Sushma Devi and others vs Punjab State Financial Corporation and others

G.S. Sandhawalia, J.—Challenge in the present writ petition is to the action of the respondent Corporation putting to auction the industrial unit of the petitioner and for quashing the consequential sale dated 10.03.1992 in favor of respondent No. 2 (Now represented by legal representatives).

The case of the petitioner is that M/s Hari Ram Oil and General Mills and Industrial concern of which they were partners was sanctioned loan of Rs. 3.00 lacs and financial assistance against entitlement of central subsidy by respondent No. 1 of Rs..55 lacs was given and in pursuance of same, mortgage deed dated 09.07.1987 was executed. The said loan was repayable within eight years in 15 equal installments of Rs. 23,000/-on half yearly basis. The loan was being paid as per schedule from 15.07.1988 to 15.01.1991. Due to the illness of Hari Ram on 15.07.1991, there was a default towards the installment due on 15.07.1991. the petitioner then received notice on 04.09.1991 asking them to deposit Rs..49 lacs by 11.09.1991 otherwise action u/s 29 of the State Financial Corporation Act, 1951 (hereinafter referred to as "The Act") would be taken. The Corporation was informed about the difficulties which the unit was facing due to the illness of Hari Ram and informed them that the petitioners had never defaulted in the repayment of installments and that they had already paid back Rs. 1.39 lacs out of Rs. 3.00 lacs as advanced to them. On 08.11.1991, another notice was issued, wherein, the Corporation asked for a payment sum of Rs. 60,081.76 after adding the interest from 15.01.1991 to 14.11.1991. The petitioners alleged that they again met respondent No. 1 and requested them as since Hari Ram was fighting for the life therefore, time be granted to repay the loan. Hari Ram died on 28.12.1991 and the respondent-Corporation put a lock on the Industrial Unit on 05.01.1992 without giving any notice u/s 29 of the Act. It was thereafter that they sold the Industrial Unit and other assets on 10.03.1992 just for Rs. 3.75 lacs whereas, the property was worth Rs. 15 lacs and the transaction in favor of respondent No. 2 was challenged on the ground that they had paid Rs. 1.20 lacs and rest of the amount was to be paid in installments. Accordingly, it was alleged that this sale deed is at a throwaway price and is patently malafide, illegal and is in gross violation of Section 32 of the State Financial Corporation Act, 1951; since undue haste was shown by respondent No. 1 by selling the Industrial Unit of the petitioner. It is alleged that the unit holder could be informed of the sale and he could bring a third party to give a higher offer after appropriate evaluation. In the grounds of the writ petition, recalling of the loan and action u/s 29 was also challenged apart from the auction.

In defense, the respondent-Corporation in written statement alleged that the petitioner committed default in payment of Rs. 1,000/- which was interest due on 15.05.1991 and payment of installment of principal amount of Rs. 24,000/-due on 15.07.1991. In view of this, notice dated 04.09.1991 was issued by respondent-Corporation calling upon the industrial concern to pay the default amount by 11.09.1991, failing which, action u/s 29 would be taken. Reference was also made to the reminder dated 08.11.1991 for default payment, which was not paid. It was also pleaded that they received information from the local Mandi that the unit had been abandoned by the partners who had declared themselves bankrupt and there was no chances of recovery. Therefore, there was apprehension that the Corporation would not recover its loan. The said action u/s 29 was taken on 01.01.1992 since another installment of interest was due on 15.11.1991 which was also not paid and no objection was taken by the partners of the firm of the Industrial unit when the possession of the unit was taken by the Corporation. Thereafter, pursuant to advertisement dated 29.02.1992 and 02.03.1992, the unit was sold to respondent No. 2 being the highest offered and agreement dated 24.03.1992 was entered in his favor on payment of Rs. 1.50 lacs.

It was alleged that the offer submitted in pursuance to the tenders were low however on negotiation respondent No. 2 had agreed to purchase the property in question for Rs. 3.70 lacs. The allegations of the illness of Hari Ram partner was denied for want of knowledge and the representation (Annexure P-8) was also denied as none had appeared on any date on behalf of the petitioners. It has been further alleged that after taking of the possession no representation had been made for release of property of the payment of outstanding dues. In fact it was alleged on 17.03.1992 that the petitioner concern had requested the Corporation to refund residual amount due to them after adjusting the amount due to the Corporation from the sale of the Industrial concern. Regarding the payment to be made by respondent No. 2, it was alleged that the installment had to be split over a period of two years and that the petitioners were free to join the corporation when the advertisement for sale of the property in question was issued but they never objected to the said sale. Therefore, they were stopped from their conduct from filing the present writ petition which was admitted vide order dated 13.01.1993 with the direction that the interim order would continue which was that further action in respect of the auction dated 10.03.1992 be stayed.

