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Judgment
Mr. J.B. Pardiwala, J.—This writ petition, under Article 226 of the Constitution of India, has been filed by the petitioner praying for the following reliefs:-
(b) This Hon''ble Court will be pleased to issue writ of or in the nature of mandamus quashing and setting aside the impugned communication dated 22.11.2010 issued by the respondent-ARCIL;
(c) This Hon''ble Court will be pleased to issue writ of or in the nature of mandamus directing the respondent-ARCIL to accept the tender bid of the petitioner-Company and further directing the respondent-ARCIL to confirm the sale in favour of the petitioner-Company in respect of the assets of M/s Mardia Steel Ltd.
(d) This Hon''ble Court will be pleased to issue writ of or in the nature of mandamus quashing and setting aside the action of the respondent-ARCIL in cancelling the auction,
(e) Pending admission, hearing and final disposal of this petition, this Honorable Court will be pleased to direct the respondent-ARCIL to maintain status quo regarding the properties and assets of M/s Mardia Steel Ltd. put to auction sale vide public notice dated 27.09.2010;
(f) That ex-parte ad interim relief in terms of the above prayer clause is granted.
Brief facts relevant for the purpose of deciding this writ petition can be summarized as under:-
The petitioner is a Company incorporated under the provisions of the Indian Companies Act, 1956. It seeks to challenge the legality and validity of the communication dated 22nd November 2010 issued by the respondent-ARCIL in rejecting the bid of the petitioner on the ground that the petitioner-Company had declined to increase the bid amount. Challenge in this writ petition is also to the action of the respondent-ARCIL in cancelling the auction proceedings without assigning any reasons. According to the petitioner, the action of the respondent in cancelling the auction proceedings is illegal, arbitrary, unjust, unreasonable and mala fide. It is the case of the petitioner that a writ of mandamus deserves to be issued directing the respondent-ARCIL to accept the bid submitted by the petitioner Company and confirm the sale of assets of M/s Mardia Steel Limited (in liquidation) in favour of the petitioner Company.
It appears that the respondent-ARCIL, supposed to be an asset reconstruction Company engaged in the business of resolution of Non Performance of the Financial Assets (NPAs) upon acquisition from Indian Banks and Financial Institutions, issued an advertisement for sale of the assets of the Company viz. M/s Mardia Steel Limited. The advertisement was issued on 27th September 2010 in ''the Economic Times''. Similarly, an advertisement was issued in daily vernacular Gujarati newspaper also for sale of the assets of Mardia Steel Limited. As per the advertisement, the assets of M/s Mardia Steel Limited were put to sale on "As is Where is and As is What is Basis". The reserve price for the assets described in the advertisement was Rs. 100 crore. The Earnest Money Deposit payable was Rs. 5 crore. The petitioner as per the advertisement procured the bid document on payment of Rs. 1,000/- and submitted the duly filled in bid document along with the Demand Draft of Rs.5 crore being the Earnest Money Deposit. It is the case of the petitioner that the petitioner submitted the bid for purchase of property of M/s Mardia Steel Limited for an amount of Rs. 100.10 crore. In the auction three companies have participated, which are as under:-
Name of the Company
Bid Amount
Parshwa Trading Company
Rs. 100 Crores
Electrotherm India Limited
Rs. 100.10 Crores
Rapport Trading Limited
Rs. 100.01 Crores
It is the case of the petitioner that offers of Parshwa Trading Company was rejected as it failed to submit the Earnest Money Deposit along with the bid document. In the same manner, the offer of Rapport Trading Limited was rejected as the offer was conditional and it submitted price bid for the assets with a clear title. According to the petitioner, they were the only valid bidder left in the fray and its bid offer ought to have been accepted by the respondent.
It is the case of the petitioner that the respondent-ARCIL demanded more amounts and asked the petitioner to increase the amount of bid. This was not accepted by the petitioner and accordingly vide letter dated 22nd November 2010 (Annexure-J) the petitioner was informed by the Authorized Officer of the respondent-ARCIL that the bid of the petitioner is not accepted as the petitioners have declined to increase the bid in view of the large statutory dues.
