to the respondent-Corporation a sum of Rs. 6,66,666/- in three equal instalments. The first instalment was made payable on May 15, 1991, second on June 16, 1991 and the third on July 16, 1991. In case, the petitioner Company committed a single/default, the entire amount was held payable in a lump sum. About the rest of the amount, it was ordered that the appellant company may pay it in easy instalments as fixed by the Corporation. 2. The facts necessary to be noticed for the disposal of this special appeal briefly stated are that the Corporation, vide its notice Anne:cure-10 dated 20.10.1989 has claimed that a principle sum of Rs. 18,76,459/- is due against the petitioner Company as on 1.10.1989 and a sum of Rs. 1,50,242/- is due to it against the interest and thus, it is a defaulter for non-payment of a sum of Rs. 20,26,701. The petitioner Company's properties are mortgaged with the respondent Corporation and the State Financial Corporation by virtue of the provisions of s. 29 of the State Financial Corporation Act of 1951 (hereinafter referred to as 'the Act of 1951') has the power to transfer those properties to itself and sell them and recover the amount due to it. A notice was, therefore, issued to the petitioner-company to pay this amount, failing which action will be taken against it under s. 29 read with s. 30 of the Act. On receipt of this notice, the Petitioner Company gave a written reply and claimed that it has already paid the entire amount due against it and rather Rs. 9 Lacs are payable to it by the respondent Corporation because they have paid that amount in excess of the amount due from them. The claim of the petitioner- Company is that a loan of Rs. 30 lacs was sanctioned to it on February 13, 1979 by the respondent Corporation, to be repayable in 8 years in equal instalments. The instalments were to fall due on the 1st day of the 24th month reckoned from the date of the disbursement of the first instalment. The claim of the petitioner- Company is that a loan of Rs. 30 lacs was sanctioned to it on February 13, 1979 by the respondent Corporation, to be repayable in 8 years in equal instalments. The instalments were to fall due on the 1st day of the 24th month reckoned from the date of the disbursement of the first instalment. The interest rate was fixed at 5% above the bank rate prevailing from time to time with 1/2% rebate for timely payment. It was, however, stipulated that in no case the minimum rate of interest after allowing the rebate shall fall below 131/2% per annum. The interest was made payable in equal instalments payable on January 1, April 1, July 1 and October 1, each year. In case, re-finance is granted by the Industrial Bank of India, Corporation agreed to charge interest on concessional rate i.e. 91/2% per annum and in case of default, the Corporation will charge 5% above concessional/normal rate of interest, without any rebate, on the amount in default and for the period of default. The sanction letter issued by the respondent Corporation has been filed as Annexure-1. The formal deed of berms of loan, as executed by the petitioner-company in favour of the non-petitioner Rajasthan Financial Corporation dated April 18, 1979 has been filed as Annexure-2. It is alleged that only Rs. 29,50,000/- were disbursed by the respondent Corporation to the petitioner-Company from 25.4.1979 to 15.9.1980, the details of which have been given in para 6 of the petition. As per them, the payment of Rs. 50,000/- was illegally stopped. However, due to unforeseen circumstances, the instalments could not be paid in time and, therefore, Industrial Reconstruction Bank of India was approached and they granted financial assistance to the petitioner company and that resulted in re-schedulement of the payment of the amount due. The re-schedulement was sanctioned by a letter of the respondent- Corporation dated September 2., 1983, marked as Annexure-3. The rate of interest to be charged was mentioned as 15% per annum. The petitioner-company made a payment of Rs. 12,44,000/- to the respondent Corporation between 26.11.1981 and 30.3.1987. As the petitioner-Company was facing difficulty in repayment because of recession in the market, shortage of electricity supply, continuous famine in western Rajasthan, it again requested the respondent Corporation for re-schedulement of the payment of instalments by its letter dated March 18, 1988 marked as Annexure-4. 12,44,000/- to the respondent Corporation between 26.11.1981 and 30.3.1987. As the petitioner-Company was facing difficulty in repayment because of recession in the market, shortage of electricity supply, continuous famine in western Rajasthan, it again requested the respondent Corporation for re-schedulement of the payment of instalments by its letter dated March 18, 1988 marked as Annexure-4. The respondent Corporation asked the petitioner Company to make a payment of the principle amount disbursed to it, i.e. Rs. 29,50,000/-, by paying Rs. 18,50,000/- within seven days i.e. by March 25, 1988 and Rs. 12,00,000/- by March 28, 1988. It was not known how Rs. 30,50,000/- were claimed as payment of principal against the sanctioned load of Rs. 29,50,000/- when Rs. 12,44,000/- have already been paid to them against the principal amount. However, inspite of it, the petitioner company paid Rs. 9,25,000/- on 243.1988, Rs. 9,25,000/- on 28.3.1988 and Rs. 11,50,000/- on 30.3.1988. Thus, a sum of Rs. 30,00,000/- was paid between 243.1988 to 30.3.1988 against the non-payment of the principal amount of Rs. 17,06,000/-. On account of re-finance made by the Industrial Development Bank of India, interest rate could have been charged only at 91/2% per annum and that was to be paid in equal instalments every year. It is claimed that after re-schedulement, there has been no default. Thereafter, on March 18, 1989, the respondent Corporation asked the petitioner Company to further make a payment of Rs. 10,50,000/- to it and if that was done, they will waive the penal interest for a period from January 1, 1985 to March 31, 1989 amounting to more than Rs. 7,00,000/-. The petitioner company made a payment of Rs. 10,50,000/- on March 28, 1989 along with their letter Annexure-8, still the penal interest was not waived and they again demanded a sum of Rs. 18,76,459/- as principal and Rs. 1,50,242/- as interest, by including the penal interest amounting to about Rs. 7.70 lacs. It has been claimed by the petitioner company that they have made a payment of Rs. 59,04,084.58 P. to the Corporation as per para 2 of the Memo of appeal against the loan of Rs. 29,50,000/- and thus, they have paid Rs. 9,00,000/- in excess. 1,50,242/- as interest, by including the penal interest amounting to about Rs. 7.70 lacs. It has been claimed by the petitioner company that they have made a payment of Rs. 59,04,084.58 P. to the Corporation as per para 2 of the Memo of appeal against the loan of Rs. 29,50,000/- and thus, they have paid Rs. 9,00,000/- in excess. The Corporation, inspite of its promise as contained in Annexure-4 read with Annexure- 7 to waive penal interest, did not do so and issued a notice under s. 30 of the Act to take away the assets of the company with effect from November 4, 1989 vide their notice dated October 20, 1989. That notice, as stated above, has been marked as Annexure-10. Thereafter, certain more correspondence was exchanged between the parties and ultimately this writ petition came to be filed, in which it has been claimed that the Corporation has to act in a business-like manner because that is the sole object of the scheme, as per the Act of 1951. They cannot act in a wooden manner and throttle the companies. Even the subsidy, which was sanctioned in favour of the petitioner-company for which a cheque amounting to Rs. 1,07,674/- was received by the respondent Corporation has also not been paid to the appellant company and it has been illegally retained by them. The petitioner-company, therefore, prayed for quashing of the notice dated October 20, 1989 and to proceed against the Corporation under s. 29 read with s. 30 of the Act of 1951. They further sought the relief directing the respondent Corporation to pay them the amount of subsidy and to charge interest only as per the contract and not to charge penal interest from them. Along with the writ petition, all relevant documents from Annexures-1 to Annexures-15 have been filed. 3. The respondent Corporation has filed its reply on 28.3.1990 pleading interalia that against a loan of Rs. 30,00,000/- only Rs. 29,50,000/- were paid because for the rest of the amount of Rs. 50,000/- the petitioner-company did not fulfil the eligibility criteria for this purpose. The interest was payable in quarterly instalments and, therefore, compound interest was chargeable with quarterly rests. The instalments were not paid in time. Even after re-schedulement, the petitioner-company did not pay instalments in time. The re-schedulement was accepted vide Annexure-4. 50,000/- the petitioner-company did not fulfil the eligibility criteria for this purpose. The interest was payable in quarterly instalments and, therefore, compound interest was chargeable with quarterly rests. The instalments were not paid in time. Even after re-schedulement, the petitioner-company did not pay instalments in time. The re-schedulement was accepted vide Annexure-4. A look at Annexure-4 would show that it was clearly stipulated in it that the petitioner was to clear the entire amount which has fallen due as per the reschedulement with documented rate of interest, excluding penal interest and after 1.1.1985, Rs. 30,50,000/- were to be paid up to 28.3.1988 and the remaining amount which has become to be paid up to 1.4.1988, was to be paid on 30.4.1988 and the remaining instalments and interest were to be cleared as and when they fall due. But that was not done. It is wrong to contend that the payment of Rs. 12,44,000/- was to be adjusted against the principal. Actually, initially the payment has to be adjusted against interest only. The statements of the accounts have been sent to the petitioner and the interest is not being charged contrary to the terms of stipulation. It is absolutely in accordance with the agreement arrived at between the parties from time to time. The waiver of the penal interest was subject to timely payment, otherwise it was likely to be forfeited. It has been claimed that inspite of repeated and persistent efforts on the part of the answering respondent, grievances are being raised against the respondent. Annexure-7 was never endorsed to the petitioner and the petitioner has not disclosed the source from which he got the copy of Annexure-7. It appears that he has smuggled out this document from the record. It has been admitted that the petitioner did make a payment of Rs. 30,00,000/- and Rs. 10,50,000/- as claimed but no such assurance was given by the Corporation that the penal interest will be waived even when timely payment is not made. It was made clear vide Annexure-6 that if party clears the entire over dues on or before 31.7.1989 and future instalments and interest are paid in time then penal interest from 1.1.1985 to 31.1.1989 shall be considered for waivement. While making payment, the petitioner company only conveyed to Branch Office, Jodhpur that some assurance for waivement of penal interest has been made. While making payment, the petitioner company only conveyed to Branch Office, Jodhpur that some assurance for waivement of penal interest has been made. That fact has been conveyed to the Head Office by the Branch Office of Jodhpur for its internal consumption and copy of Annexure-7 was not endorsed to the petitioner and, therefore, he cannot claim any relief under it. No firm assurance to waive the penal interest was given. the Central subsidy was credited against the outstanding and, therefore, the amount was not paid to the petitioner. The proceedings under s. 30 of the Act are totally justified. The validity of sections 29, 30 and 31 is not open to question because the Hon'ble Court has repeatedly upheld its validity and that was upheld even by the apex Court in North India Caterer's case. The interest, as per the respondent, is being recovered as per the terms of the contract and, therefore, no grievance can be raised about it. Along with the, reply, Annexure-R/1 has been filed. 