Section 29 SFC Act - State Financial Corporations Act, 1951- sale of property - confirmation of sale with in 90 days - The third respondent submitted its bid on 08.04.2008 and it was put up for negotiations on 17.04.2008 and the same was approved by the Managing Director of the first respondent on 10.06.2008 and a letter to that effect was issued. - Challenged by Debtor - their lordships held that A conjoint reading of the conditions would make it clear that tenders would be received within a period of 90 days and satisfactory tender can be accepted even before the period of 90 days. Any other interested tenderer also can participate in bidding/negotiation process by depositing EMD. It means that the bidding process would be open for a period of 90 days and a challenge to such acceptance of the bid before the 90 days can be made only by another prospective bidder who intends to bid for a higher value. It is not open to the petitioner to challenge the acceptance of the bid amount within 90 days." =
Normally, the tenders received during the period of
90 days would be opened and evaluated by the committee and if the committee
finds a tender as viable, the same will be kept in the notice board for 7 days.
Subsequent tenderers would have to quote their price with at least 15%
enhancement over the open tender. Again negotiations will be held and the
ultimate offers will be finalized. The said steps were mentioned in the sale
notification issued by the first respondent. The third respondent submitted its
bid on 08.04.2008 and it was put up for negotiations on 17.04.2008 and the same
was approved by the Managing Director of the first respondent on 10.06.2008 and
a letter to that effect was issued. The whole thing was concluded before the
end of 90 days which is contrary to the terms of the sale notification. The
procedure followed by the first respondent was contrary to the terms of sale
notification and it was done to favour the third respondent. The value of the
property fetches nearly Rs.2 crores in the market and the value of machinery
would fetch not less than Rs.30 lakhs. The total value of the unit in any case
would be at Rs.2.50 crores and selling it in a hurried manner for a petty amount
of Rs.84 lakhs shows the arbitrariness on the part of the first respondent. If
the unit was sold for a proper price, the first respondent would not have
demanded the balance amount of Rs.58 lakhs from the petitioner.=
The bid of the third
respondent was accepted even before 90 days from 14.03.2008 on 10.06.2008, the
condition of the tender notice has to be seen. An identical issue came up for
consideration in W.P.Nos.18080 of 2008 and 14816 of 2010 and this Court had an
occasion to consider the same on 03.01.2014 and it was held as follows:
"....... Regarding the contention of the learned Counsel for the petitioner that
the unit was sold before the period of 90 days mentioned in the sale notice, the
tender condition in the sale notice should be looked into and it reads as
follows:
"This notice will be valid for a period of 90 days from today. The satisfactory
offers received within 90 days in respect of the above units can be confirmed.
Thereafter, the tender forms for the said units will not be issued. The
tenderers would be invited on every Monday or any day after 27.08.2007 for
bidding/negotiation, the other interested bidders can also participate in the
bidding/negotiation by depositing the EMD along with the tender form."
A conjoint reading of the above conditions would make it clear that
tenders would be received within a period of 90 days and satisfactory tender can
be accepted even before the period of 90 days. Any other interested tenderer
also can participate in bidding/negotiation process by depositing EMD. It means
that the bidding process would be open for a period of 90 days and a challenge
to such acceptance of the bid before the 90 days can be made only by another
prospective bidder who intends to bid for a higher value. It is not open to the
petitioner to challenge the acceptance of the bid amount within 90 days." =
As per the procedure, they
were asked to revise the bid amount and they have increased the bid amount and
the third respondent was found to be higher than that of another bidder and the
Committee considered the offer reasonable and hence decided to submit the
proposal to Managing Director for approval after placing on the notice bard for
seven days.
The Committee also decided to reject the offer of other bidder
S.Bhaskar Rao and returned EMD. The said decision was taken on 17.04.2008, but
the Government issued a letter to respondents 1 and 2 on 04.06.2008 to take
action for withdrawal of seizure/auction proposal in respect of 9 units of which
the petitioner unit is one among them. =
THE HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO
WRIT PETITION Nos.17435 of 2008
06-03-2014
M/s.Sriram Rice Mills Pvt. Ltd., Stone Housepet, Nellore, Nellore District,
rep. by its Managing Director and another...Petitioners
The Andhra Pradesh State Finance Corporation, Chirag Ali Lane, Hyderabad, rep.
by its Managing Director and others... Respondents
Counsel for the Petitioner: Sri S.Arun Kumar
Counsel for the Respondents: G.P.for Industries and Commerce
Sri S.Arun Kumar
Sri N.Vijay
<Gist :
>Head Note :
?Cases referred
1 (2002) 3 SCC 496
2 (2005) 4 SCC 456
HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO
WRIT PETITION Nos.17435 of 2008 and 15771 of 2010
COMMON ORDER:
These two writ petitions are disposed of by a common order in view of the
common issue involved in them.
W.P.No.17435 of 2008:
2. The petitioner is a company incorporated under the provisions of Companies
Act, 1956 and is a small scale industry carrying on the business of milling and
manufacturing of parboiled rice and is situated in Nellore District. It applied
to the second respondent in June 1998 seeking financial assistance by way of
term loan of Rs.50.25 lakhs for setting up of a 2T/HR capacity parboiled rice
mill unit in their existing land and buildings situated at Survey Nos.63 to 66,
Panchedu Village, B.R.Palem Mandal, Nellore District. The first respondent
sanctioned a loan of Rs.50.25 lakhs on 08.08.1998 for the purpose of plant and
machinery (Rs.44.10 lakhs), contingencies @ 10% (Rs.4.40 lakhs), erection
(Rs.0.55 lakhs) and pre-operative expenses (Rs.1.20 lakhs). The tenure of the
loan was five years and the amount has to be paid in 17 quarterly instalments
commencing after one year from the date of disbursement of any part of the loan.
The said term loan was secured by way of equitable mortgage of land and
buildings and hypothecation of plant and machinery, vehicles, miscellaneous
assets, existing and proposed in scheme and all future acquisitions of fixed
assets in nature.
3. The petitioner company commenced its production in the month of February,
2001, but it became sick in the year 2002 and was unable to fulfill its
obligation of repaying quarterly instalments and interest to the second
respondent. Even though the petitioner made a request for rescheduling the
loan, the petitioner company was seized on 05.03.2004. In those circumstances,
the petitioner made several representations to the Government and the
Commissioner for Industrial Promotion, Industries and Commerce Department. The
Commissioner issued a letter on 18.05.2004 directing the first respondent to
consider the application for rescheduling the loan of the petitioner. The
petitioner again represented to the first respondent and the first respondent in
response to the request of the petitioner, rescheduled the loan on 25.07.2007
directing the petitioner to pay the principal outstanding amount of
Rs.47,95,995/- in 14 quarterly instalments, commencing from 23.03.2008 and the
outstanding interest amount of Rs.65,68,212/- in 2 years in 22 monthly
instalments at the rates prescribed therein, but the seizure of the unit was not
lifted.
4. The petitioner submitted several representations to the various
authorities for lifting seizure of the company and the first respondent invoked
its powers under Section 29 of the State Financial Corporations Act, 1951 (for
short, SFC Act) and published a notice inviting tenders for the sale of the
petitioner's unit on 14.03.2008. On 10.06.2008, the petitioner's company was
sold in favour of the third respondent under a registered sale deed bearing
No.1654/2008. Challenging the same, the present writ petition was filed.
5. Respondents 1 and 2 filed a counter-affidavit stating that the term loan
of Rs.50.25 lakhs was sanctioned in favour of the petitioner and the petitioner
availed an amount of Rs.48.08 lakhs during 21.06.1999 to 31.01.2002 repayable in
14 instalments. The petitioner company failed to implement the project within
the stipulated time and thereby caused inordinate delay. The petitioner also
failed to make arrangements for obtaining working capital well in time by
31.10.2002. The petitioner company fell in arrears for an amount of Rs.37.34
lakhs and became a chronic defaulter. In those circumstances, the second
respondent was constrained to initiate proceedings under Section 29 of the SFC
Act for sale of hypothecated property and consequently a recall-cum-sale notice
was issued on 02.12.2002 providing 15 days time for clearing the arrears of
instalments. When the petitioner failed to comply with the said notice, the
respondents 1 and 2 were constrained to seize the unit on 21.01.2003. After
seizure of the unit, the petitioner came forward to repay the loan amount and
initially paid an amount of Rs.2 lakhs and issued post-dated cheques for Rs.9
lakhs with a further assurance that it would pay the entire outstanding amount
within few days. Respondents 1 and 2 lifted the seizure on 25.01.2003.
