T. Velusamy vs Official Liquidator, High Court, Madras

Lakshmanan, J.—Before dealing with all the applications, it is necessary for me to briefly state the history of the case :

This court, by order dated February 22, 1991, in Company Application No. 1561 of 1990 in Company petition No. 28 of 1986, directed the

respondent herein (official liquidator) to invite sealed tenders for the sale of the properties belonging to the company in liquidation by publishing

advertisements in newspapers. Accordingly, the official liquidator had published necessary advertisements in The Hindu, The Indian Express,

Economic Times and Financial Express (all in English) and in Daily Thanthi (Tamil), calling for sealed tenders for the sale of the company''s

property. The advertisements were published in the said newspapers on March 9, 1991, and March 10, 1991. Pursuant to the advertisements in

the newspapers, many parties evinced considerable interest in the purchase of the property of the company (the textile mill) in liquidation. About

115 persons obtained from the office of the official liquidator copies of the terms and conditions and tender forms between April 8, 1991, and

April 10, 1991. About 35 persons had visited the factory premises at Pudukottai for inspection of the machinery, etc. Though the initial response

to the advertisements was quite encouraging, the official liquidator received tenders for purchase of the company''s property only from three

persons. He had also received an unsealed cover from one Mehta Traders, captioned ""Tender for the purchase of machinery belonging to the

Cauvery Spinning and Weaving Mills Ltd. (in liquidation)"". Pursuant to the notice, the representative of the Tamil Nadu Industrial Investment

Corporation Ltd., the Bank of India and the State Government of Tamil Nadu were present at the time of opening of the tenders in the officer of

the respondent on April 16, 1991, at 11 a.m. The tenders received by the respondent were opened in the presence of the aforesaid persons. The

names of the tenders and the particulars of the offers received are as under :

------------------------------------------------------------------------

S. No. Name of the tenderer E.M.D. with Price

D.D. No. and offered

date Rs.

------------------------------------------------------------------------

Sri T. S. Velusamy, 1,00,000 2,80,00,000

519, Big Bazar Street, D.D. 0825271,

Trichirappalli - 8. dated 11-4-1991

Senthel Building 1,00,000 1,89,09,699

Manufacturing Co. Pvt. P.O. 702316,

Ltd., Coimbatore dated 15-4-1991

Sri M. K. Thaila 1,00,000 2,62,00,000

Mudaliar, D.D. 082570

Trichirappalli dt. 11-4-1991

------------------------------------------------------------------------

Brief terms and conditions : Payment of 20 per cent. of the tender amount within ten days and the balance in 30 days from the date of confirmation

of sale.

The said three offerers were informed that if they so desire, they should be present in court at the time of hearing to make submissions, if any, with

the leave of this court in respect of their offers.

The Bank of India, the first respondent in Company Application No. 1561 of 1991 filed a memo, stating that they have no objection whatsoever to

this court''s accepting the offer for a sum of Rs. 2 crores and Rs. 80 lakhs made by T. Velusami, No. 519, Bazaar Street, Trichy, and that he may

be called upon to pay 20 per cent. of the offer within ten days.

The learned official liquidator filed his further report, dated April 18, 1991, with some enclosures.

My learned brother, Maruthamuthu J., after hearing the respective parties, viz., the official liquidator and learned counsel for the Bank of India,

Madras and the Tamil Nadu Industrial Investment Corporation Ltd., Madras, passed the following order on April 19, 1991 :

When the offers were taken up for consideration, Senthel Building Manufacturing Co. (P.) Ltd., Coimbatore, who offered a price of Rs.

1,89,09,699 before the official liquidator expressed their desire to enhance it even beyond Rs. 2,80,00,000 for which Sri T. Velusamy made the

offer. Since there is the likelihood of getting increased price for the property in question, the two offerers, viz., Velusamy and Senthel Building

manufacturing Co. (P.) Ltd., are permitted to bid. It is also open to the other offerers who had already made their offers before the official

liquidator to participate in the bid and the person who will make the highest bid must be prepared to deposit Rs. 10,00,000 as minimum

immediately. Post this matter on April 25, 1991, at 2.15 p.m.

Company Application No. 452 of 1991 was filed by the applicant herein to confirm the sale of land, building and machinery, etc., belonging to

cauvery Spinning Mills at Rs. 2,80,00,000 being the highest bid received by the learned official liquidator pursuant to the orders of this court is

Company Application No. 1561 of 1990. This court has directed the official liquidator to accept the tender of the applicant herein for the purchase

of the mill in question belonging to the company in liquidation situated at Cauvery Nagar, Pudukottai, for Rs. 2,80,00,000. In the said order, the

applicant has also been directed to deposit a sum of Rs. 56 lakhs which is 20 per cent. of the sale price on or before May 3, 1991, and also

directed the payment of balance of the sale price on or before June 14, 1991. The order dated April 25, 1991, of my learned brother,

Maruthamuthu J., is reproduced hereunder :

Today when the matter was taken up Senthel Building Manufacturing Co. (P.) Ltd., Coimbatore, which offered Rs. 1,89,09,699, is not present in

court. No other offerer was present and it is only Mr. T. Velusamy, who has made the highest offer for a sum of Rs. 2,80,00,000 is present and is

represented by a counsel. Since there is no other offer excepting for a sum of Rs. 2,80,00,000 by T. Velusamy, which is the highest, the said offer

of T. Velusamy is ordered to be accepted subject to his paying a sum of Rs. 56,00,000, which is 20 per cent. of the sale price, on or before May

3, 1991. The balance of sale price shall be paid on or before June 14, 1991. Post on June 14, 1991.