4. A detailed rejoinder to the reply has been filed by the petitioners in which almost the same facts have been reiterated that neither penal interest nor compound interest with quarterly rests can be charged and payment of Rs. 50,000/- has been wrongly withheld. There is no term in the sanction letter of loan that interest will be charged over interest with quarterly rests. This is against the sanction latter. The re-schedulement was ordered because of the difficulties faced by the petitioner-company and those difficulties have been mentioned on page 7 and 8 of the re-joinder. When a company becomes sick and reschedulement is granted to it, then penal interest should not be charged from it. The I.D.B.I. granted re-finance treating the petitioner company to be sick and, therefore, the genuine difficulties of the petitioner company were realised. The petitioner-company has claimed that it is ready and willing to carry out its obligations as per the terms of the agreement dated April 18, 1979 and letter dated March 18, 1989 issued by the respondent Corporation and, therefore, it is not entitled to charge compound interest with quarterly rests and it is further not entitled to charge penal interest. The penal interest of Rs. 7,81,000/-deserves to be waived. The penal interest of Rs. 7,81,000/-deserves to be waived. The petitioner-company submitted that if statement of account is prepared according to Annexures 1 and 2, it is ready to make any payment which is outstanding against it forthwith, without any delay. 5. We have heard Mr. H.C. Jain, the learned counsel appearing for the appellant company and Mr. N.P. Gupta, the learned counsel for respondent Corporation and have carefully gone through the record of the case. 6. So far as the validity of S. 29 of the State Financial Corporation Act is concerned, it has already been upheld by a decision of this Court rendered in Hotel Ajaymoru Pvt. Ltd., Ajmer v. Rajasthan Financial Corporation (S.B. Civil Writ petition No. 648 of 1985, decided on September 15, 1985 by a learned single Judge of this Court. The validity of the aforesaid provisions, has been upheld by a Division Bench of the Andhra Pradesh High Court also in a decision rendered in M/s. Srinivasa Kandasari Sugars, Na; risimhunipet v. Govt. of Andhra Pradesh & Ors., AIR 1976 AP 93 . It has been held that provisions of s. 29 of the State Financial Corporations Act, 1951 are not ultra vires of Art. 14 of the Constitution and, therefore, so far as the validity of s. 29 is concerned, it is no more res Integer. 7. Mr. N.P. Gupta, the learned counsel appearing for the respondent Corporation has raised a preliminary objection that in this case, the relief sought by the petitioner- appellant flows out of the terms of the Contract and in such matters the writ petition is not maintainable. According to him, when the obligations arise out of a contract or the terms of the contract then recourse to Art. 226 of the Constitution is not permissible. 8. In support of his contention, Mr. Gupta has first drawn our attention to a decision of their lordships of the Supreme Court in Banchhanidhi Rath v. The State of Orissa and others, AIR 1972 SC 843 , wherein their lordships have held that a contract of employment cannot be enforced in an application filed under Art. 226 of the Constitution because the right is claimed in terms of a contract. Reliance was also placed on a decision of their lordships of the Supreme Court in Har Shankar and Others v. The Deputy Excise and Taxation Commissioner and Others, AIR 1975 SC 1121 ), wherein it has been observed that a writ petition is not an appropriate remedy for impeaching validity of a contractual obligation. Attention was next drawn to a decision of their lordships of the Supreme Court in Sham Lal & Ors. v. State of Punjab and Ors., AIR 1976 SC 2045 ), wherein their lordships have held that contractual obligations cannot be avoided by licensee by taking recourse to writ petition. 9. Mr. Gupta next drew our attention to a decision of their lordships of the Supreme Court in Kulchhinder Singh and Ors. v. Hardayal Singh Brar and Ors., AIR 1976 SC 2216 ), wherein it has been held that remedy under Art. 226 of the Constitution is unavailable to enforce a contract qua contract. 10. Our attention was next drawn to a decision of their lordships of the Supreme Court in M/s. Radhakrishna Agrawal & Ors. v. State of Bihar and Ors., AIR 1977 SC 1496 ), wherein their lordships of the Supreme Court have observed that Governmental authorities acting in contractual field cannot be controlled by Art. 14 for enforcing breach of contract. Proceedings under Art. 226 are inappropriate remedy. However, their lordships observed that the contract did not contain any statutory terms or obligations and no statutory power or obligation which could attract the obligation of Art. 14 was involved. Thus, by implication, their lordships have observed that if the contract contains statutory terms or if statutory powers and obligations are attracted, Art. 14 can hold the field. But if they do not exist then Art. 226 cannot be invoked. Before their lordships a question was raised whether the principles of natural justice will be attracted in contractual matters also. Their lordships observed in pars 25 that limitations imposed by rules of natural justice cannot operate upon powers which are governed by the terms of an agreement exclusively. The only question which normally arises in such cases is whether the action complained of is or is not in consonance with the terms of the agreement. 11. Their lordships observed in pars 25 that limitations imposed by rules of natural justice cannot operate upon powers which are governed by the terms of an agreement exclusively. The only question which normally arises in such cases is whether the action complained of is or is not in consonance with the terms of the agreement. 11. In State of Haryana and Others v. Jage Rain and Ors., AIR 1980 SC 2018 ), their lordships of the Supreme Court observed that Bidders cannot be permitted to wriggle out of their voluntarily incurred contractual obligations by invoking writ jurisdiction. In this case, Harshanker's, AIR 1975 SC 1121 ) and Shamlal's, AIR 1976 SC 2045 ) were followed. 12. A single Bench of the Gujrat High Court in M/s. Kwality Pulp and Paper Mills, Valsad v. The Gujrat Industrial Development Corporations, Valsad, AIR 1988 Guj. 104 ) has held that extra ordinary jurisdiction under Art. 226 of the Constitution cannot be exercised for determining questions arising out of contractual rights and obligations of the respective parties. This is what has been observed by a Division Bench of the Allahabad High Court in Himalaya Textile Corporation, Ganjudwara v. U.P. State Finance-Corporation, U.P., Kanpur and Others, AIR 1989 All 85 ). In a writ against a Financial Corporation on the ground that it was realising loan in disregard of the terms of the agreement between the parties, it was held that a writ is not maintainable. The alternate remedy suggested to the petitioner was to institute a suit in a regular civil court. 13. In a writ against a Financial Corporation on the ground that it was realising loan in disregard of the terms of the agreement between the parties, it was held that a writ is not maintainable. The alternate remedy suggested to the petitioner was to institute a suit in a regular civil court. 13. This trend of decisions rendered by their lordships of the Supreme Court that in contractual matters, courts have no role to play, has not been adhered to by their lordships of the Supreme Court in later decisions i.e. Raman Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628 ), M/s. Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir, AIR 1980 SC 1992 ), Fertilizer Corporation Kamgar Union (Regd.) Sindri v. Union of India, AIR 1981 SC 344 , Ram and Shyam Company v. State of Haryana, AIR 1985 SC 1147 ), Hazi T.M. Hasan Rawther v. Kerala Financial Corporation, AIR 1985 SC 157 ), Mahabir Auto Stores v. Indian Oil Corporation, AIR 1990 SC 1031 ), Kumari Shrilekha Vidhyarthi v. State of U.P., AIR 1991 SC 537 ), State of M.P. v. Nandlal Jaiswal, 1987 (1) SCR 1 ], Sachidanand Pandey v. State of West Bengal, 1987 (2) SCC 295 ) and G.B. Mahajan v. Jalgaon Municipal Council, 1991 3 SCC 91 ]. 14. In Mahabir Auto Stores' Case (supra) also, their lordships of the Supreme Court have held that every action of the State executive authority must be subject to rule of law and must be informed by reasons. So whatever be the activity of the public authority, it should meet the test of Art. 14 of the Constitution. 