However, the petitioner failed to repay the outstanding loan amount and the
post-dated cheques were dishonoured. Therefore, the unit was again seized on
20.03.2003, but as per the decision taken at APSSIRS, the seizure was lifted on
27.03.2003 by accepting the post-dated cheques for Rs.8.60 lakhs. But, the
petitioner failed to honour the cheques and expressed its inability to pay the
dues. Hence, the petitioner company was seized again on 05.03.2004. However,
as per the advice of the Government of Andhra Pradesh, the seizure was lifted by
accepting Rs.1.00 lakh.
6. Later on, at the request of the petitioner, its loan account was
rescheduled and extended the loan period by 7 years and funded interest due
amount of Rs.65.68 lakhs payable in 2 years in 22 monthly instalments commencing
from 25.07.2007 was also considered. The cheques issued by the petitioner were
dishonoured and the several reminders issued by the respondents 1 and 2 to repay
the loan amount did not yield any result. In those circumstances, respondents 1
and 2 are left with no option, except to initiate action under Section 29 of the
SFC Act and issue a recall-cum-sale notice dated 27.08.2007. The unit of the
petitioner was again seized 07.11.2007 by following due procedure.
7. Thereafter, the assets of the petitioner company were advertised for sale
in Andhra Jyothi daily newspaper on 14.03.2008. In response to the said
advertisement, the third respondent offered highest amount for purchase of
assets for Rs.84.50 lakhs and the same was approved and time for payment of
total consideration was granted till 10.09.208. The third respondent paid total
consideration by way of cheques on 21.06.2008 and 23.06.2008 and both the
cheques were encashed, sale was confirmed and the assets were handed over to the
third respondent immediately. The petitioner, though was granted several
opportunities, did not avail the same by paying the outstanding amounts. As per
G.O.Ms.No.203, dated 20.07.2006, the petitioner company, being a rice mill, is
not eligible for revival under A.P. Small Scale Industries Revival Scheme.
8. An additional counter-affidavit was also filed by respondents 1 and 2
clarifying the position with regard to the process of offer while selling the
unit. The additional counter states that while selling the unit, the internal
guidelines would be followed by the first respondent. The offer could be kept
open for a period of 90 days from the date of publication of the notification
inviting tenders. The bid of a person who make satisfactory offer to purchase
the asset is accepted irrespective of the fact whether 90 days time had elapsed
or not. The period of 90 days does not confer any right either to the borrower
or to any third parties and it is meant for only administrative and financial
exigencies. The unit of the petitioner was valued as per the guidelines and
procedure of the first respondent. Thereafter only, a public notification was
published in Andhra Jyothi Telugu daily dated 14.03.2008 and tenders were
invited. The procedure of the first respondent not waiting till completion of
90 days was assailed in another W.P.No.25023 of 2006 before this Court and this
Court vide order dated 08.08.2008 upheld the said procedure. The period of 90
days is an outer limit and in the instant case, the auction notice was issued on
14.03.2008 and the sale was finalised on 10.06.2008, since the offer was
reasonable and the bid of the third respondent was accepted, there is no
irregularity in conduct of auction. Further, the Director General, Vigilance
and Enforcement, Government of Andhra Pradesh, vide letter dated 07.08.2007
addressed to the Principal Secretary to the Government (I & C) Department,
requested to direct the first respondent to initiate action against 8 firms and
the petitioner firm is one among them.
9. The third respondent also filed a counter-affidavit stating that the
petitioner filed W.P.No.13487 of 2008 and he filed a counter therein and since
no fresh cause of action accrued thereafter, the present writ petition is liable
to be dismissed. It was stated that since the third respondent is in peaceful
possession of the property purchased by him, invested huge amounts for reviving
the unit by raising monies in a sum of Rs.68 lakhs by mortgaging the unit with
Union Bank of India, this writ petition is liable to be dismissed on that ground
also. It is also stated that the petitioner also caused publication of news
item in the newspapers stating that he was disentitled to run the unit, even
though the unit was lawfully purchased by him. It is also stated that the sale
affected by respondents 1 and 2 is valid and binding on the petitioner. He paid
the entire sale consideration of Rs.84.50 lakhs after borrowing huge money and
nearly Rs.20 lakhs was spent for bringing the unit into running condition.
Possession of the unit was already handed over to the third respondent under a
panchanama dated 24.06.2008.
10. The petitioner filed a reply affidavit stating that the rice mill is
situated in an extent of land Acs.3.17 cents and the constructed area is 2683
square meters consisting of AC sheet roof. Though the loan was rescheduled on
25.07.2007, he could not honour the terms of rescheduled loan, as the same were
impossible of fulfilment. Normally, the tenders received during the period of
90 days would be opened and evaluated by the committee and if the committee
finds a tender as viable, the same will be kept in the notice board for 7 days.
Subsequent tenderers would have to quote their price with at least 15%
enhancement over the open tender. Again negotiations will be held and the
ultimate offers will be finalized. The said steps were mentioned in the sale
notification issued by the first respondent. The third respondent submitted its
bid on 08.04.2008 and it was put up for negotiations on 17.04.2008 and the same
was approved by the Managing Director of the first respondent on 10.06.2008 and
a letter to that effect was issued. The whole thing was concluded before the
end of 90 days which is contrary to the terms of the sale notification. The
procedure followed by the first respondent was contrary to the terms of sale
notification and it was done to favour the third respondent. The value of the
property fetches nearly Rs.2 crores in the market and the value of machinery
would fetch not less than Rs.30 lakhs. The total value of the unit in any case
would be at Rs.2.50 crores and selling it in a hurried manner for a petty amount
of Rs.84 lakhs shows the arbitrariness on the part of the first respondent. If
the unit was sold for a proper price, the first respondent would not have
demanded the balance amount of Rs.58 lakhs from the petitioner.
W.P.No.15771 of 2010:
11. This writ petition was filed by the third respondent in the above writ
petition challenging the action by the first respondent in issuing letter
No.432/SSI/A2/2009 dated 18.05.2010 issued on the purported recommendations of
the Committee on Petitions, A.P. Legislative Council (for short, Committee).
The further facts available from the affidavit filed by the petitioner are that
after payment of amount of Rs.84.50 lakhs by the petitioner (third respondent in
the above writ petition) on 24.06.2008 and after making huge investment to
revive the unit, respondents 1 and 2 were avoiding execution and registration of
sale deed in his favour. In those circumstances, he filed W.P.No.15670 of 2008
and the same was disposed of on 13.07.2008 with a direction to execute the sale
deed in his favour within a period of one week from the date of that order, duly
recording that the petitioner accepted the risk of success in W.P.No.13487 of
2008 pending before this Court. Thereafter, a sale deed was executed on
01.08.2008.
12. The fourth respondent herein, who is the petitioner in W.P.No.17435 of
2008, filed W.P.No.13487 of 2008 challenging the action of respondents 1 and 2
in selling the unit to the petitioner and sought a consequential direction not
to confirm the sale in favour of the petitioner and the same was dismissed on
01.07.2009 with a liberty to the fourth respondent to pursue the other writ
petition No.17435 of 2008 filed by him. Thereafter, the fourth respondent, by
utilising his political clout, has approached the Committee and pursuant to the
recommendations made by it, the Principal Secretary, Industries and Commerce
Department, issued the impugned proceedings, directing the first respondent to
file a suitable counter-affidavit in W.P.No.15670 of 2008 and pray for
cancellation of the sale deed dated 01.08.2008 registered in favour of the
petitioner to enable them to re-convey the property to the fourth respondent as
recommended by the Committee and accordingly obtain suitable directions from
this Court. Challenging the same, this writ petition was filed.
13. Hereinafter, for convenience, the parties shall be referred to as they are
arrayed in W.P.No.17435 of 2008.