As directed by this court, the applicant paid a sum of Rs. 56 lakhs on May 3, 1991, to the official liquidator. The earnest money deposit of Rs.

1 lakh paid by the applicant has also been adjusted towards the payment of sale consideration. However, the applicant has not paid the balance of

the sale price of Rs. 2,23,00,000 till June 21, 1991, when the official liquidator filed his further report in Company Application No. 452 of 1991.

While so, the applicant filed Company Application No. 902 of 1991 to extend the period of payment of balance amount without interest.

According to the applicant, he was unable to get credit facilities from the bank and that the Reserve Bank of India has issued instructions for credit

squeeze as a result of which he was unable to get facilities from the bank and that he would be able to secure financial assistance from nationalised

banks, when the credit squeeze is lifted. Therefore, he prayed that this court extend the period for payment of the balance of the sale consideration

of Rs. 2.23 crores by six months so as to enable him to comply with the directions of this court.

The learned official liquidator filed his report dated June 28, 1991. It is stated that the sale was confirmed in favour of the applicant on the basis

of tender terms and conditions and, according to clause 21 in the terms and conditions, if the applicant wants to pay the balance of the sale

consideration in one of more instalments over a period which is beyond 30 days from the date of confirmation of the sale, then the applicant shall

obtain prior permission of this court and for such payment, the applicant should also pay interest at 20 per cent. per annum with monthly rests from

the date of confirmation of the sale till the date of final payment. It is relevant to extract certain important clauses in the terms and conditions in the

matter of sale of right, titled and interest over the lands, buildings and machinery, etc., belonging to Cauvery Spinning and Weaving Mills Ltd. (In

Liquidation).

Terms and conditions :

It the sale in favour of a tenderer is confirmed by the Hon''ble High Court, Madras, the said tenderer shall deposit 20% of his offer towards the

sale consideration with the official liquidator within a period of ten days from the date of confirmation by the court, which 20% shall be in addition

to the earnest money deposited in terms of tender conditions.

The non-payment of the above amount on confirmation within the period stipulated above will result in forfeiture of earnest money deposit. The

defaulting purchaser shall also forfeit all claims to the property or any part of the sum for which it may be subsequently sold.

The purchaser after paying the abovesaid 20 per cent. in terms of clause 19 above shall pay the balance sale consideration within 60 days from

the date of confirmation of the sale. If the balance amount is not paid within the said period of 60 days all amounts paid earlier by the purchaser

shall be forfeited. If the purchaser after paying the abovesaid 20 per cent. of the sale consideration in terms of clause 19 above, wants to pay the

balance sale consideration in one or more instalments over a period exceeding 30 days from the date of confirmation of sale, then the said

purchaser shall obtain and he shall also pay interest at 20 per cent. per annum with monthly rests from the date of confirmation of sale till the date

of final payment. The purchaser should not that any such interest payment will be added to the tender amount quoted by the purchaser and the sale

price of the schedule-mentioned properties will in such an even include the tender amount plus interest paid as per the clauses. The purchaser is

desirous of making the payment towards the balance sale consideration in one or more instalments over a period which is beyond 30 days from the

date of confirmation of the sale. The court may at its discretion give the mill of the company in liquidation on lease to the purchaser who opts to pay

the balance sale consideration in instalments till the expiry of the instalment.

It is also stated in the said report that the Bank of India, which was a secured creditor of the company in liquidation, has filed a suit for the

amount due to them with interest at the rate of 18 per cent. annum in Suit No. 499 of 1989 which is pending before this court. The official

liquidator has also stated that in the circumstances if the prayer of the applicant for extending the time for payment of the balance sale consideration

is considered, then the applicant may be directed to pay interest at the rate of 20 per cent. per annum with monthly rests from the date of

confirmation of the sale.

The applicant has also filed Company Application No. 979 of 1991 to permit him to pay the balance consideration of Rs. 2.23 crores in 80

monthly instalments. The official liquidator has filed his report, dated July 5, 1991, and submitted that a perusal of the order dated April 25, 1991,

of this court in Company Application No. 452 of 1991 would reveal that this court directed the acceptance of the applicant''s offer, subject to the

terms of the tender clauses and that it is not open to the applicant to come and say now that the rate of interest at 20 per cent. per annum with

monthly rests is exorbitant and that the said allegation in unsustainable in law and on facts. The official liquidator has reiterated that the applicant is

liable to pay interest at the rate of 20 per cent. per annum with monthly rests, if he is willing to pay the balance of the sale consideration of Rs. 2.23

crores in 80 monthly instalments.

