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Judgment
D. Murugesan, J.
1 At the W.P.M.P. Stage, by consent of both parties, the main Writ Petition itself is taken up for final disposal.
The petitioner has availed the term loan of Rs. 100 lakhs from the first respondent, State Industries Promotion Corporation of Tamil Nadu
Limited (SIPCOT) on 3.9.1993 to set up an industry for the manufacture of gears at Nilambur Village, Coimbatore. The petitioner availed a sum
of Rs. 94,89,000/- from 31.5.1994 to 29.9.1995. The said loan is repayable from 1.11.1995 to 1.2.2002.
Since the petitioner defaulted, the first respondent decided to take possession of the mortgaged assets u/s 29 of the State Financial Corporation
Act. The possession was taken on 30.8.2000. Since the loan amount was not repaid, the first respondent made attempts to sell the mortgaged
property in public auction for six times. The sale could not be completed for want of adequate sale consideration. Finally, the sale advertisement
was made in ""Dinakaran"" Tamil daily Newspaper dated 18.8.2003. The second respondent offered to buy the mortgaged property for a sum of
Rs. 20 lakhs. But on negotiation, the second respondent accepted to purchase the mortgaged property for a sum of Rs. 27 lakhs. The said offer
was accepted, as the same has been approved by the Board of the first respondent on 28.10.2003 and the sale confirmation letter dated
3.11.2003 was also issued to the second respondent/auction purchaser. The second respondent has paid the entire sale consideration before
1.12.2003.
On the claim that the petitioner was not served with the auction notice and only on coming to know that the second respondent''s offer was
accepted, the petitioner has filed this Writ Petition, for a direction to the first respondent to conduct re-auction by cancelling the sale effected in
pursuant to the auction dated 5.9.2003 in respect of the petitioner''s movable and immovable properties situated in S.F.No. 549/3A2/2B2 of
Nilambur Village, Palladam Taluk, Coimbatore District.
Mr. P.M. Duraiswamy, learned counsel appearing for the petitioner would submit that the property would fetch atleast a sum of Rs. 50 lakhs.
The Apex Court in the judgment reported in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, has broadlined the
guidelines for the first respondent while invoking Section 29 of the State Financial Corporation Act.
According to the learned counsel, valuation of a unit for the purposes of determining adequacy of offer or for determining if bid offered was
adequate, should always be intimated to the unit holder to enable him to file objections, if any, as he is vitally interested in getting the maximum
price. There was no intimation of adequacy of offer, as a result, the petitioner was not informed of the same to file objections if any. In the absence
of the same, the sale is liable to be set aside.
He would rely upon a judgment of a Division Bench of Orissa High Court reported in Smt. Hiranyaprava Samantray Vs. Orissa State Financial
Corporation and Others, to contend that issuance of notice is not formality and as both the borrower as well as the guarantor are entitled to notice.
Such notice should be sent only by registered post with acknowledge. He would also rely upon another judgment a Division Bench of Orissa High
Court reported in PUNJAB NATIONAL BANK VS ORISSA STATE FINANCIAL CORPORATION AND OTHERS 2000 (102) Comp
Cas 151 to contend that the valuation of the unit should be intimated to the borrower to afford an opportunity to make payment if possible so that
he can get back the mortgaged property leaving the State Financial Corporation to reschedule the instalments.
On the other hand, the learned counsel appearing for the first respondent State Industries Promotion corporation of Tamil Nadu Limited would
submit that the judgment of MAHESH CHANDRA''s case came up for consideration before the Apex Court in the recent judgment reported in
HARYANA FINANCIAL CORPORATION VS M/S JAGADAMBA OILS MILLS 2002(1) CTC 503 and the guidelines prescribed in
Mahesh Chandra''s case have been held to be unsustainable and therefore, the judgment of Mahesh Chandra''s case has been overruled by the
subsequent judgment of the Apex Court in 2002(1) CTC 503 referred to supra. The learned counsel would submit that judicial review in respect
of the action taken by the State Financial Corporation u/s 29 of the Act is very limited only to the extent when the action was mala fide or
questioned on the ground of statutory violations. The learned counsel would submit that it is not the case of the petitioner that the petitioner has not
given any opportunity before the property was brought for sale in public auction. The value of the property was assessed by M/s P.S.G. Centre for
sponsored research and consultancy, Coimbatore as well as the Income Tax Panel valuer. This was intimated to the petitioner. Further, the first
respondent revised the repayment schedule from 1.5.1998 to 1.8.2001 but the petitioner failed to make payment. When public auction is
contemplated, nothing prevented the petitioner from questioning either the valuation or bringing up a good buyer. The Writ Petition has been filed
after the offer of the second respondent was accepted.
I have heard Mr.A.V.Arun, learned counsel appearing for the 2nd respondent also. According to the learned counsel, he has participated in the
auction and has paid the entire sale consideration even before the petitioner approaching this Court on 1.12.2003. Though the second respondent
has purchased the property in auction, for want of sale deed, the 2nd respondent is unable to enjoy the fruits of the sale.
I have given my due consideration to the rival submissions. Insofar as availing of loan by the petitioner from the first respondent, there is no
dispute. Equally, it is not the case of the petitioner that he had not committed any default in payment. It is seen that though initially the schedule for
repayment of the loan was fixed for the period from 31.5.1994 to 29.9.1995, considering the request of the petitioner, it was refixed from
1.5.1998 to 1.8.2001. Even thereafter, the petitioner defaulted in payment which necessitated the first respondent to issue show cause notice
dated 20.4.1998 followed by foreclosure and recall the order dated 3.11.1998. Inspite of the same, the petitioner did not pay the instalments.