It is the case of the petitioner that the tender bid for an amount of Rs. 100.10 crores has been rejected by the respondent on a flimsy ground that the respondent had refused to increase the tender bid amount. According to the petitioner, the stand of the respondent is self-contradictory and mala fide inasmuch as the petitioner had offered Rs. 100.10 crores for the assets of M/s Mardia Steel Limited which was substantially higher than the amount being paid under the revision scheme of ARCIL which is an amount of Rs. 80 crores. In short, the case of the petitioner is that the action of the respondent-ARCIL in not accepting the tender bid of the petitioner Company is illegal, arbitrary and is liable to be quashed and set aside.
On 28th December 2010 this Court passed the following order:-
The petitioner is to address the Court on the following questions :-
(i) The petitioner having taken part in auction, what is his right to claim the secured asset, if ARCIL do not intend to auction sale the property?
(ii) Whether petition against ARCIL is maintainable or not?
Post the matter on 24.01.2011.
We propose to deal with the first question as to whether the petitioner having taken part in auction and even if his bid is highest amongst other bidders, what is the right of the petitioner to claim the secured asset, if ARCIL do not intend to auction sale the property for the reasons which have been made clear by the ARCIL?
It deserves to be rioted from the copies of the minutes of meetings held on 25th October 2010 as annexed in the petition at Annexure-H that the representatives from the petitioner Company were invited to increase the bid amount. The bidders did not improve their bids and stated that in view of large claims outstanding of Rs. 174.80 crores of liabilities they would not like to increase their bid. However, they informed that in the event the assets of MSL are sold free of its liabilities they would be interested in increasing their bids. It would also be relevant to quote a small portion of the minutes dated 25th October, 2010, which reads as under:-
Thus with one valid bid at just slightly above the reserve price, and in view of bidders not increasing the bid amount, all the bids were declared to be rejected and the auction process was stated to be concluded with the return of DDs of the EMD amount to the bidders. It was also decided to send out rejection letters to all the bidders.
It is manifestly clear that the respondent Company was not satisfied with the bid amount of Rs. 100.10 crores as put forward by the petitioner-Company. The respondent-Company found that the bid amount of the petitioner was just slightly above the reserve price and the respondent-Company wanted best price to be fetched.
It also deserves to be mentioned here that in the letter addressed to the petitioner dated 22nd November 2010 the respondent-Company informed in writing as under:-
In this regard, you may have been informed that your representative was asked to increase the bid amount. However, your representative declined to increase the bid in view of the large statutory dues. The non-acceptance of your bid was communicated to you vide our letter No. BGII/PSR FY11/ 8611 dated October 29, 2010.
While on the subject, we draw your attention to the Declaration submitted pursuant to the terms and conditions of the Bid, more particularly the clause whereby you have agreed to conform with and to be bound by the said terms and conditions. It may not be out of context to draw your attention to clause 22 of the Bid document which reads as under:
The Authorized Officer reserves its right to reject any or all offer(s) without assigning any reasons.
While on the subject, we may also mention that as a secured creditor, Arcil is entitled to exercise any and/or all of the rights provided under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
In view of the foregoing, you would appreciate that Arcil is not required to inform or seek the approval of any person before exercising its rights and entitlement.
The question which now falls for our consideration is as to whether any legal right has accrued in favour of the petitioner Company to claim the secured asset only on the ground that they are the highest bidder and their bid should be accepted by the respondent-ARCIL. We are of the view that the law in this regard is very well settled. In the case of Gajraj Jain Vs. State of Bihar and Others, the Hon''ble Apex Court has laid down the following proposition :-
Before putting the assets for sale the Financial Corporation must ascertain the market value of the property, assets should be sold on itemized basis or as a whole, whichever found to be more profitable, and bidders should know the details of the assets or itemized value. Property is to be sold for obtaining the market price and not merely for recovering the dues of the Corporation or any other subsequent charge-holder. In such a case auction is to be held to obtain the best possible price for the mortgaged assets and the best possible price must, in the context, mean the fair market price. The authority, while assessing the fair market price, must act in accordance with the statutory rules and cannot be permitted to act unreasonably. The reasonableness is to be tested against the dominant consideration to secure the best price.
Thus, in view of the above, it is evident that law requires a proper valuation report, its acceptance by the authority concerned by application of mind and then fixing the reserve price accordingly and accepts the auction bid taking into consideration that there was no possibility of collusion of the bidders. The authority is duty bound to decide whether the assets should be sold on itemized basis or as a whole, whichever found to be more profitable. The valuation of the property is required to be determined fairly and reasonably. Respondent-ARCIL is under a legal obligation to be satisfied itself whether the price fetched is reasonable and the sale has been conducted giving strict adherence to the procedure prescribed by the Statute. Auction sale can be set aside even after confirmation.