14. Respondents 1 and 2 filed a counter stating that during the pendency of
W.P.No.17435 of 2008, the petitioner filed a petition before the Committee
seeking cancellation of the sale deed executed by the second respondent and to
handover the unit to him. The Committee took up the said application and
recommended for cancellation of the sale deed executed in favour of the third
respondent and provide opportunity to the petitioner to pay back the amounts due
to respondents 1 and 2. Accordingly, the Principal Secretary to Government of
Andhra Pradesh, Industries and Commerce Department, Hyderabad addressed the
impugned letter, while intimating the recommendations of the Committee. Since
the Government directed the second respondent to file an additional affidavit,
it was stated that they filed the same.
15. The petitioner (fourth respondent herein) also filed a counter-
affidavit reiterating the averments made in the counter affidavit filed in
support of W.P.No.17435 of 2008 stating that the third respondent has not come
to the Court with clean hands and suppressed material information by not filing
the requisite papers forming part of W.P.No.17435 of 2008. The petitioner
further stated that an application was filed before the Committee bringing the
prejudicial conduct of the respondents 1 and 2 and the fraud that took place in
disposing of the properties in favour of the third respondent. The Committee,
after detailed enquiry into facts concluded that fraud took place in the
disposal of the properties of the petitioner and accordingly directed the first
respondent to get the sale cancelled from this Court by filing necessary reply
and to re-convey the subject property in the name of the petitioner. It is
further stated that the third respondent filed W.P.No.15670 of 2008 for
registration of the sale deed in his favour only and did not implead the
petitioner as a party, though he is a necessary party. Another letter dated
27.07.2011 was issued by the Government after obtaining opinion from the Law
Department for cancellation of the sale deed.
16. A reply affidavit was also filed by the third respondent stating that the
petitioner was neither a proper nor necessary party to W.P.No.15670 of 2008. He
further stated that the proceedings conducted by the Committee as well as the
orders passed by the Government were behind his back and are without
jurisdiction. No notice was given to him by the Committee on its stand and the
Government could not have invoked Section 39 of SFC Act. The directions are
wholly without jurisdiction and by no stretch of imagination can be called
directions on policy matter.
17. Respondents 1 and 2 also filed a counter-affidavit stating that the bid of
the third respondent was accepted and upon payment of the total sale
consideration, the petitioner unit was handed over to the third respondent. The
petitioner filed W.P.No.13487 of 2008 challenging the action of the respondents
in selling the unit and for a consequential direction not to confirm sale by
lifting the seizure of unit and handover the same to him. In those
circumstances, respondents 1 and 2 could not execute the sale deed in respect of
the property sold in favour of the petitioner. The third respondent filed
W.P.No.15670 of 2008 before this Court seeking a direction to respondents 1 and
2 to execute the register sale deed. In pursuance of the orders of this Court,
a sale deed was executed in favour of the third respondent. When W.P.No.17435
of 2008 filed by the petitioner was pending, the Principal Secretary to
Government, Industries and Commerce Department wrote the impugned letter
directing respondents 1 and 2 to take action as contained therein. The Board of
Directors of respondents 1 and 2 in its 736th Board Meeting held on 06.07.2010
resolved to abide by this Court's directions in the writ petition filed by the
borrower/purchaser after taking the following aspects into consideration.
(i) The Corporation sold the assets of the unit as per guidelines of the
Corporation; and
(ii) The Corporation executed the sale deed in favour of the third respondent
under directions of the High Court in W.P.No.15670 of 2008.
18. Heard the learned counsel for petitioner, the learned Standing Counsel for
respondents 1 and 2 and Sri C.V.Mohan Reddy, the learned Senior Counsel for
third respondent.
19. The learned counsel for petitioner contended as follows:
(1) The tender notification was valid for a period of 90 days, but the bid of
the third respondent was accepted before expiry of 90 days.
(2) The assessment of property of the petitioner was not properly valued, as the
property of Rs.1.50 crores was sold for an amount of Rs.84.50 lakhs in favour of
the third respondent and hence the sale was invalid.
(3) Respondents 1 and 2 cannot take any action either for recalling loan amount
or for putting the unit for sale even before the loan became over due.
(4) As per the guidelines applicable to respondents 1 and 2 before finalisation
of the bid, they should give an opportunity to the defaulter and no such
opportunity was given and hence the sale in favour of the third respondent is
invalid.
20. On the other hand, the learned Standing Counsel for respondents 1 and 2
submits that the petitioner is a chronic defaulter and in spite of several
opportunities afforded to it, the outstanding loan amount was not liquidated.
The cheques which were issued by the petitioner towards partial payment of the
instalments were bounced. The guidelines are intended for internal management
of the Corporation and in view of the past conduct of the petitioner, it was
held that no opportunity need be given to the petitioner before finalising the
sale in favour of the third respondent. The learned Standing Counsel further
submits that the period of 90 days mentioned in the tender notice is the outer
limit and if a satisfactory bid is received by respondents 1 and 2, they can
finalise the same and the petitioner being a chronic defaulter cannot challenge
the said finalisation.
21. The learned Senior Counsel C.V.Mohan Reddy appearing for the third
respondent contended that the Committee has no jurisdiction to intervene in a
matter like this and the letter issued by the Government pursuant to the
recommendations of the Committee is invalid, as the third respondent purchased
the property in a properly held auction, paid total consideration and took
possession of the unit. It is not open to the petitioner to challenge the
auction, as it is a chronic defaulter. He relied on the decisions of the
Hon'ble Supreme Court in Haryana Financial Corporation V. Jagdamba Oil Mills1
and Karnataka State Industrial Investment & Development Corpn. Ltd. V. Cavalet
India Ltd.2 in support of his contentions.
22. There is no dispute with regard to the facts in the instant case. The
petitioner unit was sanctioned a loan of Rs.50.25 lakhs and an amount of
Rs.48.08 lakhs on hypothecation of land, plant and machinery was availed during
21.06.1999 to 31.01.2002 in 14 instalments. By 31.10.2002, the petitioner
company fell arrears an amount of Rs.37.34 lakhs. The petitioner could not
repay the instalments and became a chronic defaulter and in those circumstances,
respondents 1 and 2 initiated proceedings under Section 29 of the SFC Act for
sale of hypothecated property and consequently a recall-cum-sale notice was
issued on 02.12.2002 giving 15 days notice. When the petitioner did not comply
with the same, the unit was seized on 21.01.2003. Subsequently, when the
petitioner paid an amount of Rs.2 lakhs and issued post-dated cheques for Rs.9
lakhs, the seizure was lifted on 25.01.2003. When the post-dated cheques got
bounced and the petitioner failed to repay the loan instalments, the unit was
again seized on 20.03.2003. The seizure was again lifted on 27.03.2003 by
accepting post-dated cheques for Rs.8.60 lakhs. The cheques were again
dishonoured and the unit was again seized on 05.03.2004 and the seizure was
again lifted by accepting Rs.1 lakh on the advice of the Government. The loan
account of the petitioner was rescheduled on 25.07.2007, but the petitioner did
not accept the terms of reschedule. When the petitioner again committed
default, a recall-cum-sale notice was issued on 27.08.2007 and the unit of the
petitioner was seized on 07.11.2007. The assets of the unit were advertised in
Andhra Jyothi daily newspaper dated 14.03.2008 for sale. The third respondent
became the highest bidder for Rs.84.50 lakhs and time was granted to him for
payment of the consideration till 10.09.2008. The total consideration amount
was paid by the third respondent on 21.06.2008 and 23.06.2008 and the sale was
confirmed and the unit was handed over to the third respondent.
23. The petitioner filed W.P.No.13487 of 2008 and the same was dismissed on
08.07.2009 as infructuous giving liberty to the petitioner to raise all his
contentions in W.P.No.17435 of 2008. The petitioner filed an application before
the Committee and the Committee made a recommendation to the Government.
Accordingly the Government issued a letter No.432/SSI/A2/2009, dated 18.05.2010,
directing respondents 1 and 2 to file a suitable counter in these writ petitions
for setting aside the sale. In the meanwhile, the third respondent filed
W.P.No.15670 of 2008 seeking a direction to respondents 1 and 2 to register a
sale deed dated 25.06.2008 in his favour and the same was disposed of on
30.07.2008 directing respondents 1 and 2 to execute the sale deed within a week
from that date.
