Assandh Rice Mills and Others vs Haryana Financial Corporation and Others

A.L. Bahri, J.—M/s. Assandh Rice Mills, the petitioner, has approached this Court under Articles 226 and 227 of the Constitution for a writ of mandamus or any other direction calling upon respondent No. 2, Haryana State Financial Corporation, to furnish details of the account of loan taken by the petitioner and for a direction to recover the same in accordance with law and for quashing the proceedings taken by the Corporation declaring the Haryana Public Money (Recovery of Dues) Act, 1979, as ultra vires and to hand over possession of the intra-disputed (Rice seller) to the petitioner. According to the averments made by the petitioner a loan to the tune of Rs. 6,27,000/- was raised from the Corporation, by hypothecating the building and the machinery of the factory. Out of the aforesaid amount only a sum of Rs. 3,84,000/- was disbursed. The rate of interest agreed was 11% with 1�% as penalty interest in case of default in the payment of the instalments. It is not necessary to refer to the circumstances leading to default in the payment of the instalments. Suffice it to say that in 982 the entire loan was recalled by the Corporation and ultimately on February 28, 1983; the Corporation took possession of the building and machinery. A civil suit was also filed by the petitioner which was compromised and withdrawn. Ultimately the factory was put to auction. Respondent No. 4 Modern Enterprises, Safidon Road. Assandh, purchased it vide agreement dated March 13, 1992 for a sum of Rs. 40,00,000/-, copy of the agreement to sell is Annexure P. 3-A. As per this agreement a sum of Rs. 50 000/- was deposited by respondent No. 4 with the Corporation and the remaining amount was to be paid in instalments. All efforts made by the petitioner that such an agreement to sell in favour of respondent No. 4 was in connivance with the staff of the Corporation failed. The value of the property was stated to be not less than Rs. 20,00,000/. This action of the Corporation in selling the property in favour of respondent No. 4 was challenged.

After notices were issued to the respondents, they contested the claim of the petitioner. According to the Corporation all efforts made to sell the property by public auction failed. It was ultimately that the Corporation agreed to auction it and entered into an agreement with respondent No. 4 to get reasonable price for the factory payable in instalments. Similar pleas were taken by respondent No. 4 who asserted further that sale in his favour had been confirmed and could not be questioned.

During the pendency of the proceedings efforts were made to allow the petitioner to justify that his claim was bona fide and in fact the price of the factory was much more than the price which was fixed for sale to respondent No. 4. The petitioner produced a purposed buyer, M/s Raj Kumar and Co. who agreed to purchase the factory for a sum of Rs. 10,0p,000/-. On October 12, 1992, draft of Rs. 5,00,000/- was offered which was paid to the counsel for the Corporation. On the next date another draft of Rs. 5,00,000/- was given. Thus the proposed buyer paid a sum of Rs. 10,00.(1)0/-. The matter did not end there all efforts were made to settle the dispute between the parties. The Corporation was also left to settle with respondent No. 4 who had merely paid a sum of Rs. 1.00,000/-. Since no such settlement could be arrived at, the matter was taken up on January 27, 1993. Counsel for the pet tioner Shri Mohan Jain and Shri M. S. Rakkar, counsel for respondent No. 4, stated that the factory premises be put to auction between the proposed buyer M/s. Raj Kumar and Co and respondent No. 4-M/s. Modern Enterprises and the bid should start from Rs. 10,00,000/ as already offered by M/s. Raj Kumar and Co It was ordered On subsequent date of hearing when auction was to take place, statement of Gurdial Singh on the bid sheet was recorded and he declined to give any higher bid standing that auction had been confirmed in his favour. With the position as it is, the matter was again adjourned for arguments and twice Gurdial Singh on behalf of respondent No. 4 filed affidavits for taking into consideration other matters which there before auction was held in his favour. Thrice premises were earlier auctioned but no body gave bid higher than Rs. 4,00,000/-. A bus stand had come up in the vicinity which escalated the price and respondent No. 4 should not be deprived of the benefit of the sale in his favour on that account alone as now the petitioner has produced M/s. Raj Kumar and Co. with a higher offer. At this stage, it may be pointed out that in none of these two affidavits it was asserted that counsel for respondent No. 4 had agreed for fresh bid to be taken in Court between the proposed buyer and respondent No. 4 without his consent.

Shri Ahok Aggarwal, Senior Advocate appearing on behalf of respondent No. 4 at the time of arguments vehemently asserted that Shri Rakkar Advocate agreed for fresh bid to be held by the Court without being instructed by respondent No. 4 and the fact that respondent No. 4 declined to give any higher bid more than Rs. 10,00,000/- will not affect his rights qua the auction held by the Corporation in his favour. The order passed by this Court clearly refers to the agreement of counsel for the parties for holding a fresh bid, taking bid of the proposed purchaser M/s. Raj Kumar and Co. at Rs. 10,00,000/- and thereafter higher bids to be given by the parties. Obviously in that situation respondent No. 4 was called upon to give higher bid on the date fixed for the purpose However, Gurdial Singh appearing on behalf of respondent No. 4 declined to give any higher bid at that stage. Without accepting the bid of M/s. Raj Kumar and Co. which was at Rs. 10,00,000/-, as stated above, the case was adjourned for arguments. As already mentioned above, in none of the two affidavits filed by Gurdial Singh subsequent to the order passed by this Court of agreement to give higher bid, he asserted that agreement was entered into by his counsel without his consent. The affidavit of the counsel was also not produced that he had agreed for the fresh bid without consent of respondent No. 4. This stand now taken on behalf of respondent No. 4, thus, cannot be accepted on the facts of the present case. Further argument of Shri Ashok Aggarwal that a reasonable bid in the facts of the present case was given by respondent No. 4 of Rs. 4,00,000/-, which was accepted by the Corporation and that should be maintained, cannot be accepted. The fact cannot be lost sight of that within a month of the alleged agreement between respondent No. 4 and the Corporation the petitioner has approached this Court, inter-alia, asserting that the so-called auction was a sham transaction and infact the value of the property including the machinery was not less than Rs. 10,00 000/-. This has been demonstrated to be so when the petitioner had produced a purchaser M/s. Raj Kumar and Company, who had agreed to purchase the property and the machinery in dispute at Rs. 10,00,000/-and has infact deposited this amount in this Court. The offer is further considered genuine as inspite of the contest he agreed to give even higher bid if respondent No. 4 had offered to participate. This fact alone would indicate that the property and the machinery was worth much more than it was sought to be transferred in favour of respondent No. 4.