15. All these decisions were noticed by their lordships of the Supreme Court in the case of Sterling Computers Limited v. M/s. M & N Publications Ltd. & Ors., 1993 (1) Current Civil Cases 86 ). Their lordships after reviewing these decisions observed that at times, it is said that public authorities must have the same liberty as they have in framing the policies, even while entering into contracts because many contracts amount to implementation or projection of policies of Government. But it cannot be overlooked that unlike policies, contracts are legally binding commitments and they commit the authority which may be held to be a State within the meaning of Art. 12 of the Constitution in many raises for years. But it cannot be overlooked that unlike policies, contracts are legally binding commitments and they commit the authority which may be held to be a State within the meaning of Art. 12 of the Constitution in many raises for years. That is why the Courts have impressed that even in contractual matters, the public authority should not have unfettered discretion. In contracts having commercial element, some more discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. But even in such matters, they have to follow the norms recognised by Courts while dealing with public property. Under some special circumstances, a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the Courts, such decisions are upheld on the principle laid down by Justice Holmes, that Courts while judging the constitutional validity of executive decisions, must grant certain measure of freedom of 'play in the joints' to the executive. Once the State decides to grant any right or privilege to others, then there is no escape from the rigour of Art. 14. The executive does not have an absolute discretion, certain precepts and principles have to be followed, the public interest being the paramount consideration. (Emphasis supplied) Their lordships further observed that public authorities are essentially different from those of private persons. Even while taking decision in respect of commercial transactions a public authority must be guided by relevant considerations and not by irrelevant ones. If such decision is influenced by extraneous considerations then that can be looked into and set aside. In M/s. Kasturi Lal Lakshmi Reddy v. The State of Jammu and Kashmir (supra), their lordships observed that there is nothing paradoxical in imposing legal limits on such authorities by Courts even in contractual matters because the whole conception of unfettered direction is inappropriate to a public authority, who is expected to exercise such powers only for public good. 16. In M/s. Kasturi Lal Lakshmi Reddy v. The State of Jammu and Kashmir (supra), their lordships observed that there is nothing paradoxical in imposing legal limits on such authorities by Courts even in contractual matters because the whole conception of unfettered direction is inappropriate to a public authority, who is expected to exercise such powers only for public good. 16. In Chief Constable of the North Wales Police v. Evans, 1982 (3) All E.R. 141 ], it has been held that the purpose of judicial review has been to ensure that the individuals receives fair treatment at the hands of the authorities. Their lordships have further held in Mahesh Chandra v. Regional Manager, U.P.F.C., J.T. 1992 (2) SC 326 ] while referring to s. 24 of the Act of 1951 that Corporation's approach must be public oriented and the Board is required to discharge functions on business principles. The Financial Corporations are an extended area of a welfare State and, therefore, they cannot realise their amount due from the hypothicated property, acting contrary to the scheme of s. 24 of the Act of 1951. Analysing the scope of s. 29 of the Act of 1951, it was observed that s. 29 confers very wide powers on the Corporation to ensure prompt payment by arming it with effective measure to realise the arrears. But the simplicity of the language is not an index to enormous power stored in it. From notice to pay the arrears, it extends to taking over management and every possession with a right to transfer it by sale. Every wide power, the exercise of which has far reaching repercussions, has inherent limitation on it. It should be- exercised to effectuate the purpose of the Act. In legislation's enacted for general benefit and common good, the responsibility is far graver. It demands purposeful approach. The exercise of discretion should be objective. Test of reasonableness is more strict. The public functionaries should be duty conscious rather than power charged. Its actions and decisions which touch the common man have to be tested on the touchstone of fairness and justice. That which is not fair and just is unreasonable. And what is unreasonable is arbitrary. An arbitrary action is ultra vires. It does not become bonafide and in good faith merely because no personal gain or benefit to the person exercising discretion should be established. (Emphasis supplied). 17. That which is not fair and just is unreasonable. And what is unreasonable is arbitrary. An arbitrary action is ultra vires. It does not become bonafide and in good faith merely because no personal gain or benefit to the person exercising discretion should be established. (Emphasis supplied). 17. An action is malafide if it is contrary to the purpose for which it was authorised to be exercised. Dishonesty in discharge of duty vitiates the action without anything more. An action is bad even without proof of motive of dishonesty, if the authority is found to have acted contrary to reason. Power under s. 29 of the Act to take possession of a defaulting unit and transfer it by sale requires the authority to act cautiously, honestly, fairly and reasonably. Default in payment of loan may attract s. 29. But that alone is insufficient either to assume possession or to sell the property. Neither should be resorted to unless it is imperative. Even though no rules appear to have been framed nor any guidelines framed by the Corporation was placed, yet the basic philosophy enshrined in s. 24 has to be kept in mind. (Emphasis supplied). Rationale of action and motive in exercise of it has to be judged in the light of it. Lack of reasonableness or even fairness at either of the two stages renders the take over and transfer invalid. Their lordships further observed in para 15 of this judgment that various situations may arise which may hamper start of the unit e.g. delay in electric supply or delayed delivery of machinery vital for the functioning of the unit. Such difficulties do require rescheduling of payment of instalment because, if the unit, for reasons beyond the control of unit holder, could not start, then how will the amount be repaid. The endeavour should be to adjust and accommodate as business considerations require the unit to function both for the benefit of the general public as also for the benefit of the Corporation. It is not mandatory, as a matter of law, to observe the process of taking over strictly. But if there is no option left out and the unit is taken over then its transfer requires not only sincere effort but to act reasonably and fairly. 18. It is not mandatory, as a matter of law, to observe the process of taking over strictly. But if there is no option left out and the unit is taken over then its transfer requires not only sincere effort but to act reasonably and fairly. 18. Here, in this case, what is claimed is that on account of difficulties in supply of working capital, constant famines, fire in the unit and electricity failure and other circumstances, the unit became sick and, therefore, payments could not be made in time. These difficulties were realised and as a result thereof, it had to be refinanced and, therefore, the respondent-Corporation also ordered for reschedulement of the payment of loan and if in such cases, s. 29 has to be invoked, the action has to be informed by considerations provided in s. 24 of the Act of 1951. 19. In Kumari Shrilekha's case quoted supra, their lordships observed that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. Exclusion of Art. 14 in contractual matters is not permissible in constitutional scheme. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Art. 14 and permit judicial review, it can be said that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. Therefore, it would be difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Art. 14. 20. It is accordingly clear that such actions even in contractual matters can be examined by the Court on the touchstone of Art. 14 and if the execution of contract has statutory overtones then of course a writ petition does lie to this Court under Art. 226 of the Constitution. 20. It is accordingly clear that such actions even in contractual matters can be examined by the Court on the touchstone of Art. 14 and if the execution of contract has statutory overtones then of course a writ petition does lie to this Court under Art. 226 of the Constitution. Here, the Industry has to be taken over and its assets have to be sold, in exercise of the powers conferred on the respondent-Corporation under sections 29 and 30 of the Act of 1951. It is a matter which does not only have statutory overtones but it directly flows from the statutory provisions. Whether such an action is reasonable or unreasonable, in view of the provisions of s. 24 of the Act of 1951, can be examined by the Courts as held by their lordships of the Supreme Court in Mahesh's case, quoted supra and, therefore, when the said action has to be examined in the light of the provisions of the Statute and it has to be determined whether it is reasonable or unreasonable, then definitely, the petitioner cannot be thrown out on the pretext that it is a case covered by the terms of the contract. The terms of the contract have a statutory overtone and the action proposed, directly flows from the provisions of the Act and, therefore, we are firmly of the view that the writ petition is an appropriate remedy which can be availed of by the petitioner in this case and, therefore, to that extent the contention of Mr. Gupta that the petitioner is precluded from approaching this Court under Article 226 of the Constitution cannot be sustained. Moreover, this objection loses its importance because the writ petition has already been entertained by the learned single Judge and certain orders have been passed by him in the writ petition which are favourable to the respondents and, therefore, the respondents now cannot turn round and say that the appeal against that order cannot be entertained on the ground that in such matters, the petitioner cannot come to the Clint under Art. 226 of the Constitution. 21. Mr. Gupta submitted that the State Financial Corporation is free to take action either under s. 29 or under sections 31 and 32 of the Act of 1951. It is the choice of the Financial Corporation and not of the petitioner- company. 21. Mr. Gupta submitted that the State Financial Corporation is free to take action either under s. 29 or under sections 31 and 32 of the Act of 1951. It is the choice of the Financial Corporation and not of the petitioner- company. In this respect, he placed reliance on a Division Bench decision of Andhra Pradesh High Court in M/s. Srinivasa Khandasari Sugar's case (quoted supra), as also a decision of their lordships of the Supreme Court in Andhra Pradesh State Financial Corporation v. M/s. Gar Re- Rolling Mills & Anr., JT 1994 (1) SC 596 ]. It is not a case where the Financial Corporation is required to make an election as to whether it wants to proceed under s. 29 or under s. 31 of the Act of 1951. It has already elected to take action under s. 30 read with s. 29 of the Act, whereby it has called upon the petitioner-company to pay the over due amount. Choice is absolutely theirs and it cannot be interfered unless the action is held as arbitrary or it is shown to be actuated by malafides. The allegations about malafides have to be specific so that they can be refuted. Vague allegations cannot be looked into. This is what has been held by their lordships of the Supreme Court in Express Newspapers Pvt. Ltd. v. Union of India, AIR 1986 SC 872 ). Vague allegations of malafides are not enough to discharge the burden resting on the person who makes the same. It is for the person who alleges to show that the exercise of the power by the authorities is not in good faith and the authority has been misused on account of bad faith. 