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Judgment
P.K. Jaiswal, J
By this writ petition under Article 226 of the Constitution of India, the petitioner is praying for issuance of appropriate direction to the respondent
No.1 M.P. Financial Corporation (in short 'MPFC') to refund the sale proceeds of Rs.10.51 Crores received from the petitioner along with interest at
the same lending rate which is being charged by the respondent No.1 from its borrowers, as he failed to comply the necessary obligation as per terms
of sale letter dated 18/12/2012(Annexure-P/2) and also direct the respondent No.2 to refund the amount of transfer fees, lease rent and other charges
amounting to Rs.78,68,861/- deposited by the petitioner for transfer of lease and other charges along with interest at the rate of 12% per annum.
The M.P. Financial Corporation is a Corporation set up under section 3 of the State Financial Corporation Act, 1951. It was an instrumentality
devised to provide medium and long term credit to industrial concerns in the State.
The respondent No.1 â€" MPFC published the auction notice for sale of industrial unit of Metalman Industries Ltd. under Section 29 of the State
Financial Corporation Act, 1951, for recovery of its dues. However, the respondents did not disclose the fact that there is commercial tax outstanding
of the unit under sale and the Commercial Tax Department has first and prior statutory charge over the assets under auction. The respondent No.1
after taking over the industrial unit had published the auction notice without disclosing the fact that they are not in possession of mortgaged documents
and original title deeds pertaining to assets of the unit.
The petitioner considering the assets of Metalman Industries Ltd., along with leasehold land at plot No.17-A, 18 and 19 admeasuring 12,140
Sq.Mtrs. at sector B, Industrial Area, Sanwer Road, Indore free from all encumbrances and charges paid the consideration of Rs.10,51,00,000/-
(Rs.Ten Crores Fifty One Lakhs) for purchase of the said industrial unit. Thereafter, the respondent confirmed the sale in favour of the petitioner vide
letter dated 15.11.2012 (Annexure P/1) confirming that it shall deal with all statutory liabilities of taxes and cess and the petitioner shall not be liable
for any such liability pertaining to period prior to auction. Clause 4, 7, 8, 9 and 10 are relevant which reads as under :-
“04. The statutory libilities towards PF, ESI and Commercial Tax / Vat only shall be dealt with by the Corporation in accordance with the prevailing
laws out of the sale price.
The purchaser shall in its own interest pay the entire sale price to the Corporation at the earliest possible, obtain possession of the assets sold and
get the conveyance deed duly registered.
The current assets laying in the unit's premises and not part of the assets sold to you are charged to the Banks who have been informed to lfit the
same. In that event, you will handover the said current assets to the Banks under intimation to the Corporation.â€
The relevant clauses of sale deed dated 10.12.2014 (Annexure P/5) reads as under :-
AND WHEREAS, for meeting the working capital requirement for the said industry, the Borrower Company had availed a working capital medium
term loan of Rs.5,00,00,000/- (Rs.Five Crores only) against mortgage of the said leasehold land along with all immovable / movable assets, both
present and future thereon, in favour of the Corporation, more particularly described in the schedules appended to the mortgage document and on the
terms and conditions of the Security documents, i.e., Agreement to Create Mortgage and loan documents dated 7.3.2016 along with it's supporting
documents.
AND WHEREAS the Corporation along with other bankers, namely the State Bank of India (earstwhile State bank of Indore), Oriental Bank of
Commerce and State Bank of Bikaner and Jaipur, were holding first charge ranking pari-passu over the assets of the company among each other for
their respective term loans only. Subsequently, consequent upon the repayment of the aforesaid bankers' term loans facilities, the Corporation had
become the exclusive first charge holder.
AND WHEREAS since the Borrower Company failed to comply with the terms of the mortgage agreement and the demand notice, the Seller
Corporation, in exercise of thepwoers vested in it under section 29(1) of the State Financial Corporation Act, 1951 (in short SFCs Act) took over the
possession of the mortgaged assets (in short referred to as “the Unitâ€) on 4.1.2012 and thereafter took steps in accordance with Section 29(2) of
the SFC's Act, 1951 to dispose off the said assets as deemed owner under the said act with a view to recover its debts from the Borrower Company
and accordingly offers were invited through tender from prospective buyers. The sale advertisement was published in national and regional
newspapers on 18.2.2012 giving the Reserve Price of Rs.9.08 crores and on the terms and conditions specified therein.
The petitioner deposited a sum of Rs.78,68,888/- with the respondent No.2 towards transfer of lease fees, lease rent payment and other charges for
getting lease transfer and fresh lease deed be executed in favour of the petitioner.
The respondent No.1 even after sale of assets in the year 2012 till date did not delivered original deeds, which were mortgaged by the erstwhile
industrial unit.