Company Application No. 980 was filed by the applicant herein to permit the applicant to take the mill of the company in liquidation on lease.

The official liquidator filed his report dated July 19, 1991, enclosing therewith a draft lease deed as annexure A. The said application was resisted

by the official liquidator by inviting the attention of this court to three important terms under which the lease can be given, viz., (a) to (c) in the

report filed in Company Application No. 980 of 1991. As stated above, the draft lease deed was annexed to the said report for consideration of

this court. The last of the Application No. 1180 of 1991 in the series was taken out by the applicant to modify clause 21 of the tender conditions

so as to give relief in payment of interest to the applicant. The said Application No. 1180 of 1991 was strongly resisted by the official liquidator. A

report dated August 8, 1991, was also filed along with the letter dated April 11, 1991, under the letter head of ""N. K. Thaila Mudaliar and Sons

sent by T. Velusamy, the applicant herein, to the Official Liquidator, High Court, Madras.

Now, the points that arise for consideration in these applications are whether time can be extended for payment of the balance amount in 80

monthly instalments as prayed for in Applications Nos. 902 and 971 of 1991 and whether a lease of the mill, Cauvery Spinning and Weaving Mills,

can be granted to the applicant to run the mill on such conditions as may be determined by this court and whether clause 21 of the tender

conditions could be modified so as to give relief in payment of interest by the applicant.

I have heard the elaborate arguments of Mr. R. Krishnamurthy, learned senior advocate, and the learned official liquidator on various dates in

Applications Nos. 902, 979 and 980 of 1991 and Mr. G. Subramaniam, learned senior advocate, and the learned official liquidator on August 8,

1991, in Company Application No. 1180 of 1991.

The learned official liquidator has submitted that Company Application No. 1180 of 1991 taken out by the applicant for varying or reducing

the rate of interest is not maintainable since this court has already approved the tender terms and conditions and as the tender was invited on these

terms and as the application and as the applicant has submitted on the basis of the said terms, it is not now open to the applicant to maintain this

application at this belated stage. The learned official liquidator has also submitted that it is not now open to the applicant to seek an order for

modifying clause 21 of the tender terms and conditions. It is also contended by the learned official liquidator that once the terms and conditions of

the sale were approved by this court and once the sale was confirmed in favour of the applicant, it is not now open to the applicant to come

forward with an application for modification of the terms and conditions and seek a direction from this court for modification of those terms and

conditions and that the applicant is estopped from filing such an application at this stage. Learned senior counsel for the applicant has urged that it

is always open to this court to modify any order passed by it earlier depending upon the circumstances of the case and that this court is not so

powerless to modify its earlier order, if genuine and acceptable reasons are given for such modification. According to learned senior counsel, in

view of the subsequent change in circumstances, the applicant was compelled to seek redressal of his genuine grievance from this court by filing the

above applications. The reasons given are :

(a) The Reserve Bank of India has not lifted the credit squeeze;

(b) During the course of execution of the work, the applicant had noticed that the plant and machinery, etc., are in a dilapidated condition;

(c) On an examination of the condition of the machinery, it is seen that the applicant would require to spend a sum Rs. 50 lakhs to bring it to a

running condition;

(d) Besides certain machinery is required to be replaced/repaired immediately so as to put it in a working condition and for such purpose, it has

become necessary for the applicant to spend another sum of Rs. 64 lakhs to commence production at the earliest point of time.

(e) The electricity authorities for high tension power connection had informed the applicant that the erstwhile management had not rectified several

defects notified by the Department and that the applicant has to carry out the said defects. In order to carry out the said defects, the applicant

invited quotation from a licensed contractor, who estimated the value of rectification work at around Rs. 23 lakhs.

(f) The applicant has already paid Rs. 57 lakhs and has also spent Rs. 52 lakhs in cleaning up operations and is obtaining the electricity connection;

(e) With the background of the policy of law and the established practice in various industries, courts, insisting on a payment at 20 per cent. per

annum as stated in clause 21 will work out great hardship.

Hence, it is contended that it is open to the applicant to point out that the said clause is very rigorous, even though he accepted the said clause at

the time of placing the tender.

There is much force in the contention of learned senior counsel appearing on behalf of the applicant. He has clearly pointed out to the court the

subsequent change in circumstances after the sale was confirmed in favour of the applicant. In my opinion such a claim for modification has to be

considered taking into consideration the totality of the circumstances. It is true that the terms and conditions were accepted by this court and only

after such acceptance, this court confirmed the sale in favour of the applicant. But that does not mean or take away the right of the applicant to

seek modification of the clauses of the tender conditions or for any further direction or in any way curtail the powers of this court in modifying or

altering the terms and conditions depending upon the exigencies of the circumstances.

