AI Structured Summary
Not yet generated for this judgment
Judgment
M. Jaichandren, J.—The writ petition, in W.P. No. 18709 of 2010, has been filed praying for a Writ of Certiorarified Mandamus, to quash
the auction sale held on 31.5.2010, in respect of the immovable properties mortgaged to the Tamilnadu Industrial Investment Corporation Limited,
by way of a mortgage deed, on 6.5.1996.
It has been stated that the first Petitioner spinning mill had started in the year, 1980. A sum of rupees 90 lakhs had been borrowed from the first
and the second Respondents, for the purpose of purchasing machineries, in the year, 1995. However, due to certain disputes that had arisen
amongst the partners of the Mill it had been closed in the year, 2004. In the said circumstances, the mortgage loan, availed from the first and the
second Respondents, had become a non performing asset.
It has been further stated that the first and the second Respondents had brought the mortgaged property for public auction, on 1.10.2009. In the
said public auction V.Jayachandran and V.Vijaya, the son and the wife of the fourth Petitioner, respectively, were the highest bidders. Accordingly,
they had deposited a sum Rs. 30.60 lakhs. However, the first and the second Respondents had refused to receive the balance amount from the
successful bidders, with ulterior motives. Instead, the first and the second Respondents had brought the properties in question for sale, by way of a
fresh public auction, held on 31.5.2010, by publishing an auction notice in the Tamil Daily `Thina Thanthi'', on 18.5.2010, pursuant to the order
passed by the second Respondent, dated 31.3.2010.
It has been further stated that the public auction held, on 31.5.2010, was illegal, as the earlier auction, held on 1.10.2009, had not been
cancelled, as per the procedures established by law. Therefore, the successful bidders of the public auction, held on 1.10.2009, had filed a writ
petition before this Court, in W.P. No. 13441 of 2010, praying for a writ of Certiorari, to call for the records relating to the order of the Tamilnadu
Industrial Investment Corporation Limited, Erode, dated 31.3.2010, and the consequential auction held, on 31.5.2010.
It has also been stated that, as per the calculation of the first and the second Respondents, the outstanding dues, liable to be paid to the
Tamilnadu Industrial Investment Corporation Limited, was only Rs. 1,42,04,988/-, as on 15.7.2010, whereas, the value of the mortgaged
properties was Rs. 5,58,73,000/-, as on 21.6.2010, as per the report of the panel valuer of the Corporation. Thus, it is clear that the sale of a
portion of the mortgaged properties would be sufficient to satisfy the loan amount due to the first and the second Respondents. However, the first
and the second Respondents had brought the entire mortgaged properties for sale and they had sold the said properties for a meagre price of Rs.
3,20,00,000/-, to the third Respondent. Instead of cancelling the auction sale, held on 31.5.2010, the first and the second Respondents had
confirmed the sale in favour of the third Respondent, illegally, when the matter has been pending adjudication before this Court.
The writ petition, in W.P. No. 13441 of 2010, had been filed by the Petitioners therein, namely, V.Jayachandran and V.Vijaya, stating that they
were the successful bidders in the auction sale held, on 1.10.2009, in respect of the mortgaged properties. They had also deposited a huge sum of
Rs. 30.60 lakhs to the Tamilnadu Industrial Investment Corporation Limited. However, the Petitioners could not pay the balance amount of the
auction sale due to the pendency of a vexatious civil suit, in O.S. No. 613 of 2009, on the file of the Principal District Munsif Court, Erode, relating
to the mortgaged properties. Instead of persuading the Plaintiffs in the suit to withdraw the same, to enable the Petitioners to pay the balance
amount of auction sale, the first and the second Respondents, in W.P. No. 18709 of 2010, had brought mortgaged properties for a fresh auction,
in properly, without following the procedures established by law. The auction sale, held on 31.5.2010, in favour of M/S. Rajaguru Spinning Mills
Limited, the third Respondent in W.P. No. 18709 of 2010 and the second Respondent in W.P. No. 13441 of 2010, for a sum of Rs.
3,20,00,000/-, is well below the true value of the properties in question.
The learned Counsels appearing on behalf of the Petitioners had contended that the auction sale of the properties in question, held on
31.5.2010, is illegal and void. Instead of cancelling the auction sale for the reason that the highest bid of Rs. 3,20,00,000/-, made by the third
Respondent in W.P. No. 18709 of 2010, was less than half the market price of the properties in question, the said sale had been confirmed in
favour of the highest bidder, contrary to the relevant provisions of law. The confirmation of the auction sale in favour of the third Respondent, in
W.P. No. 18709 of 2010, cannot be held to be valid, especially, in view of the fact that the matter was already pending adjudication before this
Court. It had also been stated that it was not appropriate for the Respondent Corporation to bring the mortgaged properties for sale, when a civil
suit, in O.S. No. 613 of 2009, wherein the Respondent Corporation was also a party, was pending before a Civil Court.