24. Regarding the contention of the petitioner that the bid of the third
respondent was accepted even before 90 days from 14.03.2008 on 10.06.2008, the
condition of the tender notice has to be seen. An identical issue came up for
consideration in W.P.Nos.18080 of 2008 and 14816 of 2010 and this Court had an
occasion to consider the same on 03.01.2014 and it was held as follows:
"....... Regarding the contention of the learned Counsel for the petitioner that
the unit was sold before the period of 90 days mentioned in the sale notice, the
tender condition in the sale notice should be looked into and it reads as
follows:
"This notice will be valid for a period of 90 days from today. The satisfactory
offers received within 90 days in respect of the above units can be confirmed.
Thereafter, the tender forms for the said units will not be issued. The
tenderers would be invited on every Monday or any day after 27.08.2007 for
bidding/negotiation, the other interested bidders can also participate in the
bidding/negotiation by depositing the EMD along with the tender form."
A conjoint reading of the above conditions would make it clear that
tenders would be received within a period of 90 days and satisfactory tender can
be accepted even before the period of 90 days. Any other interested tenderer
also can participate in bidding/negotiation process by depositing EMD. It means
that the bidding process would be open for a period of 90 days and a challenge
to such acceptance of the bid before the 90 days can be made only by another
prospective bidder who intends to bid for a higher value. It is not open to the
petitioner to challenge the acceptance of the bid amount within 90 days."
25. The proceedings of respondents 1 and 2 would indicate that two bids were
received by them pursuant to the advertisement made on 14.03.2008 viz., one from
the third respondent another from one S.Bhaskar Rao. As per the procedure, they
were asked to revise the bid amount and they have increased the bid amount and
the third respondent was found to be higher than that of another bidder and the
Committee considered the offer reasonable and hence decided to submit the
proposal to Managing Director for approval after placing on the notice bard for
seven days. The Committee also decided to reject the offer of other bidder
S.Bhaskar Rao and returned EMD. The said decision was taken on 17.04.2008, but
the Government issued a letter to respondents 1 and 2 on 04.06.2008 to take
action for withdrawal of seizure/auction proposal in respect of 9 units of which
the petitioner unit is one among them.
26. The learned counsel for petitioner stated that in fact the second bidder
is a benami for the first bidder and the two bids were filed by the third
respondent only and hence, the finalisation of a single tender is invalid. In
support of his contention, he relied on the letter dated 10.03.2011 of
respondents 1 and 2 addressed to the Principal Secretary to Government,
Industries and Commerce Department, wherein respondents 1 and 2 requested the
Government to take necessary action to get the sale cancelled and to arrange
handover the assets of the unit to the petitioner. In the said letter, it was
stated by respondents 1 and 2 that on receiving a complaint from the petitioner,
the address given by the second tenderer was verified and noticed that it is the
address of fifth partner of the third respondent and they were not having the
information about the alleged benami transaction before approval of sale and
hence the sale was approved in favour of the third respondent. The learned
Counsel for the Petitioner could not show any rule or guideline stating that a
single tender cannot be accepted by respondents 1 and 2, even assuming that the
other tenderer is the benami of the third respondent. No averment was made by
the petitioner in his pleadings showing his readiness and willingness to
liquidate the loan amount at any time. The petitioner is a chronic defaulter
and it is not open to him to challenge the tendering process followed by
respondents 1 and 2 resulting in acceptance of the tender of the third
respondent.
27. Regarding the contention of the petitioner that assets of the unit of
Rs.1.5 crores was sold for an amount of Rs.84.50 lakhs, the learned Standing
Counsel for respondents 1 and 2 drew the attention of this Court to the
valuation certificate produced by the petitioner himself dated 18.12.2008. The
said valuation certificate showed the land value as Rs.18.41,040/- and the
structures value as Rs.49,55,730/- and the total market value as Rs.67,96,770/-.
The sale in favour of the third respondent fetched an amount of Rs.84.50 lakhs.
When faced with this situation, the learned counsel for petitioner stated that
the same property was mortgaged by the third respondent in favour of a Bank for
an amount of Rs.4.7 crores and that itself shows the high value of the property.
28. The learned counsel for petitioner also stated that in view of the sale
for a lesser value, respondents 1 and 2 did not realise the entire amount due
from the petitioner and the petitioner is still being forced to pay the balance
amount also. This Court noticed that the property was not sold for a song and
the circumstances under which the third respondent subsequently mortgaged the
property and took a loan for higher value cannot be investigated by this Court.
It is a matter of record that the third respondent invested huge amounts for
revival of the sick unit and made it workable and hence it cannot be held that
the same property cannot be mortgaged for a higher value.
29. So far as contention of the petitioner that respondents 1 and 2 cannot
demand the payment of entire outstanding amount even before the period of
repayment of entire loan amount, the said submission is without any basis as the
agreement of loan usually contains a clause enabling the financing company to
recall the entire loan amount in case of default of instalments even before the
end of the loan period. The other contention of the Petitioner that the
respondents 1 and 2 ought to have given an opportunity to the borrower before
finalising the tender in favour of the third respondent as per their own
guidelines dated 21.12.2001 is concerned, the guidelines are meant for
indicating the procedure to be followed by the officers while putting the seized
units under tender-cum-bid process. Guideline No.9 on which reliance is placed
by the learned counsel for petitioner reads as follows:
"9. Once the sale proposal is accepted by the appropriate Committee, the
original Promoters shall be intimated by the Concerned BM/GM (O)/ CGM
(O)/ Asst. General Manager of AMC about the offer received from the highest
tenderer/bidder for giving an opportunity with 15 days notice by offering the
assets at the price offered by the highest tenderer/bidder on the same terms of
down payment within the stipulated period as per norms."
30. The learned Standing Counsel for respondents 1 and 2 states that in view
of the past conduct of the petitioner and the petitioner being a chronic
defaulter, he was not issued any notice as contained in the said guidelines and
the petitioner cannot have any grouse with regard to the same.
31. The learned Senior Counsel for the third respondent relied on Haryana
Financial Corporation's case (1 supra) in which it was held as follows:
"8. 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 undertaken by him, the
Corporation alone cannot be shackled hand and foot in the name of fairness.
9. 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 to genuine
intention to repay and adopts pretexts and ploys to avoid payment, he cannot
make the grievance that the Corporation was not acting fairly, even if requisite
procedures have been followed."
32. In view of the said position, it is not open to the petitioner to contend
that no opportunity was given to him. As already stated above, there was no
pleading of the petitioner expressing his readiness to pay the outstanding loan
amount.
33. The learned Senior Counsel for the third respondent also relied on
Karnataka State Industrial Investment & Development Corpn. Ltd's case (2 supra),
wherein in para 19, the legal position with regard to the jurisdiction of this
Court was summed up as follows
"19. 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 under Section 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."
34. Thus, viewed from in any angle, the writ petition of the petitioner is
liable to be dismissed. So far as the writ petition filed by the third
respondent is concerned, this Court considered an identical issue in
W.P.Nos.18080 of 2008 and 14816 of 2010 dated 03.01.2014 and held as follows:
"........ The other submission that the Government issued a communication to the
Corporation for cancellation of the sale pursuant to the decision taken by the
A.P. Legislative Council is concerned, as rightly contended by the learned
Standing Counsel for respondent Nos.1 to 3 and Counsel for respondent Nos.4 to
9, the said decision cannot be a policy decision within the meaning of the
Section 39(1) of SFC Act which reads as follows:
"39. Power to give instructions to Financial Corporation on questions of
policy:- (1) In the discharge of its functions, the Board shall be guided by
such instructions on questions of policy as may be given to it by the State
Government [in consultation with [and after obtaining the advice of,] the [Small
Industries Bank]]."
In order to call a decision as a policy decision, it must be applicable to a
wider section of people and not in relation to a single individual or a unit.
Further, as can be seen from the reading of the above provision, the decision
should be in consultation with the Small Industries Development Bank of India.