It is an admitted fact that the mill in question was closed for several years and that even private parties like Karumuthu Thiagaraja Chettiar

group and the Government of Tamil Nadu were unable to run the said mill due to labour problems and other reasons. The applicant had already

deposited, as directed by this court, a sum of Rs. 57 lakhs within the time stipulated in the said order. It is also not denied that he had spend a sum

of Rs. 52 lakhs for cleaning up operations and in obtaining the electricity connection. It is also the policy of the Government both Central and State

that there must be rapid industrialisation which would ensure better employment potential and economic growth and hence the financial institutions

owe a duty to extend financial assistance to the sick mills to come up and face the financial crisis to get revamped with the help of such institutions,

particularly the mills situated in the most backward areas like Pudukottai.

It is also stated that the petitioner would require a further sum of Rs. 50 lakhs to make the mill in a running condition and that the mill was

closed for several years. Besides, certain machinery is required to be required/replaced immediately, so as to put it in working condition and for

that purpose, it is stated by the petitioner that it has become necessary for him to spend another sum of Rs. 64 lakhs to commence production at

the earliest point of time. It is further stated in paragraph 6 of the affidavit filed in support of Company Application No. 1180 of 1991 that in order

to rectify the defects in the electricity connection, he has received a quotation from a licensed contractor, who estimated the value of rectification

work at around Rs. 23 lakhs. In my opinion, if the balance of consideration of Rs. 2.23 corers is required to be paid with interest at 20 per cent.

per annum with monthly rests as agreed to by the applicant earlier, the applicant would be virtually driven to a desperate corner of facing a serious

financial crisis, rendering it impossible to reach the target. Since the mill in question has all along been functioning as a sick mill, it would be just and

proper for me to consider the request of the applicant for modification of clause 21 of the terms and conditions of the tender with regard to the

payment of interest favourably. In my opinion, no prejudice will be caused to anyone, since it will benefit all the persons interested, if the applicant

is allowed to restart the mill soon, which will not only provide employment to more than 650 workers, but also enable the people, who live in that

most backward area to be benefited by other means. This will also enable the Bank of India, which is a secured creditor, to get early repayment.

In general, the general body of creditors will also be benefited, if I allow the applicant to run the mill on the same terms and conditions as agreed to

by him, of course subject to the reduction in the rate of interest.

In fact, as stated by the learned official liquidator in his earliest report, even though advertisements were released as directed by this court in

very many English dailies, viz., The Hindu, The Indian Express, Economic Times and Financial Express and in Daily Thanthi, calling for sealed

tenders for the sale of the company''s property, only about 115 persons obtained from the office of the official liquidator copies of the terms and

conditions and tender forms and about 35 persons alone had visited the factory premises at Pudukottai and, ultimately, the official liquidator

received tenders for the purchase of the company''s properties only from three persons, of which the applicant is one. In fact, the applicant has to

be appreciated and encouraged for his bold decision in offering his quotation for a mill which was closed for several years and which had faced

several problems for all these years. As stated above, the private parties who owned the mill earlier and the Government of Tamil Nadu who

owned the mill later were unable to run the mill for several reasons.

Mr. G. Subramaniam, learned senior counsel appearing on behalf of the applicant, in support of his contention for the reduction of the rate of

interest has placed before his court the following authorities :

Shashi Kumar and Others Vs. State of Bihar and Others, , Syndicate Bank Vs. Swadesamitran Ltd., , N. A. P. Alagiri Raja and Co. v. N.

Guruswamy [1987] 100 LW 515; [1989] 65 Comp Cas 758 (Mad), Punjab National Bank Ltd. Vs. Udyog Silpa Pvt. Ltd. and Others, , Pentala

Githavardhana Rao and Others Vs. The Andhra Bank Ltd. and Others, , Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, and AIR 1940

20 (Federal Court) .

Shashi Kumar and Others Vs. State of Bihar and Others, was one directed against the judgment and order of the Patna High Court, dismissing a

writ petition filed by Sashi Kumar and others/appellants. The history of the said case records how an ambitious plan devised by the Central

Government for accelerating and modernising agricultural development in the villages of India and simultaneously providing employment

opportunities to engineers and technically trained personnel has come to grief because of an incomplete perception of the conditions necessary for

its success. The Government of India propounded a scheme for the creation of Agro Service Centres in rural areas which would provide technical

services essential for accelerated rural development and for providing employment to engineers and technically trained personnel. The said scheme

was launched by the Government and there was an encouraging response from the unemployed sector of engineers and technical personnel from

different parts of the country. In view of the difficulties experienced by unemployed and inexperienced entrepreneurs in the business, it was though

that the period of subsidy on the interest should be increased from three to five years, and the period of repayment itself should be increased up to

ten years as in the case of loan and mortgage bank financing. The petitioners (in that case) filed a writ petition in the Patna High Court for declaring

the Agro Service Centres of Bihar as sick industries and to secure for them the amounts envisaged in the original scheme with an extension of the

period of repayment to a longer term. The writ petition was dismissed by the Patna High Court and thereafter an appeal was filed before the

