Bharat Industrial Corporation vs Punjab Financial Corporation and Others

V.S. Aggarwal, J.—Bharat Industrial Corporation is a partnership firm. It raised a loan of Rs. 33.20 lacs from respondent No. 1 (Punjab Financial Corporation). An agreement dated 16.7.1992 was executed. This was inclusive of Rs. 5.20 lacs as subsidy. The loan was repayable in instalments. The petitioner contends that it had paid Rs. 2,30,000/- to respondent No. l. For certain reasons the business of the petitioner started running into losses. Respondent No. 1 took possession of the property, in accordance with Section 29 of the State Financial Corporation Act, 1951.

The petitioner-firm received a letter dated 4.11.1996 from respondent No. l in which it was slated that petitioner was in default for an amount of Rs. 20.66 lacs and that it should clear the said an ears. In case the arrears were not cleared, respondent No. 1 threatened to proceed further u/s 29 of the State Financial Corporations Act. It is contended that respondent No. 1 has agreed to sell the unit of the petitioner to respondent No. 3 (M/s Ecolite India Limited) for Rs. 20.35 lacs. Partner of the petitioner namely Harvinder Singh met the Deputy General Manager on 22.7.1997 and was informed that respondent No. 1 had invited sealed offers for selling the unit of the petitioner inserting an advertisement in certain newspapers, including The Tribune. The unit was proposed to be sold for Rs. 20.35 lacs while the reserved prices was Rs. 20.32 lacs.

By virtue of the present petition, it is prayed that advertisement dated 11.4.1997 vide which sealed offers for selling of the unit of the petitioner were invited should be quashed and a direction should be issued for selling of the unit only through pubic auction. Petitioner further points out that he had never received any letter from respondent No. 1 informing him about the intended sale through the mode of inviting sealed offers.

In the reply filed respondents 1 and 2 only contested the petition. The contest was offered on the plea that the petition is not maintainable. The advertisement regarding sale of the unit was released in various newspapers on 12.4.1997. The petitioner was sent a copy of the advertisement. The petitioner was further asked to bring the third party for purchase of the unit. Respondents 1 and 2 acted within the four corners of the State Financial Corporations Act in order to fetch the maximum price and to recover the dues from the petitioner on account of loan advanced to him. The petitioner was stated to be making continuous default and did not pay the loan and interest.

In response to the advertisement only one tender was received from one Deepak Garg who offered only Rs. 12 lacs against the reserved price of Rs. 20.32 lacs. The Sale Committee rejected the offer in its meeting held on 22.4.1997. Thereafter as per the procedure followed, the advertisement was displayed on the notice board of respondent No. 1 for the information of the general public. In pursuance of the same, respondent No. 3 through its Director, offered to purchase the assets of the petitioner for Rs. 20 lacs with a condition to pay the amount as per terms and conditions of advertisement Rs one lac were deposited by way of demand draft. The offer was accepted at Rs. 20.35 lacs 25% of the amount was deposited by respondent No. 3. It is denied that there is any violation of law or the procedure.

The sole submission made by the learned counsel for the petitioner which became the subject matter of controversy between the parties was pertaining to the fact that no attempt was made to auction the property of the petitioner which could fetch much higher price. According to him in the absence of the said procedure having been followed, prejudice has been caused and, therefore, the attempted sale to respondent No. 3 should be quashed.

Reliance in this regard was placed on the decision of the Supreme Court in the case of Chenchu Rami Reddy and Another Vs. Government of Andhra Pradesh and Others, . This pertained to sale of land belonging to a charitable endowment by private negotiations. Public auction was not held. The Supreme Court deprecated the practice of sale of land belonging to charitable endowment by private negotiations instead of public auction. In paragraph 5 the Court provided certain guidelines. The relevant extract of the same is being reproduced below for the sake of facility: -

"We, therefore, direct that the lands in question may be sold by public auction in the following manner :-

(1) Sale must be on the basis of "as-is-where-is-whatever-is" subject to the rights, if any, of any of the respondents and of the other occupants if any, in regard to the claim for alleged tenancy, sub-tenancy, possession or of any other nature.