A decision at the instance of the A.P. Legislative Council by the Government
cannot be termed as a policy decision within the meaning of the Section 39(1) of
the Act. On this count also the submission of the learned Counsel for the
petitioner cannot be appreciated.
35. The learned Standing Counsel for respondents 1 and 2 submitted that the
Committee could not have issued a direction in relation to a pending case and
relied on an article titled 'separation of powers and Legislative interference
in pending cases' published in Sydney Law Review (Vol.30:61). In our Indian
Constitution also there is a clear separation of powers of Legislature and
Judiciary and one body does not interfere in the jurisdiction of another as they
are co-equal wings under the Constitution. In the present case, the Committee
did not interfere with the decision making process of this Court but directed
the Government to take the necessary action and the Government issued impugned
proceedings further directing respondents 1 and 2 to file appropriate counter in
the pending cases for setting aside the sale. As already held, the said
direction of the Government is not binding on the respondents 1 and 2 as the
direction does not relate to a policy decision.
36. In view of the procedural fairness followed by respondents 1 and 2 and
taking over all facts and circumstances of the case, the sale in favour of the
third respondent cannot be held to be invalid and consequently the impugned
proceedings of the Government have to be set aside as no consequence. Even on
equities also, the third respondent has been in possession of the property since
June, 2008 and invested huge amounts and has been running the unit. The
petitioner could not succeed in his attempt to invalidate the sale in favour of
the third respondent.
37. Accordingly, W.P.No.15771 of 2010 is allowed and W.P.No.17435 of 2008 is
dismissed. No order as to costs. Miscellaneous Petitions pending, if any in
these writ petitions, shall stand closed.
______________________________
A.RAMALINGESWARA RAO, J
Date:06.03.2014
Normally, the tenders received during the period of
90 days would be opened and evaluated by the committee and if the committee
finds a tender as viable, the same will be kept in the notice board for 7 days.
Subsequent tenderers would have to quote their price with at least 15%
enhancement over the open tender. Again negotiations will be held and the
ultimate offers will be finalized. The said steps were mentioned in the sale
notification issued by the first respondent. The third respondent submitted its
bid on 08.04.2008 and it was put up for negotiations on 17.04.2008 and the same
was approved by the Managing Director of the first respondent on 10.06.2008 and
a letter to that effect was issued. The whole thing was concluded before the
end of 90 days which is contrary to the terms of the sale notification. The
procedure followed by the first respondent was contrary to the terms of sale
notification and it was done to favour the third respondent. The value of the
property fetches nearly Rs.2 crores in the market and the value of machinery
would fetch not less than Rs.30 lakhs. The total value of the unit in any case
would be at Rs.2.50 crores and selling it in a hurried manner for a petty amount
of Rs.84 lakhs shows the arbitrariness on the part of the first respondent. If
the unit was sold for a proper price, the first respondent would not have
demanded the balance amount of Rs.58 lakhs from the petitioner.=
respondent was accepted even before 90 days from 14.03.2008 on 10.06.2008, the
condition of the tender notice has to be seen. An identical issue came up for
consideration in W.P.Nos.18080 of 2008 and 14816 of 2010 and this Court had an
occasion to consider the same on 03.01.2014 and it was held as follows:
"....... Regarding the contention of the learned Counsel for the petitioner that
the unit was sold before the period of 90 days mentioned in the sale notice, the
tender condition in the sale notice should be looked into and it reads as
follows:
"This notice will be valid for a period of 90 days from today. The satisfactory
offers received within 90 days in respect of the above units can be confirmed.
Thereafter, the tender forms for the said units will not be issued. The
tenderers would be invited on every Monday or any day after 27.08.2007 for
bidding/negotiation, the other interested bidders can also participate in the
bidding/negotiation by depositing the EMD along with the tender form."
A conjoint reading of the above conditions would make it clear that
tenders would be received within a period of 90 days and satisfactory tender can
be accepted even before the period of 90 days. Any other interested tenderer
also can participate in bidding/negotiation process by depositing EMD. It means
that the bidding process would be open for a period of 90 days and a challenge
to such acceptance of the bid before the 90 days can be made only by another
prospective bidder who intends to bid for a higher value. It is not open to the
petitioner to challenge the acceptance of the bid amount within 90 days." =
As per the procedure, they
were asked to revise the bid amount and they have increased the bid amount and
the third respondent was found to be higher than that of another bidder and the
Committee considered the offer reasonable and hence decided to submit the
proposal to Managing Director for approval after placing on the notice bard for
seven days.
The Committee also decided to reject the offer of other bidder
S.Bhaskar Rao and returned EMD. The said decision was taken on 17.04.2008, but
the Government issued a letter to respondents 1 and 2 on 04.06.2008 to take
action for withdrawal of seizure/auction proposal in respect of 9 units of which
the petitioner unit is one among them. =
In view of the procedural fairness followed by respondents 1 and 2 and
taking over all facts and circumstances of the case, the sale in favour of the
third respondent cannot be held to be invalid and consequently the impugned
proceedings of the Government have to be set aside as no consequence.
2014 (March. Part) judis.nic.in/judis_andhra/filename=10973taking over all facts and circumstances of the case, the sale in favour of the
third respondent cannot be held to be invalid and consequently the impugned
proceedings of the Government have to be set aside as no consequence.
THE HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO
WRIT PETITION Nos.17435 of 2008
06-03-2014
M/s.Sriram Rice Mills Pvt. Ltd., Stone Housepet, Nellore, Nellore District,
rep. by its Managing Director and another...Petitioners
The Andhra Pradesh State Finance Corporation, Chirag Ali Lane, Hyderabad, rep.
by its Managing Director and others... Respondents
Counsel for the Petitioner: Sri S.Arun Kumar
Counsel for the Respondents: G.P.for Industries and Commerce
Sri S.Arun Kumar
Sri N.Vijay
<Gist :
>Head Note :
?Cases referred
1 (2002) 3 SCC 496
2 (2005) 4 SCC 456
HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO
WRIT PETITION Nos.17435 of 2008 and 15771 of 2010
COMMON ORDER:
These two writ petitions are disposed of by a common order in view of the
common issue involved in them.
W.P.No.17435 of 2008:
2. The petitioner is a company incorporated under the provisions of Companies
Act, 1956 and is a small scale industry carrying on the business of milling and
manufacturing of parboiled rice and is situated in Nellore District. It applied
to the second respondent in June 1998 seeking financial assistance by way of
term loan of Rs.50.25 lakhs for setting up of a 2T/HR capacity parboiled rice
mill unit in their existing land and buildings situated at Survey Nos.63 to 66,
Panchedu Village, B.R.Palem Mandal, Nellore District. The first respondent
sanctioned a loan of Rs.50.25 lakhs on 08.08.1998 for the purpose of plant and
machinery (Rs.44.10 lakhs), contingencies @ 10% (Rs.4.40 lakhs), erection
(Rs.0.55 lakhs) and pre-operative expenses (Rs.1.20 lakhs). The tenure of the
loan was five years and the amount has to be paid in 17 quarterly instalments
commencing after one year from the date of disbursement of any part of the loan.
The said term loan was secured by way of equitable mortgage of land and
buildings and hypothecation of plant and machinery, vehicles, miscellaneous
assets, existing and proposed in scheme and all future acquisitions of fixed
assets in nature.
3. The petitioner company commenced its production in the month of February,
2001, but it became sick in the year 2002 and was unable to fulfill its
obligation of repaying quarterly instalments and interest to the second
respondent. Even though the petitioner made a request for rescheduling the
loan, the petitioner company was seized on 05.03.2004. In those circumstances,
the petitioner made several representations to the Government and the
Commissioner for Industrial Promotion, Industries and Commerce Department. The
Commissioner issued a letter on 18.05.2004 directing the first respondent to
consider the application for rescheduling the loan of the petitioner. The
petitioner again represented to the first respondent and the first respondent in
response to the request of the petitioner, rescheduled the loan on 25.07.2007
directing the petitioner to pay the principal outstanding amount of
Rs.47,95,995/- in 14 quarterly instalments, commencing from 23.03.2008 and the
outstanding interest amount of Rs.65,68,212/- in 2 years in 22 monthly
instalments at the rates prescribed therein, but the seizure of the unit was not
lifted.