Supreme Court by Shashi Kumar against the State of Bihar and others. The State Bank of India, Patna, has taken the position that as it has

advanced the loans to the agro engineers it was entitled to take appropriate legal measures for obtaining repayment of the loan with interest. The

State Bank of India denied its liability to honour the assurances extended by the Government to the agro engineers and insisted on compliance with

the terms of the contract entered into by the agro engineers with the bank. It was admitted by the bank that in accordance with the scheme of the

Government of India the agro engineers would have been entitled to a subsidy at the rate equivalent to the difference between the normal lending

rate of the bank and a base rate of 5 per cent. per annum, which was the maximum rate payable by the agro engineers subject to availability of the

subsidy. It was also admitted that the period of subsidy was normally three years, except in backward areas, where the period of subsidy was five

years. The petitioner has stated that the applications for claiming interest subsidy were in many cases not submitted. It is further stated that many

agro engineers did not pay the instalments in time and in most cases not more that one or two instalments had been paid. In the result, the amount

of interest kept on swelling and became payable at compound interest.

The petitioners before the Supreme Court contested the position assumed by the State Bank and asserted that the State Bank has been part and

parcel of the entire Agro Service Centres scheme and that it was not open to the bank to deny its obligation of providing complete financing under

the scheme. As regards the applications for the grant of interest subsidy, the petitioners affirmed that their applications were submitted to the

Director of Training in the Bihar State Agro Industries Corporation and that the applications which were directly submitted to the State Bank by

the entrepreneurs were turned down on the plea that the individual entrepreneurs were not regular in repayment. The Government of Bihar filed a

counter-affidavit. It was stated that on a consideration of the representation of the agro service entrepreneurs the State Government was agreeable,

with a view to rehabilitating these centres, to subsidise the interest according to the original scheme, to permit and also try to obtain carriage work

for the Agro Service Centres and to appoint them as selling agents for seeds and also to try and obtain for them selling agency for seeds from the

National Seeds Corporation, Fertiliser Corporation of India and other institutions concerned with food and fertilisers.

It was also suggested that the banks should extend the period of repayment of loans to at least eight years. A suggestion of substantial importance

was that inasmuch as the banks were charging penal and compound interest from an entrepreneur who had defaulted in repayment due to non-

receipt of subsidy of interest from the Government of India, the penal and compound interest should be waived by the banking department.

On the suggestion made amidst diverse versions and conflicting claims, the Supreme Court made an attempt to bring the parties together in order

to evolve a solution for salvaging the Agro Service Centres or, in any event, to relieve the agro engineers from the financial burden suffered by them

because of their involvement in the scheme. The task of bringing about a settlement between the parties was entrusted by the Supreme Court to

Thiru K. Parasaran, the then Attorney-General of India. The proposals made by the petitioners were turned down and there was no possibility of

salvaging the Agro Service Centres. The State Bank India, on the other hand, took the stand that in the case of closure of the Agro Service

Centres, it would still insist on payment of the entire amount of interest due on the loans. In the meanwhile, questions were raised in Parliament on

the malfunctioning of the Agro Service Centres and the Ministry of Agriculture in the Government of India explained the real position. It was stated

that the Minister of State for Agriculture had requested all the Chief Ministers of the States to take steps for strengthening the Agro Service

Centres and to expeditiously settle the claims of agro service entrepreneurs to interest subsidy, and also to route the distribution of important

agricultural inputs to the areas where those centres were functioning to help them in getting custom hiring work. Besides, the commercial banks

were instructed to waive the interest on the loans advanced to Agro Service Centres. However, during the pendency of the case before the

Supreme Court, the Supreme Court permitted the banks to protect themselves by instituting suits for the recovery of the amounts alleged to be due

on the basis of the loans extended by them to agro engineers. However, the Supreme Court, while disposing of the said appeal in the concluding

portion of its landmark judgment, has held as under (at page 392) :

We are of opinion that the controversy involved in the case can find an appropriate and satisfactory conclusion if the Government of India

addressed itself to this problem, a problem which involves an intimate intermix of legal and sensitive human considerations, and enjoying the unique

position the Government of India does in relation to the other two administrations concerned, a just and valid solution can no doubt be found. The

matter has already received sympathetic consideration from the Government of India, as is evidenced by the position taken by it during the initial

stages of the scheme and the parliamentary and ministerial response made by it in earlier years. We believe it would be tragic, not only for the agro

engineers and technocrats in distress today but also for a scheme of great promise, put into effect with much hope, if despair was allowed to defeat

it. Accordingly, while we keep these cases pending, we request the Government of India in the Ministry of Agriculture to reformulate the scheme

after consultation with all the parties concerned, and giving an appropriate opportunity to the petitioners and other agro engineers and technical

personnel covered by the original scheme to represent their case before it. The scheme will take into account two broad divisions, one for revival

of the Agro Service Centres where that can be reasonably envisaged, and the other providing for equitable reduction in appropriate cases of the

financial obligations of the entrepreneurs concerned to be extend reasonably possible where Agro Service Centres have irretrievably broken down.