In the case of M/s. Seth Kashi Ram Chemical (India) Vs. State of Haryana and others, the Apex Court held that highest bidder may be entitled for refund of the amount offered and deposited by him with interest by the judgment debtor. He cannot claim the right to get the property if there had been a compromise between the judgment debtor and the secured creditor after the auction sale.
A similar view has been reiterated by the Apex Court in Mangal Prasad (dead) by LRs. and another Vs. Krishna Kumar Maheshwari and others, , observing that an equitable relief should be granted to the auction purchaser to refund the amount with interest.
In M/s Seth Kashi Ram Chemical (supra), the Apex Court has further held that highest bidder in an auction does not acquire any right, at the most he can claim refund of the deposit made by him.
Writ jurisdiction is discretionary in nature and must be exercised in furtherance of justice. In the present case we find that respondent - ARCIL is not satisfied with the amount of Rs.100.10 crores as offered by the respondent-Company. The respondent requested the petitioner to increase the bid amount, but the petitioner has not thought it fit to increase the amount of bid. In such a situation the respondent cannot be directed to accept the amount as offered by the petitioner and confirm the sale in favour of the petitioner. If the respondent is able to fetch more prices having regard to the dues recoverable then it is always open to call for the fresh bids and make all possible endeavors to see that the maximum price is fetched. We have noticed that the petitioner Company has gone to the extent of leveling allegations of mala fides. We do not understand how the action of the respondent can be termed as mala fide. By merely pleading mala fides, it cannot be said that the action of the respondent is tainted with malice. No cogent evidence worth the name has been led by the petitioner except mere averments in the petition to even prima facie suggest that the action of the respondent is mala fide in not accepting the bid amount and confirming the sale in favour of the petitioner.
In view of what we have stated above, we answer the first question holding that the petitioner being the highest bidder in an auction does not acquire any right to get the property. At the most, he can claim refund of the deposit made by it.
We shall now deal with the second question as to whether the petition against ARCIL is maintainable or not. In short, whether ARCIL is a ''State'' within the meaning of Article 12 of the Constitution or an instrumentality of the State amenable to the writ jurisdiction of this Court under Article 226 of the Consideration of India.
In the case of State of U.P. and Another Vs. Radhey Shyam Rai, while deciding the issue as to whether Uttar Pradesh Ganna Kishan Sansthan, a society registered under the Societies Registration Act is a ''State'' within the meaning of Article 12 of the Constitution, the Apex Court has observed in paragraphs 8, 9, 10, 11, 12, 13, 15 and 16 as under:-
Article 12 of the Constitution of India reads as under:-
Definition.--In this part, unless the context otherwise requires, "the State'' includes the Government and Parliament of India and the Government and the legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.
Law in this behalf has developed a lot. With the changing societal conditions, a large number of bodies exercising public functions have been brought within the purview of the definition of ''State''. We need not dilate on the development of law in this regard in view of the decisions rendered by this Court beginning from Rajasthan State Electricity Board v. Mohan Lal (1967) 3 SCR 377, Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, and other decisions including a Seven - Judge Bench decision of this Court in Pradeep Kumar Biswas and Others Vs. Indian Institute of Chemical Biology and Others,
9 We may also notice that P.K. Ramachandra Iyer and Others Vs. Union of India (UOI) and Others, wherein Indian Council for Agricultural Research (ICAR) was held to be a ''State'' within the meaning of Article 12 of the Constitution of India, was distinguished in Chander Mohan Khanna v. National Council of Educational Research and Training. However, Chander Mohan Khanna (supra) was overruled in Pradeep Kumar Biswas (supra) to the extent it followed the decision in Sabhajit Tewary Vs. Union of India (UOI) and Others,
In The Mysore Paper Mills Ltd. Vs. The Mysore Paper Mills Officers'' Association and Another, Mysore Paper Mills Ltd. was held to be a ''State'' within the meaning of Article 12 of the Constitution of India as it was substantially financed and controlled by the Government, managed by the Board of Directors nominated and removable at the instance of the Government and carrying on functions of public interest under its control.