It had also been stated that the auction sale of the mortgaged properties concerned cannot be held to be valid in view of the decision of the
Supreme Court, in Kerala Financial Corporation v. Vincent Paul and Anr. CDJ 2011 SC 256, wherein the Supreme Court had issued certain
directions, inter alia, stating the essential ingredients of sale, including the obtaining of a credit valuation report and the fixing of the Reserve Price
and the granting of a reasonable opportunity to the debtor, with regard to the valuation of the properties sought to be sold. Unless such formalities
had been followed, the sale would suffer from material irregularity, resulting in serious prejudice being caused to the debtor.
It had been further contended that in the present case the Tamilnadu Industrial Investment Corporation Limited had not obtained a proper
valuation report and had not fixed the Reserve Price, before bringing the mortgaged properties for sale, by public auction. As such the auction sale
held, on 31.5.2010, is arbitrary, illegal and void.
The learned Counsel appearing for the Petitioner had relied on the decision reported in FCS Software Solutions Ltd. Vs. LA Medical Devices
Ltd. and Others, , wherein the Supreme Court had upheld the re-auction of the property in question, after setting aside the earlier auction sale, due
to the non-declaration of certain necessary facts relating to the property in question, to the intending purchasers.
The learned Counsel appearing on behalf of the Tamilnadu Industrial Investment Corporation Limited had submitted that the Corporation had
sanctioned a term loan of Rs. 90,00,000/-, to M/S. Jagajothi Spinning Mills, the Petitioner, in W.P. No. 18709 of 2010, on 28.12.1995, for the
expansion of its units, by importing two Elitex Open End Spinning machines. The loan had been secured, by mortgaging the factory land measuring
1,64,000/-sq.ft, together with the building and the machinery, situated at Door Nos. 2 and 3, Karur Road, Erode ""C"", Village, Erode District. The
borrower had defaulted in the repayment of the loan. In spite of the various concessions granted, including the rejection in the rate of interest under
the roll over scheme, rescheduling of the principal outstanding, funding of interest, the borrower concerned had failed to repay the loan. Further,
the Mill in question had been locked due to certain disputes that had arisen amongst the partners of the Mill. As there was No. scope of the revival
of the unit the Respondent Corporation had taken possession of the mortgaged assets and had brought them for sale, by public auction, on several
occasions. In the third auction conducted on 29.1.2009, the machinery alone had been sold for a sum rupees 30 lakhs, in favour of one
C.Sathyanarayana. However, as the offers received in respect of the land, building and the machinery were not in conformity with the norms of the
Respondent Corporation, they had been rejected.
It had been further stated that in the third auction, held on 1.10.2009, the highest offer of rupees 200 lakhs had been made by V.Jayachandran
and V.Vijaya, the son and the wife of one of the partners, namely, V.Vadivel the fourth Petitioner, in W.P. No. 18709 of 2010. The offer had
been enhanced to rupees 230 lakhs, by way of negotiations. Thereafter, the Respondent Corporation had confirmed the auction sale in their
favour. However, the highest bidders of the auction sale had not come forward to pay the balance amount. As such, they had forfeited the amount
of rupees 30.60 lakhs, remitted in favour of the Respondent Corporation. In such circumstances, the mortgaged assets had been brought for re-
auction, on 31.5.2010. There were 15 bidders in the open auction. The third Respondent in W.P.18709 of 2010, namely, M/S. Rajaguru Spinning
Mills Private Limited, and the second Respondent in W.P. No. 13441 of 2010, had offered the highest bid of rupees 320 lakhs. Therefore, the
Respondent Corporation had confirmed the offer in favour of the highest bidder, by way of a communication, vide letter, dated 22.6.2010. The
highest bidder had remitted the entire sale consideration and the assets had been handed over to the highest bidder, by the Respondent
Corporation, on 15.7.2010. The sale proceeds had been credited in favour of the loan account of the borrower concerned. After crediting the
amount, a surplus sum of Rs. 1,75,00,000/-is lying with the Respondent Corporation. There is No. irregularity or illegality in the sale of the
mortgaged properties, by way of a public auction, held on 31.5.2010. All the necessary procedures had been followed in the process of the
bringing the properties for sale, by public auction.
The contentions raised on behalf of the Petitioners that the public auction, held on 31.5.2010, is illegal and void, cannot be accepted. The
public auction had been held, on 31.5.2010, by calling for bidders, by way of an advertisement made in the newspapers. The third Respondent, in
Writ petition No. 18709 of 2010, made the highest bid of Rs. 3,20,00,000/-. As such, the sale had been confirmed in favour of the third
Respondent, in W.P. No. 18709 of 2010, by way of letter issued by the first Respondent, dated 15.7.2010, as the entire bid amount of Rs.