Learned counsel for the petitioner has thus argued that the respondent-Corporation acted with malafide intention and in great haste in taking action u/s 29 of the Act, though, it had been intimated that one of the partners was seriously ill. It was also contended that the action of the respondent-Corporation in auctioning the property was without any notice to the petitioner. This submission of the counsel, whereby, he sought to challenge the action u/s 29 also apart from the challenge of auction proceeding has no merits as would be clear from the sequence of the present case. Admittedly, the Industrial concern had gone into financial problems and there was default in payment of its installment which was due on 15.07.1991. Due to the default, notice dated 04.09.1991 was also served upon the petitioner concern warning them that action u/s 29 would be taken against them. However, the petitioner did not reply to the said notice, though, they alleged that they had met the authorities in October. These allegations have been denied specifically by the Corporation and it is mentioned that neither the name of the officer or the date has been mentioned. Thereafter, another notice dated 08.11.1991 was served upon the petitioner concern wherein, demand of Rs. 60,081.76/-was asked for by 15.11.1991. It is the case of the petitioners that they had again represented on 10.12.1991 and asked that time be granted to repay the loan. This representation has also been denied by the respondent-Corporation and it is alleged that it does not bear any date. Even in the Court copy, the date on the said representation has been written by hand, though, the rest of the application has been typed out. Thus, from the above sequence, it is clear that there was default on behalf of the concern from, 16.07.1991 and two notices had been issued to make the payment of the installment, but said amount had not been deposited with the Corporation. As per the case of the Corporation they had received information that the unit was lying abandoned and therefore, they had taken it over on 01.11.1992 to secure the repayment and admittedly, the petitioner made no representation against the same. After the take over of the said unit, the same was put to sale vide advertisement dated 29.02.1992 and 02.03.1992, and the petitioners have approached this Court only in August, 1992. Thus, they are stopped from challenging the action of the respondent u/s 29 at this belated stage in taking over the unit. Even otherwise, the prayer in the writ petition is mainly against the action of the Corporation in the sale of the Industrial concern for which also the petitioners are stopped for the following reasons.

As per the case of the respondent Corporation, the unit was sold in pursuance of the advertisements dated 29.02.1992 and 02.03.1992 for which respondent No. 2 after negotiation, offered to Rs. 3.75 lacs. Perusal of the advertisement shows that the property is only 629 Sq. Yds. having covered area of 3710 Sq. Fts. situated at Maur Mandi, Bathinda. The said advertisements were notice to the petitioners also to get a better buyer but they made no such effort nor any representation against the said auction was filed. In fact, on 17.03.1992, petitioner No. 2 Kulbhushan Kumar applied for refund of the excess amount after adjusting the dues so that the same could be further paid to the banks. It is thereafter, the petitioners had approached this Court in August, 1992 challenging the said auction. The said auction as noticed above was conducted after appropriate advertisements and after a period of more than one year from the date of take over which was 01.01.1992. The petitioners made no efforts to challenge the take over of the said unit and neither offered better buyer and therefore, is stopped from challenging the auction as one of the partner had asked for refund on 17.03.1992. Hon''ble Supreme Court in Case of Karnataka State Industrial Investment and Development Corporation Ltd. Vs. Cavalet India Ltd. and Others, has held that the taking over of the industrial units are not to be interfered by the High Court as they are not appellate forums, unless the said action is malafide in nature, since financial implications are involved and the sole purpose is to secure the best price for the property to be sold and the relationship between the Corporation and the Industrial concern is of the creditor and debtor. The relevant portion of the said judgment is reproduced as under:

From the aforesaid, the legal principles that emerge are:

(i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate Authority over the acts and deeds of the financial corporation and seek to correct them. The Doctrine of fairness does not convert the writ Courts into appellate authorities over administrative authorities.

(ii) In a matter between the corporation and its debtor, a writ Court has no say except in two situations:

(a) there is a statutory violation on the part of the corporation or

(b) where the corporation acts unfairly i.e., unreasonably.

(iii) In commercial matters, the Courts should not risk their judgments for the judgments of the bodies to which that task is assigned.

(iv) Unless the action of the financial corporation is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the Courts or a third party to substitute its decision, however more prudent, commercial or businesslike it may be, for the decision of the financial corporation. Hence, whatever the wisdom (or the lack of it) of the conduct of the corporation, the same can not be assailed for making the corporation liable.

(v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold and this could be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.

(vi) Public auction is not the only mode to secure the best price by inviting maximum public participation, tender and negotiation could also be adopted.

(vii) The financial corporation is always expected to try and realize the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or came shown for the default, the same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action u/s 29 of the Act is called for. Thereafter, the modalities for disposal of seized unit have to be worked out.

(viii) Fairness cannot be a one-way street. The fairness required of the financial corporations cannot be carried to the extent of disabling them from recovering what is due to them. While not insisting upon the borrower to honor the commitments undertaken by him, the financial corporation alone cannot be shackled hand and foot in the name of fairness.

(ix) Reasonableness is to be tested against the dominant consideration to secure the best price.

Thus, keeping in view all these facts and taking into account the fact that the Industrial Unit had been put to caveat regarding the default and that no protest was raised by it after the taking over and in view of the advertisement in the vernacular newspaper and the English paper which would be notice to one and all regarding the sale of the property, we find that the action of the Corporation can not be faulted in the absence of any allegation of malafide.

Accordingly, the present writ petition is dismissed with no order as to costs.