(2) Wide publicity should be given to the date, lime and place of public auction to ensure that maximum number of intending purchasers attend the auction in order to offer their bids.

(3) The terms and conditions must inter alia provide for deposit of at least 15% of the sale price in cash within a week (or two weeks) which will be liable to be forfeited if the transaction is not completed.

(4) Special notice shall be given to the appellants and the concerned respondents herein."

The said question was again considered by the Supreme Court in the case of Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, . The Supreme Court held that Corporation has to exercise the powers in the good faith and in paragraph 18 observed that every attempt should be made to get the maximum price:-

"The Corporation or its officers or servants as trustees are bound to exercise their power in good faith in selling or dealing with the property of the debtor as an ordinary prudent man would exercise in the management of his own affairs to preserve and protect his own estate. Therefore, the acts of the officer or servant of the Corporation should be reasonable, just and fair which must meet the eye and the offer accepted must be competitive and every attempt should be made to secure as maximum a price as possible to liquidate the liabilities incurred by the industrial concern or the debtor under the Act."

Once again the Supreme Court observed further in the case of Mahesh Chandra (supra) that first attempt made should be a sale by public auction. In paragraph 21 the Court further observed :-

"The sale by public auction or tender or private negotiation should be bona fide action. First is universally recognised to be the best and most fair method. It is expected to fetch best competitive price and is beyond reproach. Second should be resorted to rarely only if first is an impossibility. Generally tenders would be calling quotation to execute public work or to award contracts etc. and third should always be avoided as it cannot withstand public gaze. It casts reflection on Corporation and its officials and is against social and public interest. In case transfer cannot be effected by public auction and it is necessary to resort to sale be tender it is both fair necessary to inform the unit holder, if unit has been got valued for purposes of transfer of the estimated value for sale as he is a much interested as the Corporation."

On behalf of the respondents our attention was drawn towards the decision of the Supreme Court in the case of Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, . The Supreme Court deprecated the practice of interference by the High Courts under Article 226 of the Constitution of India as if it was an appellate authority. But still felt that if the Corporation acts unfairly and unreasonably, the High Court could interfere in an appropriate case. The observations in paragraph 11 are to the same point and reads :-

"The obligation to act fairly on the part of the administrative authorities was evolved to ensure the Rule of Law and to prevent failure of justice. This doctrine is complementary to the principles of nature justice which the Quasi-Judicial Authorities are bound to observe. It is true that the distinction between a quasi-judicial and the administrative action has become thin as pointed out by this court as far back as 1970 in A.K. Kraipak and Others Vs. Union of India (UOI) and Others, ."

From the aforesaid it is clear that every honest attempt must be made to get higher price. Attempt firstly must be made to put the property to auction. It should be an honest attempt with a view to get higher price. Ordinarily this Court will not interfere in the acts of the Corporation unless the procedure is totally unfair.

With this backdrop one can conveniently revert back to the facts of the case. Advertisement was given in various newspapers. Only one tender was received. It was far below the reserved price The reserved price was Rs. 20.32 lacs while the offer was only for Rs. 12 lacs. Necessarily, the offer was rejected. Thereafter, respondent No. 1 had displayed a notice outside its office. This does not appear to be a method to be approved. When valuable property is being sold, putting up of a notice outside the office would only attract very limited persons. It can breed favoritism. Many genuine persons may not even know of the property being sold. At that stage, even no attempt was made to put it to auction. As noticed above, putting the property to auction should be ordinarily first attempt. In special cases one could invite tenders but the facts of the present case clearly indicate that the subsequent procedure can hardly be approved. The dictim in the case of Mahesh Chandra (supra) would certainly help the petitioner.

For these reasons, we accept the petition and quash the impugned order for sale of the property to respondent No. 3 It is directed that attempt be made to auction the property at the cost of the petitioner. Nothing said herein would restrain or restrict respondent No. 3 for taking part in the auction proceedings. Parties are left to bear their own costs.