In Pradeep Kumar Biswas (supra), the following tests for the purpose of determining the nature of activities which would make the body come within the definition of ''State'' have been laid down by a Seven-Judge Bench of this Court:-
(i) Formation of the body.
(ii) Objects and functions.
(iii) Management and control.
(iv) Financial aid, etc.
The dicta of Mathew, J. in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi was quoted with approval in Pradeep Kumar Biswas (supra), which is in the following terms:-
For identifying such an agency or instrumentality he propounded four indicia:
(1) 96... A finding of the State financial support plus an unusual degree of control over the management and policies might lead one to characterize an operation as State action. (SCC p. 454, para 96).
(2) 97... Another factor which might be considered is whether the operation is an important public function. (SCC p. 454, para 97).
(3) 97... The combination of State aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a State agency. If a given function is of such public importance and so closely related to Governmental functions as to be classified as a Governmental agency, then even the presence or absence of State financial aid might be irrelevant in making a finding of State action. If the function does not fall within such a description, then mere addition of State money would not influence the conclusion. (SCC p. 454, para 97).
(4) 111.... The ultimate question which is relevant for our purpose is whether such a Corporation is an agency or instrumentality of the Government for carrying on a business for the benefit of the public. In other words, the question is, for whose benefit was the Corporation carrying on the business? (SCC p. 454, para 111).
This Court referred to Ajay Hasia (supra) wherein the tests gathered from the decision of this Court in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, were stated in the following terms:-
9.. (1) One thing is clear that if the entire share capital of the Corporation is held by Government, it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government. (SCC p. 507, para 14).
(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the Corporation, it would afford some indication of the Corporation being impregnated with Governmental character. (SCC p. 508, para 15).
(3) It may also be a relevant factor... whether the Corporation enjoys monopoly status which is State conferred or State protected. (SCC p. 508, para 15).
(4) Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (SCC p. 508, para 15).
(5) If the functions of the Corporation are of public importance and closely related to Governmental functions, it would be a relevant factor in classifying the Corporation as an instrumentality or agency of Government. (SCC p. 509, para 16).
(6) Specifically, if a Department of Government is transferred to a Corporation, it would be a strong factor supportive of this inference'' of the Corporation being an instrumentality or agency of Government. (SCC p. 510, para 18).
It was held in Pradeep Kumar Biswas (supra):
The picture that ultimately emerges is that the tests formulated in Ajay Hasia are not a rigid set of principles so that if a body falls within any one of them it must, ex hypothesis, be considered to be a State within the meaning of Article 12. The question in each case would be -- whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government. Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State.
In Virendra Kumar Srivastava v. U.P. Rajya Karmachari Kalyan Nigam and Another, this Court held the respondent therein to be a ''State'' within the meaning of Article 12 of the Constitution of India, applying the tests of administrative control, financial control and functional control.
The question as to whether the Board of Control for Cricket in India (BCCI) which is a private body but had a control over the sport of cricket in India is a ''State'' within the meaning of Article 12 of the Constitution of India came up for consideration before a Constitution Bench of this Court in Zee Telefilms Ltd. and Another Vs. Union of India (UOI) and Others, wherein the majority felt itself bound by the dicta laid down in Pradeep Kumar Biswas (supra) to opine that it was not a ''State'' within the meaning of Article 12 of the Constitution of India. However, the minority view was as under:
Broadly, there are three different concepts which exist for determining the questions which fall within the expression "other authorities:
i. The Corporations and the societies created by the State for carrying on its trading activities in terms of Article 298 of the Constitution wherefore the capital, infrastructure, initial investment and financial aid, etc. are provided by the State and it also exercises regulation and control thereover.
ii. Bodies created for research and other developmental works which are otherwise Governmental functions but may or may not be a part of the sovereign function.
iii. A private body is allowed to discharge public duty or positive obligation of public nature and furthermore is allowed to perform regulatory and controlling functions and activities which were otherwise the job of the Government.
There cannot be same standard or yardstick for judging different bodies for the purpose of ascertaining as to whether any of them fulfils the requirements of law therefore or not.
The concept that all public sector undertakings incorporated under the Companies Act or the Societies Registration Act or any other Act for answering the description of State must be financed by the Central Government and be under its deep and pervasive control has in the past three decades undergone a sea change. The thrust now is not upon the composition of the body but the duties and functions performed by it. The primary question which is required to be posed is whether the body in question exercises public function.