It is quite clear in the present case the Joan was recalled from the petitioner and his factory with machinery was taken possession of by the Corporation. The same was attempted to be sold to a buyer who was to pay the sale consideration in instalments. The fact cannot be lost sight of that if the property had been sold at a price to be paid promptly, atleast on the amount of price so fetched, future interest was not to accrue. Otherwise, as per agreement between the petitioner and the Corporation till the entire loan was paid, interest was to continue to accrue This arrangement of sale by negotiation, though given the colour of sale by public auction, is not at all in the interest of either the Corporation or the petitioner. Rather it jeopardises the interests of the petitioner and such a sale cannot be sustained in law.

Some judicial decisions were cited at the Bar which need to be noticed. On behalf of the petitioner, reliance was placed on the decision of the Supreme Court in M/s. A.V.N. Products v. The Haryana Financial Corporation and Anr., S. L. P. No. 17452 of 1991 decided on September 21, 1992, copy of which has been produced. The Corporation had put up building and the machinery for sale for recovery of the dues. In April, 1991, it was auctioned for Rs. 2,65.000/-. Some amount was paid at that time and the remaining amount was to be paid in instalments. The allegation of the loanee was that such a sale was hurried and was sham and collusive transaction. The land over which factory was situated, could fetch atleast Rs. 6,00,000/-. That much amount the loanee was himself offering . A sum of Rs. 2,00,000/- was deposited to back up the offer. The Supreme Court set aside the sale which was for Rs. 2.65 000/ on the ground of wholly inadequate consideration, further observing that the purchaser could be compensated by a reasonable solatium at the rate of 15% per annum on the amount paid by him Position in the present case is also similar that the respondent purchaser by negotiation from the Corporation can be compensated on quashing his sale, by a solatium of 15% p.a. on the amount paid by him.

General principles with respect to sale of the properties to satisfy the loan of the Financial Corporations were laid down by the Supreme Court in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, . which may be noticed as under:-

"(1) Sale of a unit should always be made by public Ruction.

(2) Valuation of a unit for purposes of determining adequacy of offer or for determining if bid offered was adequate, should always be intimated to the unit holder to enable him to file objection if any as he is vitally interested in getting the maximum price.

(3) If tenders are invited then the highest price on which tender is to be accepted must be intimated to the unit bolder.

(4) (a) If unit holder is willing to offer the sale price, as the tender, then he should be offered same facility and unit should be transferred to him. And the arrears remaining thereafter should be Re-scheduled to be recovered in instalments with interest after the payment of last instalment fixed under the agreement entered into as a result of tendered amount.

(b) If he brings third parties with higher offer, it would be tested and may be accepted.

(5) Sale by private negotiation should be permitted only in very large concerns where investment runs in very huge amount for which ordinary buyer may not be available or the industry itself may be of such nature that by normal buyers may not be available. Bat before taking such steps there should be advertisements not only in daily newspapers but business magazines and papers.

(6) Request of the unit holder to release any part of the property on which the concern is not standing of which he is the owner should normally be granted on condition that sale proceeds shall be deposited in loan account."

Learned counsel for respondent No. 4 relied upon the decision of the Supreme Court in Kayjay Industries (P) Ltd. Vs. Asnew Drums (P) Ltd. and Others, to support his contention that mere inadequacy of price cannot demolish every Court sale. Respondent No. 4 cannot take any benefit on the ratio of the decision aforesaid as sale in his favour was not held by the Court. No doubt, under the Finance Corporation Act, power is given to the Corporation to put the property on auction, but such auctions cannot be equated with the auctions held by the Court, moreso when interest of the loanee is not kept in view, as has been discussed in the present case.

While setting aside the sale in favour of respondent No. 4, it is directed that the sale in favour of M/s. Raj Kumar and Company, who had already paid a sum of Rs. 10,00,00/- be given effect to. During the pendency of the proceedings, a Local Commission was appointed to visit the premises and to make inventory of the machinery existing there. Hence, the same person, Shri Sanjeev Sharma Advocate, is again appointed Local Commissioner, who will visit the factory premises and get the possession of the factory and the machinery delivered to M/s. Raj Kumar and Company on July 26, 1993, as per inventory prepared by him earlier and report compliance, His fee would be Rs. 3,000/- to be paid by M/s. Raj Kumar and Company.

Respondent No. 4 has already paid a sum of Rs. 1,00,000/- towards sale consideration in order to compensate him, he is allowed 15 per cent per annum interest on that amount. A sum of Rs. 1,28,000/- stands deposited in this Court at the instance of the petitioner. The aforesaid amount be paid to respondent No. 4, which would settle his interest in this litigation.

After adjustment of the amounts received by the Corporation, either from the petitioner or respondent No. 4, M/s. Raj Kumar and Co., if any other amount is still due, the Financial Corporation would get the same determined u/s 30 of the Financial Corporation Act from the Court of District Judge before effecting further recovery.

With the directions aforesaid, this writ petition stands disposed of.