22. We will deal with the aspect of reasonableness and good faith or bad faith later on but so far as malafides are concerned, no specific allegations are there and, therefore, they cannot be looked into and question of election is also irrelevant because action has already been proposed to be taken un,N. s. 29 read with s. 30 of the Act of 1951. 23. 23. Having held that constitutional validity of s. 29 of the Act of 1951 is not res integer any more and having held that a writ petition in this matter is entertain able against notice Annexure-10, now it has to be decided as to whether the action proposed by the respondent-Corporation is reasonable or not and whether the amount claimed by them is also reasonable or not ? This has also to be determined whether compound interest can be charged by the Corporation and whether penal interest can be realised by them as per the terms of the contract and whether in view of this dispute existing between the parties as to whether the respondent Corporation is estopped, on .the basis of promissory estoppel, from realising the penal interest, the action proposed by the Corporation in taking over the assets of the petitioner-company in exercise of its powers under s. 29 read with s. 30 of the Act of 1951 deserves to be sustained or quashed ? 24. In order to examine these questions, it will be necessary to go into certain factual aspects. The learned single Judge has avoided them and has passed a judgment without discussing any material on the record, treating the outstanding to be round about Rs. 20 lacs. Be that as it may, the petitioner company was sanctioned a loan of Rs. 30 lacs vide their sanction letter Annexure-1 dated 13.2.1979. While sanctioning the loan, it was mentioned therein that the terms and conditions of the loan will be as mentioned in Annexure-A and the procedure for disbursement and terms and conditions to be fulfilled before the disbursement of the loan are mentioned in Annexure-C. We need not examine Annexure-C because out of Rs. 30 lacs, Rs. 29,50,000/- have already been disbursed to the petitioner-company, the details of the disbursement of which are contained in para 5 of the writ petition. Be that as it may, Annexure-1 contains the terms of the re-payment of the loan. The period of re-payment has been fixed as 8 years starting from 1st day of the 24th month reckoned from the date of first disbursement of the loan. Be that as it may, Annexure-1 contains the terms of the re-payment of the loan. The period of re-payment has been fixed as 8 years starting from 1st day of the 24th month reckoned from the date of first disbursement of the loan. As regards interest, Condition No. 4 of Annexure-A provides as under : "(4) INTEREST 5% above the Bank Rate prevailing from time to time with a rebate of 1/2% on timely payment of interest and instalment, but in no case the minimum rate of interest after allowing the rebate shall fall below 131/2% p.a. The interest shall be payable in quarterly instalments on 1st day of January, April, July and October every year, beginning after three months from the date of first disbursement : Provided that if refinance is made available by the Industrial Development Bank of India @ 6%, the Corporation will charge interest @ 91/2% p.a. In case of default, the Corporation will charge @ 5% above concessional/normal rate of interest (without any rebate) on the amount in default for the period of default." 25. Annexure 2 also incorporate the conditions about how the loan has to be availed and how its repayment has been secured and how hypothecation of the properties of the petitioner-company has to be made with the Corporation in order to ensure repayment. Condition No. 4 of this Annexure-2 pertains to payment of interest and it reads as under : 4. NON BACKWARD AREAS : BACKWARD AREAS You shall pay interest on loan @5% above the Bank Rate prevailing from time to time with a rebate of half 1/2% per annum on timely payment of interest and instalment of the repayment of loan but in no case the minimum rate of interest after allowing the rebate shall fall below 131/2% per annum. In case refinance is granted by the Industrial Development Bank of India (IDBI) against the loan herein to the Corporation at the concessional rate of interest @ 6% per annum or such higher/lower rate as may be advised by the Industrial Development Bank of India and you make the timely payment of the interest and instalment of the loan herein, the Corporation shall not charge interest more than 91/2% per annum or such higher/lower corresponding rate allowed by the IDBI and decided by the Board of the Corporation from time to time. In case of default the Corporation will charge @ 5% above concessional/normal rate of interest (without any rebate) on the amount in default for the period of default." 26. Thus, so far as Annexure-1 sanction letter, read with Annexure-A and Annexure-2 are concerned, they categorically provide that interest will be chargeable at the rate of 5% above the prevailing Bank Rate from time to time with 1/2% rebate per annum on timely payment of interest and instalments. But it shall not be less than 131/2% after allowing the rebate and if a refinance is granted by the Industrial Development Bank of India @ 6% to the respondent Corporation then interest will be chargeable @ 91/2% per annum, if instalments of loan and payment of interest is made timely. A default clause has been added in Annexure 1 and Annexure 2 both and it says that in cases of default, the Corporation will charge 5% above concessional/normal rate of interest without any rebate on the amount in default and for the period of default. Thus, it only provides that in case the default is committed, the Corporation will be entitled to charge 5% interest above the concessional or normal rate, i.e. normal rate as per clause (1) of Annexure-1 and Annexure-2 pertaining to interest, meaning thereby that 5% above the prevailing Bank Rate and 59 above the concessional rate in case refinance is granted by the IDBI. There is no stipulation about charging penal interest. But there is a stipulation about charging higher rate of interest from the normal or concessional rate in case of default on the amount in default and for the period of default. Thus, enhanced rate is not applicable retrospectively. Of course, in case of default, concession of rebate has been withdrawn. In Condition No. 5 which pertains to Liberal Loan Scheme it has been provided that interest shall be payable in quarterly instalments. In Condition No. 5 of Annexure-2 under the Head 'Liberal Loan Scheme', it has been provided that interest shall be payable in quarterly instalments i.e. 1st day of January, April, July and October every year beginning after three months from the date of first disbursement. This also does not provide for charge of interest over interest with quarterly rests. In Condition No. 5 of Annexure-2 under the Head 'Liberal Loan Scheme', it has been provided that interest shall be payable in quarterly instalments i.e. 1st day of January, April, July and October every year beginning after three months from the date of first disbursement. This also does not provide for charge of interest over interest with quarterly rests. It only provides that interest would be payable in quarterly instalments on 1st day of January, 1st day of April, 1st day of July and 1st day of October every year and its payment must start after three months from the date of first disbursement. There are no other conditions as regards the payment of interest incorporated in Annexure-1 and 2 which prescribe terms and conditions as regards disbursement of this loan and its repayment. However, in pursuance of Annexure-2, the petitioner-Company executed a letter of hypothecation of transferable movable property in favour of the Corporation to secure loan and subsidy. Condition No. 8(1) provides for payment of interest and it is ad-verbatim the same as provided in Annexure-2. Condition No. 9 pros ides that the interest shall be payable in quarterly instalments on 1st day of January, April, July and October every year beginning after three months from the date: of the first disbursement. Thus, this scheme of repayment of interest is also the same as provided in Annexure-2. Condition No. 9 pros ides that the interest shall be payable in quarterly instalments on 1st day of January, April, July and October every year beginning after three months from the date: of the first disbursement. Thus, this scheme of repayment of interest is also the same as provided in Annexure-2. Now, in Condition No. 10 of this letter of hypothecation of transferable move able property, the petitioner-company has undertaken to pay to the Corporation, on demand, the balance of the amount then due, together with all other interest at the rate above mentioned and a provision has been added that all interest which shall for the time being accrue due on the said principal sum or any part thereof and which shall for the time being remain unpaid and all other moneys which become payable hereunder shall in case the same be not paid on the days on which they become due carry interest at the same rate aforesaid computed from the respective time of such due dates upon the footing of compound interest computed at the same rate aforesaid with rests taken or made monthly on the days here in above provided for payment of interest and all such compound interest shaft be charged on the hypothecated assets provided that this provision shall not be deemed to authorise the Borrower to allow any interest or other moneys as hereunder written to fall in arrears unless permitted so to do by the Corporation. Thus, by Condition No. 10 incorporated in the letter of hypothecation, the respondents have undertaken to pay compound interest on the amount remaining unpaid from the date it became due. This also does not provide for charging the compound interest from the date of the loan. It authorises the payment of compound interest only if the instalments of interest is not paid in time. This compound interest has been made chargeable from the date of the default and for the amount remaining in default and the rate which has been mentioned for compound interest is the same at which the loan is payable. There is no provision for levy of any penal interest over and above the compound interest in case of default and this