The respondent No.1 has sold the industrial unit to the petitioner by suppressing the fact by claiming first charge over the industrial unit sold
whereas the first statutory charge with the commercial tax and the respondent No.1 had no authority to auction the industrial unit on which
Commercial Tax Department has first charge.
The petitioner despite payment of lease transfer fees and other charges of Rs.78.96 laks could not get the lease transfer and has to resultantly
abandon the project. The petitioner is being sufferer due to failure of transfer clear title of the Industrial Unit by the respondent No.1 in favour of the
petitioner as due to not having the clear title, the petitioner could not borrow the funds from the Bank or Financial Institutions, which has resulted
causing huge financial loss to the petitioner, in addition to the loss of interest which is at the rate of 12% per annum. It was the responsibility of the
respondent No.1 to transfer the clear title of the industrial unit to enable the petitioner to commence the commercial production in the unit acquire for
the purpose of industrial activity. In sale confirmation letter dated 15.11.2012, Clause 4, the respondent No.1 has undertaken that “the statutory
liabilities†towards PF, ESI and Commercial Tax / VAT liabilities and the respondent No.1 has utterly failed to perform its obligation which has
caused serious financial losses and damages to the petitioner.
Learned counsel for the petitioner submits that the respondent No.1 has failed to provide the chain documents, which were deposited by the
previous owner of the industries to create equitable mortgage by the deposit of the original title deeds. Unless the previous charge or mortgage have
been release, no financial institution shall provide any assistance. It was obligation as seller of the industrial unit to ensure that the buyer gets the clear
title of the industrial unit otherwise, the buyer shall not be able to use the asset purchased. According to the petitioner, the respondent No.1 has further
in the sale deed asserted that the Corporation has first charge over the industrial unit whereas though suppressed the material fact that the statutory
first charge under Section 33 of the M.P. VAT Act, 2002, was with the Commercial Tax Department.
In respect of default of payment of Commercial Tax / VAT any other tax under any statute, the respondent No.1 liable to satisfy their dues first,
however by suppressing the material fact from the petitioner with respect to first charge and also for failure to deal with the Commercial Tax
Department with respect to dues of taxes, the respondent No.1 has caused serious injury and financial losses to the petitioner and thus, the petitioner
has right to get the auction annulled and seek refund of sale proceeds, transfer fees and interest thereon. 11. In reply, the respondent No.1 MPFC
very categorically admitted that the Commercial Tax Department has a first charge over the property in question and he is willing to pay the
department its just dues. Their stand is that the Commercial Tax Department increased its claim from Rs.528.16 lacs in 2013 to Rs.1112.13 lacs in
2016, apparently on coming to know that the Corporation had realized Rs.10.54 crores by sale of the borrower's mortgaged assets under Section 29 of
the SFCs Act. In para 4 the respondent No.1 Corporation very categorically admitted that the MPFC's continues to do everything within its power to
secure return of the said documents from the State Bank of India. Relevant admission in para 4 reads as under :-
“In fact only a matter of time before the Corporation is able to obtain the return of the said documents from the said Bank.
In any case with the petitioner's grievance regarding non-return of the mortgage documents being in the sphere of contract, clearly no writ petition lies
in respect of the said grievance. Besides, if the petitioner company was really serious about obtaining the mortgage documents and original title deeds,
the least it ought to have done was to implead the State Bank of India and ARCIL as party respondents in the present petition. â€
In respect of Commercial Tax Department dues, the respondent No.1 very categorically admitted in para 6 of its reply, which reads as under :-
“The fact of the matter is that the respondent Corporation had no knowledge of the Commercial Tax Department's alleged claim against Metalman
Industries Ltd., since at the time of the sale of the unit, there was no notice from the Commercial Tax Department about its alleged dues. However, it
was only on7.1.2013, two months after the sale letter had been issued in favour of the petitioner vide Annexure P/1, that the Commercial Tax
authorities for the first time wrote to the answering respondent, claiming an amount of Rs.528.16 lacs as alleged sales tax dues recoverable from M/s.
Metalman Industries Ltd. since the said dues were claimed as statutory first charge on the assets of the Company, the Commercial Tax Department
claimed a right to be paid its dues first from the sale amount. The respondent Corporation submits that though the petitioner had purchased the
mortgaged assets after fully satisfying itself about the respondent Corporation's right to sell the same, and was fully aware of the Commercial Tax
Department's aforesaid claim, it (respondent Corporation) tried to sort out the matter, and for the said purpose exchanged several letters with the
Commercial Tax Departmentâ€
The main objection of the respondent No.1 MPFC is that the State Bank of India, Commercial Tax Department and ARCIL is a necessary party
to the writ proceeding and raised an objection that it is a contractual dispute and a proper remedy to the petitioner is to file a civil suit and prayed for
dismissal of the writ petition.