4. The petitioner submitted several representations to the various
authorities for lifting seizure of the company and the first respondent invoked
its powers under Section 29 of the State Financial Corporations Act, 1951 (for
short, SFC Act) and published a notice inviting tenders for the sale of the
petitioner's unit on 14.03.2008. On 10.06.2008, the petitioner's company was
sold in favour of the third respondent under a registered sale deed bearing
No.1654/2008. Challenging the same, the present writ petition was filed.
5. Respondents 1 and 2 filed a counter-affidavit stating that the term loan
of Rs.50.25 lakhs was sanctioned in favour of the petitioner and the petitioner
availed an amount of Rs.48.08 lakhs during 21.06.1999 to 31.01.2002 repayable in
14 instalments. The petitioner company failed to implement the project within
the stipulated time and thereby caused inordinate delay. The petitioner also
failed to make arrangements for obtaining working capital well in time by
31.10.2002. The petitioner company fell in arrears for an amount of Rs.37.34
lakhs and became a chronic defaulter. In those circumstances, the second
respondent was constrained to initiate proceedings under Section 29 of the SFC
Act for sale of hypothecated property and consequently a recall-cum-sale notice
was issued on 02.12.2002 providing 15 days time for clearing the arrears of
instalments. When the petitioner failed to comply with the said notice, the
respondents 1 and 2 were constrained to seize the unit on 21.01.2003. After
seizure of the unit, the petitioner came forward to repay the loan amount and
initially paid an amount of Rs.2 lakhs and issued post-dated cheques for Rs.9
lakhs with a further assurance that it would pay the entire outstanding amount
within few days. Respondents 1 and 2 lifted the seizure on 25.01.2003.
However, the petitioner failed to repay the outstanding loan amount and the
post-dated cheques were dishonoured. Therefore, the unit was again seized on
20.03.2003, but as per the decision taken at APSSIRS, the seizure was lifted on
27.03.2003 by accepting the post-dated cheques for Rs.8.60 lakhs. But, the
petitioner failed to honour the cheques and expressed its inability to pay the
dues. Hence, the petitioner company was seized again on 05.03.2004. However,
as per the advice of the Government of Andhra Pradesh, the seizure was lifted by
accepting Rs.1.00 lakh.
6. Later on, at the request of the petitioner, its loan account was
rescheduled and extended the loan period by 7 years and funded interest due
amount of Rs.65.68 lakhs payable in 2 years in 22 monthly instalments commencing
from 25.07.2007 was also considered. The cheques issued by the petitioner were
dishonoured and the several reminders issued by the respondents 1 and 2 to repay
the loan amount did not yield any result. In those circumstances, respondents 1
and 2 are left with no option, except to initiate action under Section 29 of the
SFC Act and issue a recall-cum-sale notice dated 27.08.2007. The unit of the
petitioner was again seized 07.11.2007 by following due procedure.
7. Thereafter, the assets of the petitioner company were advertised for sale
in Andhra Jyothi daily newspaper on 14.03.2008. In response to the said
advertisement, the third respondent offered highest amount for purchase of
assets for Rs.84.50 lakhs and the same was approved and time for payment of
total consideration was granted till 10.09.208. The third respondent paid total
consideration by way of cheques on 21.06.2008 and 23.06.2008 and both the
cheques were encashed, sale was confirmed and the assets were handed over to the
third respondent immediately. The petitioner, though was granted several
opportunities, did not avail the same by paying the outstanding amounts. As per
G.O.Ms.No.203, dated 20.07.2006, the petitioner company, being a rice mill, is
not eligible for revival under A.P. Small Scale Industries Revival Scheme.
8. An additional counter-affidavit was also filed by respondents 1 and 2
clarifying the position with regard to the process of offer while selling the
unit. The additional counter states that while selling the unit, the internal
guidelines would be followed by the first respondent. The offer could be kept
open for a period of 90 days from the date of publication of the notification
inviting tenders. The bid of a person who make satisfactory offer to purchase
the asset is accepted irrespective of the fact whether 90 days time had elapsed
or not. The period of 90 days does not confer any right either to the borrower
or to any third parties and it is meant for only administrative and financial
exigencies. The unit of the petitioner was valued as per the guidelines and
procedure of the first respondent. Thereafter only, a public notification was
published in Andhra Jyothi Telugu daily dated 14.03.2008 and tenders were
invited. The procedure of the first respondent not waiting till completion of
90 days was assailed in another W.P.No.25023 of 2006 before this Court and this
Court vide order dated 08.08.2008 upheld the said procedure. The period of 90
days is an outer limit and in the instant case, the auction notice was issued on
14.03.2008 and the sale was finalised on 10.06.2008, since the offer was
reasonable and the bid of the third respondent was accepted, there is no
irregularity in conduct of auction. Further, the Director General, Vigilance
and Enforcement, Government of Andhra Pradesh, vide letter dated 07.08.2007
addressed to the Principal Secretary to the Government (I & C) Department,
requested to direct the first respondent to initiate action against 8 firms and
the petitioner firm is one among them.
9. The third respondent also filed a counter-affidavit stating that the
petitioner filed W.P.No.13487 of 2008 and he filed a counter therein and since
no fresh cause of action accrued thereafter, the present writ petition is liable
to be dismissed. It was stated that since the third respondent is in peaceful
possession of the property purchased by him, invested huge amounts for reviving
the unit by raising monies in a sum of Rs.68 lakhs by mortgaging the unit with
Union Bank of India, this writ petition is liable to be dismissed on that ground
also. It is also stated that the petitioner also caused publication of news
item in the newspapers stating that he was disentitled to run the unit, even
though the unit was lawfully purchased by him. It is also stated that the sale
affected by respondents 1 and 2 is valid and binding on the petitioner. He paid
the entire sale consideration of Rs.84.50 lakhs after borrowing huge money and
nearly Rs.20 lakhs was spent for bringing the unit into running condition.
Possession of the unit was already handed over to the third respondent under a
panchanama dated 24.06.2008.
10. The petitioner filed a reply affidavit stating that the rice mill is
situated in an extent of land Acs.3.17 cents and the constructed area is 2683
square meters consisting of AC sheet roof. Though the loan was rescheduled on
25.07.2007, he could not honour the terms of rescheduled loan, as the same were
impossible of fulfilment. Normally, the tenders received during the period of
90 days would be opened and evaluated by the committee and if the committee
finds a tender as viable, the same will be kept in the notice board for 7 days.
Subsequent tenderers would have to quote their price with at least 15%
enhancement over the open tender. Again negotiations will be held and the
ultimate offers will be finalized. The said steps were mentioned in the sale
notification issued by the first respondent. The third respondent submitted its
bid on 08.04.2008 and it was put up for negotiations on 17.04.2008 and the same
was approved by the Managing Director of the first respondent on 10.06.2008 and
a letter to that effect was issued. The whole thing was concluded before the
end of 90 days which is contrary to the terms of the sale notification. The
procedure followed by the first respondent was contrary to the terms of sale
notification and it was done to favour the third respondent. The value of the
property fetches nearly Rs.2 crores in the market and the value of machinery
would fetch not less than Rs.30 lakhs. The total value of the unit in any case
would be at Rs.2.50 crores and selling it in a hurried manner for a petty amount
of Rs.84 lakhs shows the arbitrariness on the part of the first respondent. If
the unit was sold for a proper price, the first respondent would not have
demanded the balance amount of Rs.58 lakhs from the petitioner.
W.P.No.15771 of 2010:
11. This writ petition was filed by the third respondent in the above writ
petition challenging the action by the first respondent in issuing letter
No.432/SSI/A2/2009 dated 18.05.2010 issued on the purported recommendations of
the Committee on Petitions, A.P. Legislative Council (for short, Committee).
The further facts available from the affidavit filed by the petitioner are that
after payment of amount of Rs.84.50 lakhs by the petitioner (third respondent in
the above writ petition) on 24.06.2008 and after making huge investment to
revive the unit, respondents 1 and 2 were avoiding execution and registration of
sale deed in his favour. In those circumstances, he filed W.P.No.15670 of 2008
and the same was disposed of on 13.07.2008 with a direction to execute the sale
deed in his favour within a period of one week from the date of that order, duly
recording that the petitioner accepted the risk of success in W.P.No.13487 of
2008 pending before this Court. Thereafter, a sale deed was executed on
01.08.2008.