condition, although it does not form part of Annexures 1 and 2, it stands incorporated in the letter of hypothecation executed by the petitioner-company in favour of the respondent-Corporation suomotu. There is no provision for levy of any penal interest over and above the compound interest in case of default and this condition, although it does not form part of Annexures 1 and 2, it stands incorporated in the letter of hypothecation executed by the petitioner-company in favour of the respondent-Corporation suomotu. This was not the condition of sanction of loan but as it has been agreed to be paid, this has to be treated as a part of contract and it rests at that.27. However, after the sanction of the loan, company faced number of difficulties and it could not repay the interest and instalments in time. The difficulties that were faced by the petitioner-company as regards sickness and incurring of cash losses, are mentioned in Annexures 23, 24 and 25 in which it has been claimed that they could start production late because working capital was not provided by the Bank in time. The disbursement by the respondent-Corporation was also not made in time and then there was a 100% power cut effected by the RSEB and it took time for them to manage for an alternate arrangement for the supply of the electricity. They have also claimed that there was recession and draught and by Annexures 28, 29 and 30, they have claimed that a fire broke out in their premises causing a loss of about 19 lacs rupees. The Surveyor has estimated the aforesaid loss at Rs. 16,08,712/- and they have prayed for waiver of the penal interest and arrears of instalments and requested for reconstruction of the company. Facts about it are contained in Annexure-33, 34, 35 and 36 dated 10.3.1984, 14.3.1984, 7.4.1984 and 8.6.1984 respectively. The sickness has been admitted by the Corporation vide their letter Annexure-21 in which it has been mentioned by the respondent Corporation that as per norms prescribed by the IDBI, your unit has fallen in the grip of sickness and needs revival and, therefore, they have proposed to conduct a study and suggested for remedial measures. The report of that Committee has been marked as Annexure-22. In Annexure-22, it was agreed regarding rate of interest by the respondent Corporation that they would continue to charge existing rate of interest on the loans outstanding but would not be able to continue to charge the same after last day of repayment unless IDBI agrees to extend the refinance period. In Annexure-22, it was agreed regarding rate of interest by the respondent Corporation that they would continue to charge existing rate of interest on the loans outstanding but would not be able to continue to charge the same after last day of repayment unless IDBI agrees to extend the refinance period. By a letter Annexure-37 dated March 3, 1984, the respondent Corporation informed the petitioner- company that they have agreed for the reschedulement of the instalments in accordance with IRCI's assistance. However, they made it clear that re-schedulement is regarding the principal instalments only and as such the interest instalments which have fallen due and which may fall due must be paid in time. The reschedulement was sanctioned vide Annexure-3 dated September 2, 1983. This reschedulement of the loan amount related to the principal amount sanctioned as loan. It is a reschedulement of the loan amount of Rs. 30.49 lacs whereas the actual loan disbursed was Rs. 29,50,000/- and before these dates, certain payments have been made. Of course, the petitioner-company has claimed that this amount which has been paid should have been adjusted against the principal and not against the interest but that submission cannot be accepted. Firstly, they themselves mentioned in para 12 of Annexure-40 on page 200 that Rs. 6.84 lacs have been paid by them to the Corporation till the year ending on June 1985, towards interest and they have furnished its details in para 12. Similarly, in para 11 of Annexure-41 dated August 22, 1986 they have claimed that they have made a payment of Rs. 9.86 lacs towards interest. Thus, they themselves knew that the payment was first to be adjusted against interest and then if any excess amount is paid then that amount has to be adjusted against the principal.28. Their lordships of the Privy Council in Beninson and Others v. Shiber, AIR (33) 1946 Privy Council 145 ] have held that in the absence of any appropriation by the debtor at the time of payment, as a general rule the payments should be appropriated in the first instance to interest. Their lordships of the Privy Council in Beninson and Others v. Shiber, AIR (33) 1946 Privy Council 145 ] have held that in the absence of any appropriation by the debtor at the time of payment, as a general rule the payments should be appropriated in the first instance to interest. Same view has been expressed by a Division Bench of the Orissa High Court in M/s. Kharavela Industries Pvt. Ltd. v. Orissa State Financial Corporation and Others, AIR 1985 Orissa 153 ), wherein it has been observed that if loan agreement does not indicate intention of parties and payments made by latter must be adjusted first towards interest and not towards principal amount. The normal rule is that the payments made by the debtor must first be adjusted towards satisfaction of interest and then towards the principal. Thus, to this extent, the contention of the petitioner-appellant cannot be sustained that the payments made must first be adjusted towards principal and not towards interest.29. Be that as it may, in the letter, of reschedulement, it was incorporated for the first time by the respondent Corporation that the rate of interest, after the last date of repayment i.e. 25.3.1987 will be current rate of 15% p.a. and in case of default, the rate of interest will be 71/2% p.a. above the current rate of interest, i.e. 15% p.a. which comes to 221/2% p.a. on the amount of default and for the period of default. In Annexure-2, the provision was that in case of default, the Corporation will charge 5% on the concessional/normal rate of interest, without any rebate on the amount of default and for the period of default. Vide Condition No. 10 of the letter of hypothecation, the Corporation agreed to pay compound interest in case it remains in default. But that compound interest has been made chargeable at the normal rate. Thus, when Annexure-1 and 2 and the hypothecation letter are read together, they provide for two penal consequences in case of default. Vide Condition No. 10 of the letter of hypothecation, the Corporation agreed to pay compound interest in case it remains in default. But that compound interest has been made chargeable at the normal rate. Thus, when Annexure-1 and 2 and the hypothecation letter are read together, they provide for two penal consequences in case of default. Firstly, that in case of default, the Corporation will be entitled to charge 5% interest above the concessional/normal rate of interest without any rebate on the amount in default and for the period of default; and secondly as per Condition No. 10 of the letter of hypothecation, the respondent Company agreed that on the amount remaining unpaid for the time being, interest will be payable at the same rate computed from the respective time of such due dates upon the footing of compound interest computed at the same rate aforesaid with rests taken or made monthly on the days here in above provided for payment of interest and all such compound interest shall be charged on the hypothecated assets. Thus, not only enhanced rate of interest was made chargeable on the amount in default and for the period in default but a further condition was imposed that on the amount remaining unpaid, compound interest will be chargeable at the normal rate. This charging of 5% interest above the normal and concessional rate has now been changed vide Annexure-3 to 71/2% on account of reschedulement. Now this has to be seen whether such a penal condition as regards the payment of interest can be sustained in view of the fact that admittedly, the petitioner-company has become sick and the respondent Corporation itself has felt the necessity of its reconstruction and made correspondence with ICRI and IDBI for its reconstruction. For sick industries and BIFR, an Act has been enacted by the Parliament, which reads as the Sick Industrial Companies (Special Provisions) Act, 1985. Their lordships of the Supreme Court in Navnit R. Kamani v. R.R. Kamani, 1989 66 Company Cases 132 ], while dealing with the object of this legislation, have observed that this legislation has been enacted with these ends in view i.e. to afford maximum protection of employment and optimistic use of funds etc. and realising the amounts due to the Bank etc. and realising the amounts due to the Bank etc. and to replace the existing time consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts.30. In Testeels Ltd. v. Radhebehan Ranchhodlal Charitable Trust, 1989 66 Company Cases Guj. 555 ], it has been held that the aim of this Act has been described to safeguard the economy of the nation and to protect viable sick units and reviving these industries as sick units, it is necessary that certain rehabilitation packages envisaging certain reliefs and concessions along with facilities of funding interest, reschedulement of loan and sanctioning additional assistance, if found necessary has to be provided for. The reliefs and concessions may pertain to the following : i.e. (i) Relief with respect to interest rate on the funded amount of interest; and (ii) Relief with respect to financing of cash losses; and (iii) Reliefs in respect of margins of working capital and other relief depending upon the nature of the projects state and its health. Annexure-2 has been added as Revised Guidelines as package of reliefs and concessions by financial institutions for rehabilitation of potentially viable sick units. They are contained in H.P.S. Pahwa's Sick Industries & BIFR (2nd Edition) (on page 260 and 261) and it provides that the normal relief/concessions to which sick but potentially viable units have been made entitled are reduction in (a) rate of interest on existing term loans (The rate of interest on the existing term loans may be reduced to not below 10% p.a.); (b) Rate of interest on fresh term loans/Fresh loans, if any sanctioned for rehabilitation would carry interest at rates ranging between 11.5% and normal applicable rate, depending on the circumstances of each case. It is also entitled to waiver of penal interest/liquidated damages/compound interest. The institutions funding or extending loan facilities to such industries may waive penal charge, liquidated damages and compound interest for funds when the Company has incurred continuous cash losses. As regards the rate of interest, it has been provided that the funded interest would carry interest rate between 6% and 10% p.a. depending