Upon the formulation of the scheme, it should be submitted to this court for appropriate orders disposing of these cases. We allow time up to

December 31, 1985, for the purpose and adjourn the cases meanwhile. A copy of this order shall be sent forthwith to the Secretary, Ministry of

Agriculture, Government of India"".

It is seen from the above judgment that the Supreme Court, while directing the authorities to frame a scheme, has directed them to take into

account two broad points :

Revival of the industry; and

Providing for equitable reduction in appropriate cases of the financial obligations of the entrepreneurs concerned to the extent reasonably

possible, where Agro Service Centres have irretrievably broken down.

In my opinion, the above direction given by the Supreme Court will apply to the present case in all force. A case has been made out by the

applicant in this case that the industry which was closed for the past so many years has got to be revived and rehabilitated and the financial

obligations of the entrepreneurs concerned to the extent possible has to be restructured.

I may now refer to the Division Bench decision of our High Court, consisting of Ratnam J. and Thanikkachalam J. relied on by Mr. G.

Subramaniam, learned senior counsel for the applicant and reported in Syndicate Bank Vs. Swadesamitran Ltd., . In the above case, the Syndicate

Bank instituted a suit in this court, praying for recovery of some amount with interest thereon at 18 per cent. per annum with quarterly rests from

the date of plaint till the date of realisation. Several defences were raised by the defendant in the suit, viz., Swadesamitran Ltd., and one among

them was about the rate of interest payable by the defendant from the date of the suit to the date of decree. According to the defendant, the bank

was not entitled to claim interest at 18 per cent. per annum as per the contract. The defendant through their counsel made an endorsement to the

effect that the plaint suit claim is agreed to and that the rate of interest alone is disputed and pursuant to the endorsement so made, the defendant

also expressed its readiness to pay the entire amount due under the decree that may be passed with such rate of interest as may be fixed by the

court. The court proceeded to determine the rate of interest payable by the defendant to the appellant from the date of plaint till the date of

payment. The court, while doing so, fixed the rate of interest at 13 per cent. per annum and took into account the payment of a sum of Rs. 5 lakhs

made by the defendant to the plaintiff and also expression of readiness and willingness to pay the balance of the amount that may be worked out

after fixing the rate of interest by the court. Ultimately, the court directed the defendant to pay the plaintiff the amount claimed in the plaint with

interest at 13 per cent. per annum. While matters stood thus, the Syndicate Bank preferred an appeal in this court questioning the rate of interest

awarded by the court at 13 per cent. per annum and claiming that interest at 18 per cent. per annum with quarterly rests from the date of suit to the

date of decree should have been directed to be paid by the defendant. It was argued on behalf of the bank, referring to section 34(1), Civil

Procedure Code, that the transaction entered into by the parties was a commercial transaction with a nationalised bank and, therefore, the court

should have awarded interest at the contractual rate and not at a reduced rate. Counsel for the defendant submitted that the suit was instituted on

the foot of a mortgage for the recovery of the amounts due thereunder and in view of the special provisions under Order 34, rule 11, Civil

Procedure Code, the proviso to section 34(1), CPC could not be pressed into service to claim that interest should be paid at the contractual rate,

viz., 18 per cent. annum. The Division Bench of our High Court in the said judgment further held as follows (at page 22) :

We may observe that under Order 34, rule 11, Civil Procedure Code, the court may order payment of interest as indicated thereunder. The use

of the expression ''may'' indicates that it is not intended that in all cases, the court is obliged to decree interest at the contractual rate. A certain

amount of discretion is undoubtedly vested in the court so far as the payment of interest pendente lite and subsequent interest is concerned. If the

court was bound, as claimed by learned counsel for the appellant, even under order 34, rule 11, Civil Procedure Code, to award pendente lite

interest at the contractual rate, then the language employed would have been different and the expression ''may'' would not at all have been used.

The expression ''may'' used also postulates that the court is not bound the exercise its powers relating to the award of interest and the language as it

is found in Order 34, rule 11, Civil Procedure Code, can only mean that the court has a discretion to order the payment of interest either at the

contractual rate or even at a rate which the court deems reasonable, having regard to the circumstances of the case.

Learned counsel for the applicant next relied on the decision in Jaigobind Singh v. Lachmi Narain Ram, AIR 1940 FC 20. In interpreting the

provisions of Order 34, rule 11, Civil Procedure Code, the Federal Court pointed out that the special provision under Order 34, rule 11, gives a

certain amount of discretion to the court in so far as interest pendente lite and subsequent interest are concerned and it is no longer absolutely

obligatory on the part of the court to decree interest at the contractual rate in all circumstances, even if there be no question of the rate of interest

being penal, excessive or substantially unfair.

The principle so laid down by the Federal Court was reaffirmed by the Supreme Court in the decision in Soli Pestonji Majoo and Others Vs.