12. The fourth respondent herein, who is the petitioner in W.P.No.17435 of
2008, filed W.P.No.13487 of 2008 challenging the action of respondents 1 and 2
in selling the unit to the petitioner and sought a consequential direction not
to confirm the sale in favour of the petitioner and the same was dismissed on
01.07.2009 with a liberty to the fourth respondent to pursue the other writ
petition No.17435 of 2008 filed by him. Thereafter, the fourth respondent, by
utilising his political clout, has approached the Committee and pursuant to the
recommendations made by it, the Principal Secretary, Industries and Commerce
Department, issued the impugned proceedings, directing the first respondent to
file a suitable counter-affidavit in W.P.No.15670 of 2008 and pray for
cancellation of the sale deed dated 01.08.2008 registered in favour of the
petitioner to enable them to re-convey the property to the fourth respondent as
recommended by the Committee and accordingly obtain suitable directions from
this Court. Challenging the same, this writ petition was filed.
13. Hereinafter, for convenience, the parties shall be referred to as they are
arrayed in W.P.No.17435 of 2008.
14. Respondents 1 and 2 filed a counter stating that during the pendency of
W.P.No.17435 of 2008, the petitioner filed a petition before the Committee
seeking cancellation of the sale deed executed by the second respondent and to
handover the unit to him. The Committee took up the said application and
recommended for cancellation of the sale deed executed in favour of the third
respondent and provide opportunity to the petitioner to pay back the amounts due
to respondents 1 and 2. Accordingly, the Principal Secretary to Government of
Andhra Pradesh, Industries and Commerce Department, Hyderabad addressed the
impugned letter, while intimating the recommendations of the Committee. Since
the Government directed the second respondent to file an additional affidavit,
it was stated that they filed the same.
15. The petitioner (fourth respondent herein) also filed a counter-
affidavit reiterating the averments made in the counter affidavit filed in
support of W.P.No.17435 of 2008 stating that the third respondent has not come
to the Court with clean hands and suppressed material information by not filing
the requisite papers forming part of W.P.No.17435 of 2008. The petitioner
further stated that an application was filed before the Committee bringing the
prejudicial conduct of the respondents 1 and 2 and the fraud that took place in
disposing of the properties in favour of the third respondent. The Committee,
after detailed enquiry into facts concluded that fraud took place in the
disposal of the properties of the petitioner and accordingly directed the first
respondent to get the sale cancelled from this Court by filing necessary reply
and to re-convey the subject property in the name of the petitioner. It is
further stated that the third respondent filed W.P.No.15670 of 2008 for
registration of the sale deed in his favour only and did not implead the
petitioner as a party, though he is a necessary party. Another letter dated
27.07.2011 was issued by the Government after obtaining opinion from the Law
Department for cancellation of the sale deed.
16. A reply affidavit was also filed by the third respondent stating that the
petitioner was neither a proper nor necessary party to W.P.No.15670 of 2008. He
further stated that the proceedings conducted by the Committee as well as the
orders passed by the Government were behind his back and are without
jurisdiction. No notice was given to him by the Committee on its stand and the
Government could not have invoked Section 39 of SFC Act. The directions are
wholly without jurisdiction and by no stretch of imagination can be called
directions on policy matter.
17. Respondents 1 and 2 also filed a counter-affidavit stating that the bid of
the third respondent was accepted and upon payment of the total sale
consideration, the petitioner unit was handed over to the third respondent. The
petitioner filed W.P.No.13487 of 2008 challenging the action of the respondents
in selling the unit and for a consequential direction not to confirm sale by
lifting the seizure of unit and handover the same to him. In those
circumstances, respondents 1 and 2 could not execute the sale deed in respect of
the property sold in favour of the petitioner. The third respondent filed
W.P.No.15670 of 2008 before this Court seeking a direction to respondents 1 and
2 to execute the register sale deed. In pursuance of the orders of this Court,
a sale deed was executed in favour of the third respondent. When W.P.No.17435
of 2008 filed by the petitioner was pending, the Principal Secretary to
Government, Industries and Commerce Department wrote the impugned letter
directing respondents 1 and 2 to take action as contained therein. The Board of
Directors of respondents 1 and 2 in its 736th Board Meeting held on 06.07.2010
resolved to abide by this Court's directions in the writ petition filed by the
borrower/purchaser after taking the following aspects into consideration.
(i) The Corporation sold the assets of the unit as per guidelines of the
Corporation; and
(ii) The Corporation executed the sale deed in favour of the third respondent
under directions of the High Court in W.P.No.15670 of 2008.
18. Heard the learned counsel for petitioner, the learned Standing Counsel for
respondents 1 and 2 and Sri C.V.Mohan Reddy, the learned Senior Counsel for
third respondent.
19. The learned counsel for petitioner contended as follows:
(1) The tender notification was valid for a period of 90 days, but the bid of
the third respondent was accepted before expiry of 90 days.
(2) The assessment of property of the petitioner was not properly valued, as the
property of Rs.1.50 crores was sold for an amount of Rs.84.50 lakhs in favour of
the third respondent and hence the sale was invalid.
(3) Respondents 1 and 2 cannot take any action either for recalling loan amount
or for putting the unit for sale even before the loan became over due.
(4) As per the guidelines applicable to respondents 1 and 2 before finalisation
of the bid, they should give an opportunity to the defaulter and no such
opportunity was given and hence the sale in favour of the third respondent is
invalid.
20. On the other hand, the learned Standing Counsel for respondents 1 and 2
submits that the petitioner is a chronic defaulter and in spite of several
opportunities afforded to it, the outstanding loan amount was not liquidated.
The cheques which were issued by the petitioner towards partial payment of the
instalments were bounced. The guidelines are intended for internal management
of the Corporation and in view of the past conduct of the petitioner, it was
held that no opportunity need be given to the petitioner before finalising the
sale in favour of the third respondent. The learned Standing Counsel further
submits that the period of 90 days mentioned in the tender notice is the outer
limit and if a satisfactory bid is received by respondents 1 and 2, they can
finalise the same and the petitioner being a chronic defaulter cannot challenge
the said finalisation.
21. The learned Senior Counsel C.V.Mohan Reddy appearing for the third
respondent contended that the Committee has no jurisdiction to intervene in a
matter like this and the letter issued by the Government pursuant to the
recommendations of the Committee is invalid, as the third respondent purchased
the property in a properly held auction, paid total consideration and took
possession of the unit. It is not open to the petitioner to challenge the
auction, as it is a chronic defaulter. He relied on the decisions of the
Hon'ble Supreme Court in Haryana Financial Corporation V. Jagdamba Oil Mills1
and Karnataka State Industrial Investment & Development Corpn. Ltd. V. Cavalet
India Ltd.2 in support of his contentions.
22. There is no dispute with regard to the facts in the instant case. The
petitioner unit was sanctioned a loan of Rs.50.25 lakhs and an amount of
Rs.48.08 lakhs on hypothecation of land, plant and machinery was availed during
21.06.1999 to 31.01.2002 in 14 instalments. By 31.10.2002, the petitioner
company fell arrears an amount of Rs.37.34 lakhs. The petitioner could not
repay the instalments and became a chronic defaulter and in those circumstances,
respondents 1 and 2 initiated proceedings under Section 29 of the SFC Act for
sale of hypothecated property and consequently a recall-cum-sale notice was
issued on 02.12.2002 giving 15 days notice. When the petitioner did not comply
with the same, the unit was seized on 21.01.2003. Subsequently, when the
petitioner paid an amount of Rs.2 lakhs and issued post-dated cheques for Rs.9
lakhs, the seizure was lifted on 25.01.2003. When the post-dated cheques got
bounced and the petitioner failed to repay the loan instalments, the unit was
again seized on 20.03.2003. The seizure was again lifted on 27.03.2003 by
accepting post-dated cheques for Rs.8.60 lakhs. The cheques were again
dishonoured and the unit was again seized on 05.03.2004 and the seizure was
again lifted by accepting Rs.1 lakh on the advice of the Government. The loan
account of the petitioner was rescheduled on 25.07.2007, but the petitioner did
not accept the terms of reschedule. When the petitioner again committed
default, a recall-cum-sale notice was issued on 27.08.2007 and the unit of the
petitioner was seized on 07.11.2007. The assets of the unit were advertised in
Andhra Jyothi daily newspaper dated 14.03.2008 for sale. The third respondent
became the highest bidder for Rs.84.50 lakhs and time was granted to him for
payment of the consideration till 10.09.2008. The total consideration amount
was paid by the third respondent on 21.06.2008 and 23.06.2008 and the sale was
confirmed and the unit was handed over to the third respondent.