on the requirements of each case. The repayment period of the funded interest will be fixed not beyond the maximum period of 7 years. Thus, these sick units are entitled to reliefs as regards interest i.e. the charging of penal interest and compound interest. The repayment period of the funded interest will be fixed not beyond the maximum period of 7 years. Thus, these sick units are entitled to reliefs as regards interest i.e. the charging of penal interest and compound interest. Charging of penal interest from sick industries is unconscionable, unreasonable and unjust. If the Unit is not sick and it is in a position to pay the instalments and interest, there is no occasion for reconstruction of such an industry. The very fact that it has been admitted to be sick and reconstruction programme has been envisaged for this industrial company, it clearly means that it is entitled to a benevolent disposition by the Credit Institutions.31. Now, in this case the petitioner Company informed the respondents about their difficulties vide Annexures 23, 24, 25, 28, 29, 30, 31, 32, 40 and 41. It was because of this fact that reschedulement was permitted with certain conditions. Now, ensuring repayment of the over due interest and regular interest on penal rates as provided by Annexure-3 from a sick unit appears to be totally unconscionable and unreasonable and against s. 24 of the State Financial Corporation Act of 1951, which clearly provides that the Board in discharging its functions under this Act, shall act on business principles, due regard being had by it to the interests of industry, commerce and general public. Even when they propose to take any action under s. 29 read with s. 30 of the Act of 1951, they have to inform their action with the policy guidelines laid down by s. 24 of the Act. They cannot act are tearily and in a most un business like manner by repressing the Companies for realisation of their dues. This is what has been held by a Division Bench of the Allahabad High Court in U.P. Financial Corporation and Another v. M/s. Siddarth Udyog, 1990 (2) Bank CLR 518 ]. In that case, it has been observed that the scheme of the State Financial Corporation Act, 1951 is to provide medium for a long term credit which falls out side the normal activities of Commercial Banks. S. 24 of the Act enjoins that the Board in discharging its functions under this Act shall act on business principles, due regard being had by it to the interests of the industry, commerce and the general public. S. 24 of the Act enjoins that the Board in discharging its functions under this Act shall act on business principles, due regard being had by it to the interests of the industry, commerce and the general public. The action taken by the Corporation in this particular case was not at all in consonance with the spirit of s. 24 of the Act. The Corporation had itself realised that on account of inaction of the firm of Calcutta, the Factory could not start up to October, 1987. Some how, it could start functioning in November, 1987. Hence without providing it with a scope of flourishing, the Corporation has put its lock on it on 9.3.1988. Thus, about a little more than 4 months period of function of the plaintiff-respondent industry was permitted. This cannot be said to be in the interest of the industry.32. The defendant-respondents cannot use s. 29 of the Act as a measure of repression for the purpose of realising its due from a debtor company. The authority given by s. 29 of the Act to take over the management or possession or both of the industry is to be read with s. 24 of the Act. Under s. 29 of the Act, the Corporation had to proceed in such a manner as to enable the industry to flourish and Corporation be able to realise its dues. The sequence of words 'shall have right to take over management or possession or both of the industrial concern' clearly means that in the first instance, the Financial Corporation should insist on taking over the management. The taking over of management and possession both should arise only when if the Company is not able to repay its dues by proper management of the industry by it.33. The taking over of management and possession both should arise only when if the Company is not able to repay its dues by proper management of the industry by it.33. This is what has been observed by a Division Bench of the Orissa High Court in VI/s. Kharavela Industries Pvt. Ltd.'s case (supra), wherein a learned single Judge has held that there cannot be any manner of doubt that the power given to the Corporation under s. 29 of the Act is an extraordinary power and the same must be resorted to only when the Corporation bonafide forms the opinion after taking into consideration all relevant factors including all payments made by the enterpreneur till the date of the order that the pre-conditions of sub-s. (1) of s. 29 of the Act nave been fully satisfied. If the Corporation fails to take into account the up-to-date payments made by entrepreneur while deciding to take action under s. 29 of the Act, then even though the conditions prescribed under sub-s. (1) might have been satisfied, yet the decision will be vitiated on account of non-consideration of relevant materials. Before taking any such measure, as is given in s. 29, the Corporation must consider all the relevant materials, namely, the total amount of loan advances, the total amount of payment made on the date, the total outstanding dues to the Corporation, the stage at which the industry is functioning and all other relevant factors.34. Now, in this back drop, let us examine how the Corporation has acted in this case. The total loan advanced by the Corporation to the petitioner company is Rs. 29,50,000/-. It has not paid the amount of subsidy to the petitioner company amounting to Rs. 1,07,674/- which it is alleged by them has been adjusted against the over dues. The petitioner-company in para 2 of the memo of appeal, has categorically stated that it has already paid to the respondent Corporation Rs. 59,04,084.58 P. up to 30.6.1990. Thus, more than double the amount has already been paid to the Corporation and still the Corporation has chosen to take over this factory in exercise of the powers conferred under s. 29 read with s. 30 of the Act, specially keeping in view the fact that it has been admitted by them that the industry has fallen sick and needed reconstruction and reschedulement of the payment of the principal amount. The total sum which has been claimed by the petitioner vide Annexure-10 is between R. 20 lacs and 20.50 lacs. This is in the backdrop of these facts that vide Annexure-4, the respondent Corporation asked the petitioner-company to pay Rs. 18.50 lacs within 7 days i.e. by 25.3.1988. It has further asked the petitioner Company to pay a sum of Rs. 12 lacs by 28.3.1988 vide letter Annexure-4 dated 18.3.1988 and has further directed them to pay balance overdue amount along with amount to fall due on 1st April, 1988 to be deposited by 30.4.1988 and it may be stated that a sum of Rs. 30 lacs have been paid between 24.3.1988 to 30.3.1988 as desired. Prior to that a sum of Rs. 12,44,000/-has already been paid up to 30.3.1987 and, therefore, it was agreed between the petitioner company and the respondent Corporation that if a sum of Rs. 10,50,000/- is paid, the penal interest will be waived. The letter Annexure-4 also shows that during the course of discussion, it was stated that no penal interest will be taken from 1.1.1985 i.e. the date from which first instalment fell due as per reschedulement sanctioned on September 2, 1983. No penal interest could have been charged prior to the issuance of Annexure-3 dated September 2, 1983 because there was no such condition. First payment was ordered to be made on 1.1.1985 so far as principal amount was concerned and, therefore, no penal interest could have been charged between 2.9.1983 to 1.1.1985 because before that the instalments did not become due for payment as per reschedulement. Only interest was due for payment and for that penal clause already existed that compound interest could be charged with quarterly rests. Their lordships of the Privy Council in Venkata Hanumantha Bhushana Rao Garu v. Gade Subhayya and another, AIR 1936 PC 283 ) have observed that compound interest is in itself perfectly legal, but compound interest at a rate exceeding the rate of interest on the principal moneys being in excess of and outside the ordinary and usual stipulation may well be regarded as in the nature of a penalty. This compound interest can be charged at the normal rate. Excess/enhanced rate cannot be charged as compound interest because then it becomes penal in character. This compound interest can be charged at the normal rate. Excess/enhanced rate cannot be charged as compound interest because then it becomes penal in character. When the normal rate prescribed for a sick industrial unit is 91/2%, the compound interest can be charged at that rate. It of course is a concessional rate. Till the unit has remained slid, it cannot be charged over and above the normal rate as per this decision of Privy Council.35. In Beninson & Others v. Shiber, AIR 1946 PC 145 ), it has been observed that whatever form an agreement between lender and borrower may take, if it is once suggested that excessive interest is being charged and if the account is still open to review, the Court is entitled and indeed bound to investigate the transaction which the agreement purports to regulate or to close and if it be found that the performance of the agreement will result in excessive interest being paid, it is the duty of the Court to reduce the interest to the legal rate. (Emphasis supplied).36. In this respect, we may again refer to s. 74 of the Contract Act which provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining. of the breach is untitled. whether or not actual damage or loss is proved to have been caused thereby in receive from the party who has broken the contract reasonable compensation nor exceeding the amount so named or as the case may be, the penalty stipulated for. Thus, only reasonable compensation or penalty is payable. Explanation-1 has been added to s. 74, which says that a stipulation for increased interest from the date of default may be a stipulation by way of penalty. It has been illustrated as under : "(d) A gives B a bond for the repayment of Rs. 1000/- with interest at 12 percent at the end of six months, with a stipulation that in case of default, interest shall be payable at the rate of 75 percent from the date of default. This is a stipulation by way of penalty and B is only entitled to recover from A such compensation as the Court considers reasonable. 