Gangadhar Khomka, . The principle laid down in the decision referred to above was applied in Pentala Githavardhana Rao and Others Vs. The

Andhra Bank Ltd. and Others, , and the principles laid down in AIR 1940 20 (Federal Court) were applied and followed by the Andhra Pradesh

High Court in Pentala Githavardhana Rao and Others Vs. The Andhra Bank Ltd. and Others, , and it was held that there is no obligation cast on

the courts to award pendente lite and subsequent interest only at the contractual rates and that courts have a discretion vested so far as the interest

payable subsequent to the date of suit is concerned. In the above case one of the disputes related to the rate of interest that was payable on the

amount due and payable to Andhra Bank Ltd. by the contesting defendants. The rate of interest payable on the principal amount as per the

contract was 10 per cent. per annum for a certain period and thereafter at 11.5 per cent. per annum on the amount in question. The court also has

awarded interest as per the agreed rate till the date of redemption and, thereafter, at 6 per cent. per annum till the date of realisation. Counsel for

the appellant contended that the court is not invariably bound to award interest as per the contract rate from the date of the suit and in the

circumstances of the case it is reasonable and proper to fix 6 per cent. annum interest from the date of the suit. The suit was resisted by counsel for

the plaintiff-bank contending, inter alia, that the rate of interest payable to the bank is controlled by the Reserve Bank which publishes the rates

from time to time and the interest granted by the court below in its discretion is just and proper and not liable to be interfered with in appeal.

Reliance has been placed by the decree holder on the decisions of the Madras high Court in Aravala Chinapapinaidu and Others Vs. Imperial

Bank of India, Vizianagaram and Others, and S. Rajagopalaswamy Naidu Vs. The Bank of Karaikudi Ltd., , and a few other Judgments. The

Division Bench of the Andhra Pradesh High Court, on a careful consideration of the entire material on record, held as under Mangu Ramdas Vs.

Madurai Venkataratnam and Others, :

In a recent decision of the Supreme Court in Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, , it was held, relying upon the decision of

the Federal Court in AIR 1940 20 (Federal Court) , that it is not absolutely obligatory on the courts to decree interest at the contractual rates after

the dates of redemption in all circumstances even if it is not penal, excessive or substantially unfair and the courts have got discretion so far as

interest payable subsequent to the date of the suit is concerned.

The Division Bench of the Orissa High Court in the decision in Punjab National Bank Ltd. Vs. Udyog Silpa Pvt. Ltd. and Others, , held as

follows (headnote) :

Order 34, rule 11, is not mandatory in character. It is open to a court to vary the rate of interest so far as the period between the date of suit and

the date fixed for redemption in a preliminary decree is concerned, even in a case where interest is legally recoverable and the rate of interest is not

penal or unconscionable or otherwise excessive. The decisions which seem to take a contrary view that where interest is allowed it must be

allowed at the contractual rate and that the rate cannot be varied do not lay down the law correctly. As for subsequent interest, i.e., from the date

of redemption fixed in the preliminary decree up to the date of payment of realisation of the mortgage money, the matter rests clearly in the domain

of judgment and the grant of rate of such interest is entirely in the discretion of the court. Case law discussed.

We can also usefully refer to the Division Bench judgment of our High Court, consisting of the Hon''ble Mr. Justice V. Ramaswami (as he then

was) and the Hon''ble Mr. Justice V. Ratnam, in Dhandayuthapani v. S. P. Krishnamurti [1987] 100 LW 515. The question for consideration in

that case was whether in the case of a company which is being wound up, only the official liquidator can file an application u/s 391 or even in such

a case, a creditor or any class of creditors or any member of the company can file the application u/s 391(1). The Division Bench held that on a

prima facie view of rules 67 and 68 of the Companies (Court) Rules, 1959, it does not appear that the rules contemplate an application by a

creditor or a member of the company even when the company is being wound up. The learned judges has also applied the principles laid down in

the judgment in Elvoc (P.) Ltd., In re [1982] 52 Comp Cas 308 . The Division Bench was of the view that a sum of Rs. 30 lakhs can be fixed as a

reasonable price and that the mill including the buildings and the lands can be sold to the appellant by private sale by the official liquidator and it will

not be in the interest of the creditors, shareholders or the company to sell them by public auction. In the concluding portion of the judgment, the

Division Bench, applying the principles laid down by the Calcutta High Court in Elvoc (P.) Ltd., In re [1982] 52 Comp Cas 308, held as follows :

The question for consideration was whether the court is entitled to order a private sale of a company in liquidation as a running unit to the lessee.

The learned judges posed the question as to whether the only object of such sale is to fetch the maximum price or whether the court at its

discretion, having regard to the prevailing socio-economic questions which are involved in a welfare State like India, should apply the law in a

Pragmatic manner having regard to the realities and interests of the public. There also the company in liquidation was given on lease to a co-

operatively society which after some time asked for either renewal of the lease or alternatively for sale. The learned judges held that the only duty

laid on the court is to see that a reasonable price is obtained and the rule is not so rigid that in every case it must be sold in public auction. We are

in entire agreement with this view of the learned judge. Though the learned judge observed that it cannot be treated as precedent as the order is to

be made on the peculiar circumstances of that particular case which has got certain exceptional features, we are of the view that the principle laid

down there is very objective and could be followed even in this case.