Therefore, a decision was taken to take possession of the property in question on 27.1.2000 u/s 29 of the Act. The said decision was informed to
the petitioner as could be seen from the reply given by the petitioner that the petitioner is willing to pay the instalment from 10.2.2001. Inspite of
the same, the petitioner did not pay the instalment and therefore, possession was taken on 30.8.2000. The first respondent brought the property in
question for sale by public auction, right from the year 2001. In fact, when the second sale advertisement was released on 27.2.2002, the
petitioner in his letter dated 18.3.2002 requested permission for inspection of the unit. Though such permission was given, the petitioner did not
turn up.
Since the first respondent could not get better offer, the sale advertisements were made for seven times including the last one. The last sale
advertisement was published in the Newspapers ""Dinakaran"" on 18.8.2003. The last date for submission of tender and opening of tender were
prescribed in the sale notice. The grievance of the petitioner is that he was not informed of the valuation of the assets as well as the tender. From
the counter affidavit, it is seen that the property was valued by one M/s P.S.G. Centre for sponsored research and Consultancy, Coimbatore on
19.2.2001 and by the Income Tax Panel valuer on 2.9.2003. After the second sale on 27.2.2002, the petitioner was aware that the first
respondent is taking action for bringing the property for public auction and infact, the petitioner requested permission on 18.3.2002 for inspection
of the Unit, he did not however, do so. Therefore, it is not now open to the petitioner to contend that he was not aware of the action of the first
respondent in bringing the property for public auction. In fact, the judgment of Mahesh Chandra''s case was discussed by the Apex Court in para
16 to 18 of the Judgment reported in HARYANA FINANCIAL CORPORATION VS M/S JAGADAMBA OILS MILLS 2002(1) CTC 503
Para 16 to 18 of the said Judgment reads as under:
The view in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, appears to have been too widely expressed without
taking note of ground realities and the intended object of the statute. If the guidelines as indicated are to be strictly followed, it would be giving
premium to a dishonest borrower. It would not further interest of any Corporation and consequently of the industrial undertakings intending to avail
financial assistance. It would only provide on unwarranted opportunity to the defaulter (in most cases chronic and deliberate) to stall recovery
proceedings. It is not to be understood that in every case the Corporations shall take recourse to action u/s 29 Procedure to be followed, needless
to say, has to be observed. If any reason is indicated or cause shown for the default, 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. The view expressed in U.P. Financial Corporation Vs. Gem Cap (India) Pvt. Ltd. and Others, appears to be more in line with the
legislative intent. Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. As
the facts in the present case show not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been
lost sight by the Courts below. It is one thing to assist the borrower who has intention to repay, but is prevented by unsurmountable in meeting the
commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying
on the decision in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, , the matter has been decided.
Section 29 gives a right to the Financial Corporation inter alia to sell the assets of the industrial concern and realize the property pledged,
mortgaged, hypothecated or assigned to the Financial Corporation. This right accrues when the industrial concern, which is under a liability to the
Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its
obligations as envisaged in Section 29 of the Act. Section 29(1) gives the Financial Corporation in the event of default the right to take over the
management or possession or both thereafter deal with the property.
The aforesaid guidelines issued in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, place unnecessary restrictions
on the exercise of power by the Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit holder to be associated or
consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The
procedure indicated in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others, will only lead to further delay in realization
of the dues by the Corporation will 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
In view of the above, it is very clear that Section 29 of the Act gives a right to Financial Corporation inter alia to sell the assets of the industrial
concern and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. The fair play is absolutely necessary
while dealing in bringing the property in public auction. What is fair play depends upon the facts of each case.
As already referred, the petitioner was given sufficient opportunity even by way of reschedule payment. AS per the first schedule, the last date
was 29.9.1995. After reschedule, the last date was fixed on 1.8.2001. Thereafter only the first respondent has decided to issue foreclosure and to
take possession of the property. Accordingly, possession was taken on 30.8.2000 after observing all the formalities. Six attempts were made by
the first respondent to bring the property for sale but did not yield any fruitful result as there was no successful bidder. In fact, the petitioner was
aware of the auction for sale brought up by the first respondent as could be seen from his letter dated 18.3.2002. In view of the fact that the
property has been valued by M/s P.S.G. Centre for sponsored research and consultancy, Coimbatore as well as by Income Tax Panel valuer and
only in these circumstances, after the sale was confirmed and the offer of the 2nd respondent was accepted, the petitioner has approached this
Court on 1.12.2003 by filing this Writ Petition.
When the matter was came up for hearing on 19.12.2003, the learned counsel appearing for the petitioner sought time to bring a better offer.
Therefore, this Court had given one more chance to the petitioner to bring a better offer with a further suggestion to make the entire payment in one
lumpsum. Though such affidavit is filed by one Prabhakar, J. Durai intending to purchase the property for Rs. 32 lakhs, there is nothing to indicate
that he is ready to deposit the entire sale consideration in one lumpsum. The affidavit proceeds on the basis that he requires two months time for
making payment.
In view of the fact that the second respondent has already participated in the auction and his offer was accepted and the sale was confirmed in
favour of the second respondent and the entire sale consideration was paid by the second respondent even before the petitioner approached this
Court and in view of the fact that the intending purchaser is not able to deposit the entire sale consideration in one lumpsum, I am unable to accept
the offer of the intending purchaser.
For all these reasons, I see no merit in the Writ Petition, more particularly, the sale which was confirmed by the first respondent in favour of the
second respondent has not been questioned either on the ground of mala fide or on the ground of statutory violations. In view of the above, the
Writ Petition is liable to be dismissed and accordingly, it is dismissed. No costs. Consequently, W.P.M.P. No. 42684/2003 is closed.