3,20,00,000/-had been paid in full. Further, the possession of the properties had also been handed over to the auction purchaser, on 15.7.2010, in
`as is where is'' condition.
The learned Counsel appearing on behalf of the third Respondent, in W.P. No. 18709 of 2010 and the second Respondent, in W.P. No.
13441 of 2010, had submitted that the auction sale, held on 31.5.2010, was in accordance with the procedures established by law. Since, the
third Respondent in the writ petition, in W.P. No. 18709 of 2010, was the highest bidder with the bid amount of Rs. 3,20,00,000/-, the sale of the
properties in question had been confirmed in its favour. Thereafter, on payment of the entire bid amount, a letter, dated 15.7.2010, had been
issued by the first Respondent confirming the auction sale in its favour and the possession of the properties had also been handed over to the said
Respondent.
It had also been contended by the learned Counsels appearing on behalf of the Respondents that the decision of the Supreme Court, in Kerala
Financial Corporation v. Vincent Paul and Anr. CDJ 2011 SC 256, cannot be applicable to the present case, as the said decision had been made
regarding the auctioning of the properties belonging to Kerala Financial Corporation, without framing proper guidelines. Directions had been issued
to the Kerala Financial Corporation to follow certain procedures in bringing such properties for sale, by public auction. The said decision would
not be relevant for the purpose of deciding the issues arising out of the present writ petitions, as the Tamilnadu Industrial Investment Corporation
Limited had followed all the necessary procedures prescribed by law. Therefore, the auction sale in favour of the third Respondent, in W.P. No.
18709 of 2010, on 31.5.2010, is valid in the eye of law.
The learned Counsels had relied on the following decisions in support of their contention that this Court does not, in normal circumstances,
interfere with the auction sales conducted by the various authorities like the Respondent Corporation, by invoking the powers vested in it, under
Article 226 of the Constitution of India.
The learned Counsel appearing on behalf of the Tamilnadu Industrial Investment Corporation Limited had relied on the decision of the
Supreme Court, reported in Haryana Financial Corporation and Another Vs. Jagdamba Oil Mills and Another, , wherein, it had been held as
follows:
The Corporation as an instrumentality of the State deals with public money. There can be No. doubt that the approach has to be public
oriented. It can operate effectively if there is regular realization of the instalments. While the Corporation is expected to act fairly in the matter of
disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the instalments in time, unless prevented by
unsurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception.If the repayments are
not received as per the scheduled time frame, it will disturb the equilibrium of the financial arrangements of the Corporations. They do not have at
their disposal unlimited funds. They have to cater to the needs of the intended borrowers with the available finance. Non-payment of the instalment
by a defaulter may stand on the way of a deserving borrower getting financial assistance.
....
The guidelines were stated to be necessary to ensure fair play. That decision, as the factual position would go to show was rendered in a case
where the borrower intended to repay the debt and was anxious to do so. While not insisting upon the borrower to honour the commitments
undertaking by him, the Corporation alone cannot be shackled hand and foot in the name of fairness.
In matters like the present one, fairness cannot be a one-way street. Corporations borrow money from the Government or other financial
corporations and are required to pay interest thereon. Where the borrower has No. genuine intention to repay and adopts pretexts and ploys to
avoid payment, he cannot make the grievance that Corporation was not acting fairly, even if requisite procedures have been followed...
The fairness required of the Corporations cannot be carried to the extent of disabling them from recovering what is due to them. The matter
can be looked at from another angle. The Corporation is an independent autonomous statutory body having its own constitution and rules to abide
by, and functions and obligations to discharge. As such in the discharge of its functions, it is free to act according to its own light. The views it
forms and decisions it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and
calculations. Unless its action is mala fide, even a wrong decision by it is not open to challenge. It is not for the courts or a third party to substitute
its decision, however, more prudent, commercial or businesslike it may, for the decision of the Corporation. As was observed by this Court in
U.P. Financial Corporation and Others Vs. Naini Oxygen and Acetylene Gas Ltd. and Another, , in commercial matters the courts should not risk
their judgments for the judgments of the bodies to whom that task is assigned. As was rightly observed by this Court in Karnataka State Financial
Corporation Vs. Micro Cast Rubber and Allied Products (P) Ltd. and Others, , in the matter of action by the Corporation in exercise of the
powers conferred on it u/s 29 of the Act, the scope of judicial review is confined to two circumstances i.e. (a) where there is statutory violation on
the part of the State Financial Corporation, or, (b) where the State Financial Corporation acts unfairly i.e. unreasonably. While exercising its
jurisdiction under Article 226 of the Constitution of India, 1950 (in short ''the Constitution''), the High Court does not sit as an appellate authority
over the acts and deeds of the Corporation. Similarly, the courts other than the High Courts are not to interfere with action u/s 29 of the Act unless
the aforesaid two situations exist.