The learned judges while answering the question as to whether the only object of such sale is to fetch the maximum price or whether the court

at its discretion having regard to the prevailing socio-economic questions which are involved in a welfare State like India, should apply the law in a

pragmatic manner having regard to the realities and interests of the public, held that the only duty laid on the court is to see that reasonable price is

obtained and that the rule is not so rigid that in every case it must be sold in public auction.

Now, I proceed to consider what will be the rate of interest that could be awarded while modifying the tender clause 21. I find from the

records and from the arguments advanced by the learned official liquidator and also the learned senior counsel appearing for the applicant that the

mill which was purchased by the applicant had become a sick unit and it had also stopped its business for the last more than eight years. The

highest bidder has also paid a sum of Rs. 57 lakhs as per the terms and conditions of the tender. The applicant had requested this court only either

to waive the rate of interest or reduce the same and had prayed only for the exercise of the discretion of this court in the matter of rate of interest.

Yet another reason which weighs in my mind in reducing the rate of interest is that the Bank of India, which is one of the secured creditors has also

claimed the interest rate only at 18 per cent. per annum in the suits filed by it in C.S. Nos. 499 of 1989, 284 of 1983 in this court. I have already

discussed the reasons given by the applicant praying for reduction of interest and I am convinced about the genuineness of the claim and the bona

fide nature of the request of the applicant. Hence, considering the totality of the circumstances, I feel that this court can fix the interest at the rate of

18 per cent. per annum flat on the reducing balance. Further, the various judgments referred to above by me in detail in this judgment have in

categorical and unmistakable terms held that it is always open to this court to vary the rate of interest even in a case where the interest is legally

recoverable as per the contract and the rate of interest is not penal or unconscionable or otherwise excessive. The highest court of the land has also

taken a similar view and has also issued directions for the revival of sick units, where they can be reasonably envisaged and has also issued

directions for providing for equitable reduction in appropriate cases of the financial obligations of the entrepreneurs concerned to the extent

reasonably possible, where such centres have irretrievably broken down. The avowed policy of the Central Government is to encourage the

growth of industries which will not only contribute to the growth of economy but also generate more employment opportunities. The various

circumstances discussed by me in detail would justify this court exercising its discretionary powers in favour of the applicant, which would also

subserve the interest of justice. Admittedly, the applicant has been making honest and bona fide attempts in reviving an industry which remained

closed for more than a decade. The applicant has been making bona fide and honest attempts in reviving a dead industry. I am fully satisfied with

the bona fides of the applicant as is evident from various circumstances referred to by me. Therefore, I am of the view that this court should

exercise its discretion and grant leave to the applicant who is making all attempts to restart and revive a dead textile mill. It is in the fitness of things

that the court should lend a helping hand a helping hand to an entrepreneur who has provide his bona fides and made honest and sincere efforts to

put the industry back on the industrial map of our State. By exercising my discretionary powers, all parties including the general body of creditors

will be benefited. Thus, exercising my discretion in so far as the interest rate is concerned, I fix the same at 18 per cent. per annum flat payable on

the reducing balance on the amount now outstanding from the applicant.

Hence, for the reasons give above, I order Company Applications Nos. 902 of 1991 and 979 of 1991 and I permit the applicant to pay the

balance consideration of Rs. 2.26 crores in 80 monthly instalments.

In so far as Company Application No. 980 of 1991 is concerned, the official liquidator is directed to grant the lease to the applicant, subject to

the important conditions as mentioned in paragraph 8 of his report dated July 19, 1991. The draft lease deed filed as annexure A to the report filed

in Application No. 980 of 1991 has also been perused by me. In my opinion, the draft lease deed is in order and, hence, the same is approved.

However, it is made clear that if the applicant is in arrears of rent for three consecutive months or there shall be a breach of any of the covenants

by the lessee herein, then the lease is liable to be terminated and the lessor may re-enter the demised premises and determine the lease without any

notice.

Hence, Application No. 980 of 1991 is ordered as prayed for the the official liquidator is directed to grant the lease of the mill, viz., Cauvery

Spinning and Weaving Mills Ltd., to the applicant, T. Velusamy, since this court has granted permission to the applicant in Company Application

No. 979 of 1991 to pay the balance of sale consideration of Rs. 2.23 crores in 80 monthly instalments commencing from December 1, 1991,

onwards. It is, however, made clear that the applicant should pay the monthly instalments regularly without any default and the applicant should

also pay the lease amount every month to the official liquidator without any default.

For the reasons stated above, Company Application No. 1180 of 1991 is also ordered and clause 21 of the tender condition, directing the

applicant to pay interest at the rate of 20 per cent. per annum with monthly rests is modified and the applicant shall pay interest at 18 per cent. per

annum flat on the reducing balance from August 1, 1991.

For the foregoing reasons mentioned above, all the applications are ordered as indicated above.