From the aforesaid, it is clear that in respect of default of payment of commercial tax / VAT or any other tax to any statute, the respondent No.1
is liable to satisfy their dues first. The petitioner has no grievance against the Commercial Tax Department, State Bank of India or AIRCL because
there is no privity of contract or relation with any of these parties and, therefore, they were not impleaded in the writ petition.
The petitioner has no connection with the dispute whatever may be the respondent No.1 has with the Commercial Tax Department. It was
obligation of the respondent No.1, as per clause 4 of sale confirmation letter dated 15.11.2012 to settle the issues with the PF, ESI and Commercial
Tax Department. In case of failure to honour the commitment and the undertaking by the respondent No.1, the petitioner has lawful right to claim the
annulment of auction sale and refund of the money deposited with the respondent No.1 along with the interest. No legal rights of the petitioner have
been infringed by the Commercial Tax Department, therefore, there was no reason to petitioner to implead the Commercial Tax Department as a
respondent. From the facts and events, it is not in dispute that the respondent no.1 has to proceed to honour its commitment over a period of 5 ½
years, which has caused irreparable loss to the petitioner, as the petitioner could not commence industrial production due to non-availability of the
assistance from the banks or financial institutions in absence of having clear title of the industrial unit.
It was the obligation of the respondent No.1 to get the clear title of the industrial unit transfer in favour of the petitioner to which the respondent
No.1 failed miserably, which resultantly comes huge financial loss. Thus, the petitioner has lawfully right to get the sale annulled and seek refund of
sale proceed, lease transfer fees along with interest at the rate of 12% per annum, which the respondent No.1 is charging from their borrowers. Due
to in action and failure on the part of the respondent No.1, the petitioner could not get the clear title of the industrial unit, which has resulted abundance
to industrial project as the petitioner could not get support from the Bank and financial institutions due to nonavailability of the clear title of the
industrial unit. The respondent No.1 is solely responsible for the loss, which has caused to the petitioner.
It is too late in the day to contend that the instrumentality of the State 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 contract. It was
not disputed and in fairness to Shri Bhargava, learned Senior Adv., it must be said that he did not dispute that the Corporation which is set up under
Section 3 of the MPFC Act is an instrumentality of the State and would be 'other authority' under Art. 12 of the Constitution. By its such letter dated
15.11.2012, and the subsequent sale deed dated 10.12.2014 the respondent no.1 entered into a solemn agreement in performance of its statutory duty.
Acting on the solemn undertaking, the petitioner proceeded for sale and after acceptance of his bid he deposited a sum of Rs.10,51,00,000/towards
sale proceeds on the solemn promise that as per terms of sale letter and sale deed MPFC will clear the dues of Commercial Tax Department and also
handover all original title deeds etc to the petitioner, but more than 5 ½ years have been passed from the date of issuance of sale letter dated
15.11.2012 in favour of the petitioner, but till today those promise and obligation has not been fulfilled by the MPFC. On its solemn promise evidenced
by the aforesaid documents the petitioner incurred expenses. Presumably, if the said promise was not given by the MPFC, the petitioner may never
purchased the unit in auction. Acting on the promise of the respondent No.1 evidenced by documents, the petitioner proceeded to suffer further. In the
backdrop of this uncontrovertible fact situation, the principle of promissory estoppel would come into play.
Thus, the principle of promissory estoppel would certainly estop the Corporation from backing out from its obligation arising from a solemn
promise made by it to the petitioner.
In the case in hand, the respondent No.1 cannot act arbitrarily on his mere whim ignore his promise on some undefined means of necessity or
change the conditions. The petitioner acting upon the solemn promise made by the respondent No.1 incurred huge expenditure of Rs.10.51 Crores and
if the respondent No.1 is not ready to hold his promise, the petitioner would be put in a very disadvantageous position and therefore also the principle
of estoppel can be invoked in this case. The respondent No.1 cannot act arbitrarily and its action must be in conformity with some principle which
meets the test of reason and relevance.
Now if the respondent No.1 entered into a solemn contract in discharge and performance of its statutory duty and the petitioner acted upon it, the
statutory Corporation cannot be allowed to act arbitrarily so as to cause harm and injury, flowing from its unreasonable conduct to the petitioner.
Under these circumstances, the respondent No.1 is directed to clear the dues of the Government within a period of 15 days from today, failing which
they are directed to refund the sale proceeds received from the petitioner along with the interest at the same lending rates, which is being charged by
the respondent No.1 from its borrowers, within a period of 30 days from the date of order and submit its compliance report.
In the result, the writ petition is allowed in part to the extent as indicated hereinabove with cost of Rs.10,000/-.