1000/- with interest at 12 percent at the end of six months, with a stipulation that in case of default, interest shall be payable at the rate of 75 percent from the date of default. This is a stipulation by way of penalty and B is only entitled to recover from A such compensation as the Court considers reasonable. (f) A undertakes to repay B a loan Rs. 1,000/- by five equal monthly instalments with a stipulation that in default of payment of any instalment, the whole shall become due. This stipulation is not by way of penalty and the contract may be enforced according to its terms." 37. It may be clarified that the word 'penalty' can be used only if the failure to comply with the condition, puts a person in a worse position than he would have been if, if there had been no agreement at all and makes him liable to pay a larger sum than that to which he would otherwise have been liable. It is the secondary stipulation which places an additional burden on default. A penal provision is not restricted to money, increased interest or the like but it is wide enough to include any other stipulation by way of penalty. It has been held in Hiralal v. Durga, AIR 1937 Nag. 413 ) that a stipulation in a contract introduced solely for securing the performance of the contract is penal.38. In K.P. Subbama Sastry v. K.S. Raghavan, AIR 1987 SC 1257 ), it has been observed that a stipulation in a contract that on default in payment of any of the instalments, all the future instalments shall be payable at a time, with interest, is not penal in nature. Actually, the expression 'penalty' is an elastic tam with many different shades of meaning but it always involves an idea of punishment. Although, the distinction between penalty and liquidated damages has been said to depend upon the intention of the parties and the construction of the document, yet it has been observed in Cheruva Nageswara Swami v. Vadrevu Viswasundara Rao, AIR 1953 SC 370 ) by their lordships of the Supreme Court that stipulation as to payment of compound interest at enhanced rate in case of default, is a penalty. The reason has been stated to be that the contract regarded as primary is the promise to repay the amount due to the creditor with interest, if any, agreed upon, and the contract to pay enhanced interest is regarded as a secondary one intended to secure the fulfilment of the contract; the Courts do not feel bound to carry out such a secondary contract apart from its justice and reasonableness. This is what has been observed by 2. Full Bench of Madras High Court in Muthukrishna v. Sankaralingam, ILR 36 Mad 229 ).39. Stipulation for enhanced rate of interest may be of two kinds, i.e. the enhanced rate may be prospective or retrospective in its operation. When the contract is merely that if the sum borrowed is not paid at the due date, it shall henceforth carry interest at an enhanced rate, such stipulation is not a penalty, but the higher rate may be recovered in its entirety. Enhanced rate of interest may be a penalty when in case of default of payment on the due date it shall be payable from the date of the contract. This has been held to be penal, excessive and unconscionable in a leading case of Mackintosh v. Crow, ILR 9 Cal 689 . A provision, therefore, for retrospective enhancement of interest in default of payment of interest on due date is generally a penalty which should be relieved against; but a proviso for enhanced interest in future cannot be considered as a penalty unless the enhanced rate be such as to lead to the conclusion that it could not have been intended to be part of the primary contract between the parties.40. Now, Annexure-4 says that a particular payment has to be made i.e. payment of Rs. 30,50,000/- has to be made within/about 10 days and if that is done, penal interest will be waived. Same is the stipulation that if Rs. 10,50,000/- are paid, penal interest amounting to Rs. 7.81 lacs will be waived. That is what has been mentioned in Annexure-46 issued by the respondent Corporation to the Managing Director of the petitioner-Company. These payments have been made to the Corporation with this understanding that the penal interest will be waived and the payments were accordingly made. 10,50,000/- are paid, penal interest amounting to Rs. 7.81 lacs will be waived. That is what has been mentioned in Annexure-46 issued by the respondent Corporation to the Managing Director of the petitioner-Company. These payments have been made to the Corporation with this understanding that the penal interest will be waived and the payments were accordingly made. Now, a condition has been kept in Annexure-4 that if future interest and instalments will not be paid then the concession of penal interest granted will also be forfeited, i.e. the benefit of penal interest which has been waived will also be forfeited. That is absolutely unreasonable and unconscionable and cannot be sustained. If a company parts with about more than Rs. 40 lacs in favour of the Financial Corporation on the understanding that penal interest will be waived then the penal interest has to be waived. This waiver cannot be made to depend on future payments which should be made in time. This amount of Rs. 20 lacs which has been claimed includes this amount of penal interest. Actually from a sick unit, firstly penal interest should not be charged, even compound interest has to be waived for the period the Unit is sick but even if it is held that on overdue instalments and overdue interest, charging of compound interest is reasonable and even admitting that inspite of reschedulement, the payments have not been made in time, compound interest can be charged on the amount of default and for the period of default at normal rates and not at enhanced rates as observed earlier. No penal interest can be charged from a sick company because this is against the spirit of business, commerce and industry and hence it is against public interest and militates against the idea of reconstruction of sick units. It is also against the spirit of fair industrial growth and secondly, when such an enormous sum amounting to Rs. 40 lacs has been paid to the respondent Corporation, depriving other Financial Institutions of the payment on the promise and understanding that penal interest will be waived, it cannot be held to be recoverable on the ground that future interest and future instalments have not been paid in time. That condition by itself is penal and unjust when we deal with a sick company. That condition by itself is penal and unjust when we deal with a sick company. A calculation has to be made as to how much is due from the appellant-company excluding the penal interest after calculating compound interest at normal rates and not at enhanced rates because that clause of payment of compound interest at enhanced rates has also been held to be penal as held by the Hon'ble Judges of the Full Bench of the Madras High Court in Muthu Krishna's case (supra) and in arriving at that figure keeping in view these observations, if any amount still remains to be paid by the appellant company then that amount alone can be demanded and if it is not paid, on that amount also, compound interest can be charged prospectively on the amount of default and for the period of default, as held by their lordships of the Privy Council. Demanding the entire amount in lump sum on default, is also not penal in character but charging of enhanced rate of interest as provided by Annexure-3 for ensuring payment of future interest and instalment is penal in character so far as this case is concerned. Firstly waiving the concession of penal interest granted in favour of the petitioner-company by the respondent-Corporation, which is now sought to be withdrawn on the ground that future instalments of principal and interest have not been paid in time by the sick company is a condition which is totally unconscionable, unjust and unreasonable and secondly, such a course is against the principle of promissory estoppel because the petitioner company has changed its situation by making payment of Rs. 30 lacs to the respondent Corporation against a loan of Rs. 29,50,000/- within a period of 10 days and Rs, 10,50,000/- as and when it was demanded. This is in addition to the payment of Rs. 12,44,000/-, which has already been paid to them by the appellant Company prior to that. In such matters, the principle of promissory estoppel is applicable. In this respect, we place reliance on the following decisions ad- seriatum :41. This is in addition to the payment of Rs. 12,44,000/-, which has already been paid to them by the appellant Company prior to that. In such matters, the principle of promissory estoppel is applicable. In this respect, we place reliance on the following decisions ad- seriatum :41. In Gujrat State Financial Corporation v. M/s. Lotus Hotels Pvt. Ltd., AIR 1983 SC 848 ), it has been observed by their lordships of the Supreme Court as under : "It is too late in the day to contend that the instrumentality of the State which would be 'other authority' under Art. 12 of the Constitution can commit breach of a solemn undertaking on which other side has acted and then contend that the party suffering by the breach of contract may sue for damages but cannot compel specific performance of the contract. It was not disputed that the Gujrat State Financial Corporation which is set up under s. 3 of the State Financial Corporation Act, is an instrumentality of the State and would be 'other authority' under Art. 12 of the Constitution. By the letter of offer and the subsequent agreement, the appellant Corporation entered into a solemn agreement in performance of its statutory duty to advance the loan of Rs. 30 lacs to the respondent-Company. Acting on the solemn undertaking, the respondent proceeded to undertake and execute the project of setting up a 4 Star Hotel. The agreement to advance the loan was entered into in performance of the statutory duty cast on the Corporation by the statute under which it was created and set up. On its solemn promise evidenced by the aforementioned two documents, the respondent incurred expenses, suffered liabilities to set up a hotel. Presumably, if the loan was not forthcoming, the respondent may not have undertaken such a huge project. Acting on the promise of the appellant evidenced by documents, the respondent proceeded to suffer further liabilities to implement and execute and project. In the back drop of this incontrovertible fact situation, the principle of promissory estoppel would come into play." 42. Their lordships of the Supreme Court in Union of India & Ors. v. Om Prakash etc., AIR 1968 SC 718 ) have held as under : "Even assuming that the' provisions relating to the issue of Trade Notices offering inducement to the prospective exporters were in character executive, the Union Govt. Their lordships of the Supreme Court in Union of India & Ors. v. Om Prakash etc., AIR 1968 SC 718 ) have held as under : "Even assuming that the' provisions relating to the issue of Trade Notices offering inducement to the prospective exporters were in character executive, the Union Govt. and its Officers were not entitled at their mere whim to ignore the promises made