The learned Counsel had also relied on the decision of the Supreme Court, reported in Karnataka State Industrial Investment and
Development Corporation Ltd. Vs. Cavalet India Ltd. and Others, , wherein it had been held as follows:
From the aforesaid, the legal principles that emerge are:
(i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate authority over the acts and
deeds of the financial corporation and seek to correct them. The Doctrine of fairness does not convert the writ courts into appellate authorities
over administrative authorities.
(ii) In a matter between the corporation and its debtor, a writ court has No. say except in two situations;
(a) there is a statutory violation on the part of the corporation or
(b) where the corporation acts unfairly i.e., unreasonably.
(iii) In commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task is assigned.
(iv) Unless the action of the financial corporation is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the courts or a
third party to substitute its decision, however more prudent, commercial or businesslike it may be, for the decision of the financial corporation.
Hence, whatever the wisdom (or the lack of it) of the conduct of the corporation, the same cannot be assailed for making the corporation liable.
(v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold and this could be
achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.
(vi) Public auction is not the only mode to secure the best price by inviting maximum public participation, tender and negotiation could also be
adapted.
(vii) The financial corporation is always expected to try and realize the maximum sale price by selling the assets by following a procedure which is
transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or cause shown for the default, the same has to be
considered in its proper perspective and a conscious decision has to be taken as to whether action u/s 29 of the Act is called for. Thereafter, the
modalities for disposal of seized unit have to be worked out.
(viii) Fairness cannot be a one-way street. The fairness required of the financial corporations cannot be carried to the extent of disabling them from
recovering what is due to them. While not insisting upon the borrower to honour the commitments undertaken by him, the financial corporation
alone cannot be shackled hand and foot in the name of fairness.
(ix) Reasonableness is to be tested against the dominant consideration to secure the best price.
In view of the averments made on behalf of the Petitioner, as well as the Respondents and in view of the submissions made by the learned
Counsels appearing on behalf of the parties concerned and on a perusal of the records available, this Court is of the considered view that it would
not be appropriate for this Court to interfere with the auction sale conducted on 31.5.2010, by the Tamilnadu Industrial Investment Corporation
Limited in respect of the mortgage properties in question.
From the decisions cited before this Court, it is clear that the writ jurisdiction, under Article 226 of the Constitution of India, cannot be invoked
to set aside the sale, in respect of the properties concerned, unless it is found that the auction of the Respondent Corporation was unfair,
unreasonable or in violation of any statutory provision. Even a wrong decision taken by the Tamilnadu Industrial Investment Corporation Limited is
not open to challenge unless the same is found to be mala fide in nature. The power of judicial review, under Article 226 of the Constitution of
India, cannot be made use of to convert the Writ Courts into an Appellate Forum, with regard to the administrative actions of the Respondent
Corporation. Unless such actions are found to be arbitrary and mala fide in nature, or in violation of any statutory provision, this Court would be
reluctant to interfere with the same.
In the present case, it is found that the Respondent Corporation had brought the properties in question for sale, by public auction, due to the
default committed by the borrower in the repayment of the loan borrowed. It is found that the Respondent Corporation had followed the necessary
procedures, by obtaining a valuation report and by advertising in the newspapers, before bringing the properties in question for sale, by public
auction. There is nothing shown on behalf of the Petitioner to convince this Court to arrive at the conclusion that the auction of the Respondent
Corporation, by bringing mortgaged properties for sale, by pubic auction, was mala fide in nature or that such auction was in contravention of
certain statutory provisions. The decision of the Supreme Court, reported in Kerala Financial Corporation v. Vincent Paul and Anr. CDJ 2011 SC
256, had been made, in view of the peculiar facts and circumstances of the said case. As such, it cannot be said that the auction procedures
followed by the Respondent Corporation in bringing the mortgaged properties for sale, by way of a public auction, held on 31.5.2010, is invalid in
the eye of law.
It is for the Petitioners, in Writ Petition No. 13441 of 2010, to approach the appropriate civil forum, if they are so advised, to establish their
rights, if any, and to avail the available remedies on the ground of alleged breach of the terms and conditions of the auction sale, held on
31.5.2010, by the Respondent Corporation. In such view of the matter, this Court is constrained to hold that the reliefs sought for by the
Petitioners in the above writ petitions cannot be granted. As such, the writ petitions are liable to be dismissed. Hence, they are dismissed. No
costs.