Tests evolved by the Courts have, thus, been expanded from time to time and applied having regard to the factual matrix obtaining in each case. Development in this branch of law as in others has always found differences. Development of law had never been an easy task and probably would never be.
The majority despite holding that BCCI is not a ''State'' within the meaning of Article 12 of the Constitution of India opined that a writ petition under Article 226 of the Constitution of India against it would be maintainable.
We take notice of the fact that in the main petition there are no averments worth the name in this regard as to how ARCIL can be said to be a ''State'' within the meaning of Article 12 of the Constitution of India so as to make it amenable to the writ jurisdiction of this Court. It is only when the question was framed and the learned Counsel was called upon to answer that, by way of further affidavit dated 24th January 2011, the petitioner has tried to explain as to how the respondent - ARCIL is a ''State'' within the meaning of Article 12 of the Constitution of India. It appears that the petitioner has tried to gather some information about the respondent-Company from the website of the respondent-Company. It is submitted that the respondent is the first asset reconstruction Company set up in the country by leading banks in the Indian banking system. The official sponsors of the respondent Company were State Bank of India, ICICI Bank and IDBI Bank Limited. It is further averred that thereafter in the year 2004 Punjab National Bank joined by acquiring shareholding to the extent of 10%. It is submitted that majority of the shareholding are predominantly nationalized bank and private sector banks. It is submitted that the respondent Company is financially, functionally and administratively dominated by or under pervasive control of the public sector banks which are instrumentality of the State.
We seriously called upon the learned Counsel for the petitioner to explain as to what is the material or evidence placed on record to substantiate the same that respondent -ARCIL is a State within the meaning of Article 12 of the Constitution of India so as to make it amenable to writ jurisdiction. Learned Counsel submitted that he has annexed some information regarding the Company from the website of the respondent Company. Except this, there is no other material or evidence to substantiate as regards whether respondent ARCIL is a State within the meaning of Article 12 of the Constitution of India. The law so far as subject of Article 12 is concerned has been reproduced in the preceding paragraphs as laid down by the Honorable Supreme Court from time to time in various matters, but even if the principles laid down by the Honorable Supreme Court are to be made applicable for determining this issue, we are unable to do it because of lack of evidence and pleadings in the present case. In our opinion, when a point which is ostensibly a point of law is required to be substantiated by fact, the party raising the point, if he is a writ petitioner, must plead and prove such facts by evidence which must appear from the writ petition. If the facts are not pleaded or the evidence in support of such facts is not annexed to the writ petition, the Court will not entertain the point. In this context, it would be expedient to rely upon a judgment of the Honorable Supreme Court in the case of Bharat Singh and Others Vs. State of Haryana and Others, where in paragraph 13 the Honorable Supreme Court has observed as under:-
In our opinion, when a point which is ostensibly a point of law is required to be substantiated by facts, the party raising the point, if he is the writ petitioner, must plead and prove such facts by evidence which must appear from the writ petition and if he is the respondent, from the counter-affidavit. If the facts are not pleaded or the evidence in support of such facts is not annexed to the writ petition or to the counter, affidavit, as the case may be, the Court will not entertain the point. In this context, it will not be out of place to point out that in this regard there is a distinction between a pleading under the CPC and a writ petition or a counter-affidavit. While in a pleading, that is, a plaint or a written statement, the facts and not evidence are required to be pleaded, in a writ petition or in the counter-affidavit not only the facts but also the evidence in proof of such facts have to be pleaded and annexed to it. So, the point that has been raised before us by the appellants is not entertainable.
In that view of the matter, we are unable to give any definite finding as to whether the respondent - ARCIL is a State within the meaning of Article 12 of the Constitution of India or not. Even otherwise, this issue remains academic and would be decided in any other appropriate proceedings with the relevant material and evidence on record in this regard, but the fact that we have answered the first issue against the petitioner, the petition deserves to be rejected and the same is hereby rejected. In the facts and circumstances of the case, we also deem it fir and proper to impose a cost of Rs. 25,000 upon the petitioner. We direct that the amount of cost of Rs. 25,000 be paid to the Gujarat State Legal Services Authority within a period of 15 days from today.
Petition stands rejected.