by the Govt. It could not be said that the Textile Commissioner was the sole Judge of the quantum of import licence to be granted to an exporter, and that the Courts were powerless to grant relief, if the promised. import licence was not given to an exporter who had acted to his prejudice relying upon the representation. Hence, the persons aggrieved because of the failure to carry out the terms of the Scheme were entitled to seek resort to the Court and claim that the obligation imposed upon the Textile Commissioner by the Scheme be ordered to be carried out." 43. In Gujrat State Financial Corporation, Ahmedabad v. M/s. Lotus Hotels Pvt. Ltd., Baroda, AIR 1982 Guj. 198 ), their lordships of the Gujrat High Court observed : "Where the State Financial Corporation, statutorily enjoined with the duty to provide credit to the industrial concerns, sanctioned loan to a concern (company) and entered into an agreement in that behalf with the concern even though it had in its possession all the information as regards the allegations Made against the promoter- director of the concern, it could not wriggle out of its obligation to extend the promised finance on the ground of conducting its transactions on sound business lines on the allegation that the promoter had misled it by not giving particulars of pending proceedings against him in the application for loan when the agreement had been entered into after requiring the concern to make equitable mortgage of its properties in favour of the Corporation and appointing its nominee as a Director on the Board of Directors of the concern, and had not rescinded the contract. Further, in such a case, the doctrine of promissory estoppel would be attracted and the Corporation would not be allowed to wriggle out of its promise. Further, in such a case, the doctrine of promissory estoppel would be attracted and the Corporation would not be allowed to wriggle out of its promise. Furthermore, the contract between the parties being a contract having statutory flavour, a writ petition would be maintainable and the aggrieved company need not be relegated to the remedy of ordinary suit." 44. Charging compound interest from a sick industrial unit by itself is unconscionable and unreasonable and it may be scaled down. This is what has been held by their lordships of the Supreme Court in S. Vardachariar and Ors. v. Gopala Menon and Ors., AIR 1967 SC 412 ). That was of course a case under the Usurious Loans Act. Here too, the petitioner-appellant Company has already paid more than double the amount of the loan which has been advanced to it and thus, compound interest should be charged from them on the unpaid amount of interest as also principal at the normal rate for the period of default and not at the enhanced rate because this is a sick unit. In the aforesaid case also, the interest was scaled down because more than double the amount of loan was paid by the debtor. 45. We may notice here that in the conditions that were imposed on the petitioner-company, when the loan was sanctioned there was no provision for recovery of any penal interest. Even there was no condition for recovery of compound interest. That stipulation was actually incorporated in the Hypothecation letter and not in Annexures-1 and 2. Thus, firstly, we are firmly of the view that compound interest should be charged at the normal rate and not at the enhanced rate on the amount overdue whether it relates to principal or interest and it should be leviable for the period of default and not prior to it and secondly, in this case, penal interest should not be charged, firstly because it is a sick unit and, therefore, such a stipulation in Annexure-3 itself was unconscionable and unreasonable and secondly, when payment of Rs. 40 lass has been made to the respondent-Corporation on the promise that penal interest will be waived, this waiver which was permitted by the respondent Corporation in favour of the petitioner-Company cannot be allowed to be withdrawn on the ground that future payments have not been made in time. 40 lass has been made to the respondent-Corporation on the promise that penal interest will be waived, this waiver which was permitted by the respondent Corporation in favour of the petitioner-Company cannot be allowed to be withdrawn on the ground that future payments have not been made in time. If they are not made in time, firstly entire amount due can be claimed in lump sum and secondly, it can be claimed with compound interest at the normal rates and not at the enhanced rates because the petitioner company has been treated to be a sick Unit. Charging of compound interest at enhanced rates and charging of penal interest in case of sick company is unreasonable and unconscionable in the facts and circumstances of this case.46. In K.P. Subarama Sastri & Ors. v. K.S. Raghavan and Others, AIR 1987 SC 1257 ), their lordships of the Supreme Court have observed that the question whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the Court against the background of various relevant factors such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If on such a comprehensive consideration, the Court fords that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terror em over the promiser so as to drive him to fulfil the contract, then the provision will be held to be one by way of penalty.47. Their lordships of the Supreme Court in Nageswaraswami v. Vadrevu, AIR 1953 SC 370 ) hive gone to the extent of saying that stipulation as to payment of compound interest in case of default is penal and courts should not allow interest at the rate of 71/2% compound with yearly rests. The rate was reduced to 71/2% simply upto expiry of the period of redemption.48. The rate was reduced to 71/2% simply upto expiry of the period of redemption.48. Here, in this case, we feel that compound interest at normal rate can be recovered on the amount of interest and principal in default and for the period of default but not at the enhanced rate because that will be unreasonable and unconscionable as -the Unit is sick. Their lordships of the Supreme Court took a similar view as regards the enhanced rate of interest in S. Rajgopalaswami Naidu v. The Bank of Karaikudi Ltd., AIR 1971 SC 884 ). In that case, the mortgage was payable with interest at 101/2% per annum. Penalty clause provided that if mortgagor failed to pay interest regularly, he will be liable to pay interest at 12% per annum. The rate of 12% interest on the facts and circumstances of the case were held unfair and penal and interest was directed to be calculated at original contractual rate. In view of this decision of their lordships of the Supreme Court, we are firmly of the view that compound interest should be charged at normal rate and not at enhanced rate and it can be charged with quarterly rests, if not yearly rests on the amount of interest and principal, which is in default and for the period of default. A similar reduction was also ordered by a learned single Judge of the Allahabad High Court in Nihora Khan and Ors. v. Mathura Khan, AIR 1925 All 78 ).Thus, keeping in view these facts, we are firmly of the view that the respondent Corporation is unnecessarily depriving the petitioner-Company of its promise to waive penal interest. Rather, it cannot charge any penal interest from them and normally it is entitled to charge compound interest at the normal rate and not at the enhanced rate. Keeping in view these directions, the amount which is due from the petitioner-appellant company has to be calculated and it can be recovered from the petitioner-appellant company in a lump sum. The petitioner-company has already paid a sum of Rs. Keeping in view these directions, the amount which is due from the petitioner-appellant company has to be calculated and it can be recovered from the petitioner-appellant company in a lump sum. The petitioner-company has already paid a sum of Rs. 59 lacs and four thousand eighty four and fifty eight paisa and the subsidy payable to it has also been adjusted against the loan due and, therefore, keeping in view these disputes which existed between the parties and further keeping in view the payments made by the petitioner- Company to the respondent-Corporation, the action of the respondent Corporation in calling upon the petitioner company to make payment of Rs. 20,42,804/- and further interest at the rate of 14.5% per annum from 20.10.1980 and denying it the concession of waiver of penal interest and calling upon it to make this payment, failing which, the mortgaged property will be taken over, is an action which is totally uninformed by the provisions of s. 24 of the Act of 1951. It is most un business like and against the interest of industry, commerce and general public and, therefore, Annexure-10 cannot be sustained and is hereby quashed and the respondent Corporation is directed to calculate the amount due from the petitioner-company by totally waiving the penal interest and charging compound interest from the petitioner-Company at the normal rate on the amount which is over due and for the period it is over due with quarterly rests and then convey to them the amount due if any, which is outstanding against them within a period of two months from today Le. up to 31st May, 1994, by charging compound interest at normal rates as aforesaid up to that date. The petitioner-company must make payment of that amount as calculated in the light of the aforesaid directions of the Court, within a period of one month with compound interest at the normal rates which is payable up to that date of the payment. However, if no amount is due and the petitioner has already deposited the excess amount then that amount should be refunded to them with interest at the normal rate within a period of four months from today. It is further made clear that for the period, the company remained sick, the normal rate of interest will be the concessional rate which is chargeable from them as sick units for the period of sickness.49. It is further made clear that for the period, the company remained sick, the normal rate of interest will be the concessional rate which is chargeable from them as sick units for the period of sickness.49. The petitioner-appellant Company is directed to cooperate with the respondent Corporation in calculating the amount either due to be paid to them or due to be paid to the respondent Corporation, as the case may be. If the petitioner-company is aggrieved by the calculation that has been made and the amount that has been demanded as over due from them either as interest or as principal, it will be free to avail fresh legal remedy against that action of the respondent-Corporation.50. In this view of the matter, the judgment rendered by the learned single Judge is set aside and the appeal stands disposed off accordingly as aforesaid, with no order as to costs.Judgment of Single Judge Set Aside - Appeal Disposed of as per Above Observations *******