23. The petitioner filed W.P.No.13487 of 2008 and the same was dismissed on
08.07.2009 as infructuous giving liberty to the petitioner to raise all his
contentions in W.P.No.17435 of 2008. The petitioner filed an application before
the Committee and the Committee made a recommendation to the Government.
Accordingly the Government issued a letter No.432/SSI/A2/2009, dated 18.05.2010,
directing respondents 1 and 2 to file a suitable counter in these writ petitions
for setting aside the sale. In the meanwhile, the third respondent filed
W.P.No.15670 of 2008 seeking a direction to respondents 1 and 2 to register a
sale deed dated 25.06.2008 in his favour and the same was disposed of on
30.07.2008 directing respondents 1 and 2 to execute the sale deed within a week
from that date.
24. Regarding the contention of the petitioner that the bid of the third
respondent was accepted even before 90 days from 14.03.2008 on 10.06.2008, the
condition of the tender notice has to be seen. An identical issue came up for
consideration in W.P.Nos.18080 of 2008 and 14816 of 2010 and this Court had an
occasion to consider the same on 03.01.2014 and it was held as follows:
"....... Regarding the contention of the learned Counsel for the petitioner that
the unit was sold before the period of 90 days mentioned in the sale notice, the
tender condition in the sale notice should be looked into and it reads as
follows:
"This notice will be valid for a period of 90 days from today. The satisfactory
offers received within 90 days in respect of the above units can be confirmed.
Thereafter, the tender forms for the said units will not be issued. The
tenderers would be invited on every Monday or any day after 27.08.2007 for
bidding/negotiation, the other interested bidders can also participate in the
bidding/negotiation by depositing the EMD along with the tender form."
A conjoint reading of the above conditions would make it clear that
tenders would be received within a period of 90 days and satisfactory tender can
be accepted even before the period of 90 days. Any other interested tenderer
also can participate in bidding/negotiation process by depositing EMD. It means
that the bidding process would be open for a period of 90 days and a challenge
to such acceptance of the bid before the 90 days can be made only by another
prospective bidder who intends to bid for a higher value. It is not open to the
petitioner to challenge the acceptance of the bid amount within 90 days."
25. The proceedings of respondents 1 and 2 would indicate that two bids were
received by them pursuant to the advertisement made on 14.03.2008 viz., one from
the third respondent another from one S.Bhaskar Rao. As per the procedure, they
were asked to revise the bid amount and they have increased the bid amount and
the third respondent was found to be higher than that of another bidder and the
Committee considered the offer reasonable and hence decided to submit the
proposal to Managing Director for approval after placing on the notice bard for
seven days. The Committee also decided to reject the offer of other bidder
S.Bhaskar Rao and returned EMD. The said decision was taken on 17.04.2008, but
the Government issued a letter to respondents 1 and 2 on 04.06.2008 to take
action for withdrawal of seizure/auction proposal in respect of 9 units of which
the petitioner unit is one among them.
26. The learned counsel for petitioner stated that in fact the second bidder
is a benami for the first bidder and the two bids were filed by the third
respondent only and hence, the finalisation of a single tender is invalid. In
support of his contention, he relied on the letter dated 10.03.2011 of
respondents 1 and 2 addressed to the Principal Secretary to Government,
Industries and Commerce Department, wherein respondents 1 and 2 requested the
Government to take necessary action to get the sale cancelled and to arrange
handover the assets of the unit to the petitioner. In the said letter, it was
stated by respondents 1 and 2 that on receiving a complaint from the petitioner,
the address given by the second tenderer was verified and noticed that it is the
address of fifth partner of the third respondent and they were not having the
information about the alleged benami transaction before approval of sale and
hence the sale was approved in favour of the third respondent. The learned
Counsel for the Petitioner could not show any rule or guideline stating that a
single tender cannot be accepted by respondents 1 and 2, even assuming that the
other tenderer is the benami of the third respondent. No averment was made by
the petitioner in his pleadings showing his readiness and willingness to
liquidate the loan amount at any time. The petitioner is a chronic defaulter
and it is not open to him to challenge the tendering process followed by
respondents 1 and 2 resulting in acceptance of the tender of the third
respondent.
27. Regarding the contention of the petitioner that assets of the unit of
Rs.1.5 crores was sold for an amount of Rs.84.50 lakhs, the learned Standing
Counsel for respondents 1 and 2 drew the attention of this Court to the
valuation certificate produced by the petitioner himself dated 18.12.2008. The
said valuation certificate showed the land value as Rs.18.41,040/- and the
structures value as Rs.49,55,730/- and the total market value as Rs.67,96,770/-.
The sale in favour of the third respondent fetched an amount of Rs.84.50 lakhs.
When faced with this situation, the learned counsel for petitioner stated that
the same property was mortgaged by the third respondent in favour of a Bank for
an amount of Rs.4.7 crores and that itself shows the high value of the property.
28. The learned counsel for petitioner also stated that in view of the sale
for a lesser value, respondents 1 and 2 did not realise the entire amount due
from the petitioner and the petitioner is still being forced to pay the balance
amount also. This Court noticed that the property was not sold for a song and
the circumstances under which the third respondent subsequently mortgaged the
property and took a loan for higher value cannot be investigated by this Court.
It is a matter of record that the third respondent invested huge amounts for
revival of the sick unit and made it workable and hence it cannot be held that
the same property cannot be mortgaged for a higher value.
29. So far as contention of the petitioner that respondents 1 and 2 cannot
demand the payment of entire outstanding amount even before the period of
repayment of entire loan amount, the said submission is without any basis as the
agreement of loan usually contains a clause enabling the financing company to
recall the entire loan amount in case of default of instalments even before the
end of the loan period. The other contention of the Petitioner that the
respondents 1 and 2 ought to have given an opportunity to the borrower before
finalising the tender in favour of the third respondent as per their own
guidelines dated 21.12.2001 is concerned, the guidelines are meant for
indicating the procedure to be followed by the officers while putting the seized
units under tender-cum-bid process. Guideline No.9 on which reliance is placed
by the learned counsel for petitioner reads as follows:
"9. Once the sale proposal is accepted by the appropriate Committee, the
original Promoters shall be intimated by the Concerned BM/GM (O)/ CGM
(O)/ Asst. General Manager of AMC about the offer received from the highest
tenderer/bidder for giving an opportunity with 15 days notice by offering the
assets at the price offered by the highest tenderer/bidder on the same terms of
down payment within the stipulated period as per norms."
30. The learned Standing Counsel for respondents 1 and 2 states that in view
of the past conduct of the petitioner and the petitioner being a chronic
defaulter, he was not issued any notice as contained in the said guidelines and
the petitioner cannot have any grouse with regard to the same.
31. The learned Senior Counsel for the third respondent relied on Haryana
Financial Corporation's case (1 supra) in which it was held as follows:
"8. 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 undertaken by him, the
Corporation alone cannot be shackled hand and foot in the name of fairness.
9. 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 to genuine
intention to repay and adopts pretexts and ploys to avoid payment, he cannot
make the grievance that the Corporation was not acting fairly, even if requisite
procedures have been followed."
32. In view of the said position, it is not open to the petitioner to contend
that no opportunity was given to him. As already stated above, there was no
pleading of the petitioner expressing his readiness to pay the outstanding loan
amount.
33. The learned Senior Counsel for the third respondent also relied on
Karnataka State Industrial Investment & Development Corpn. Ltd's case (2 supra),
wherein in para 19, the legal position with regard to the jurisdiction of this
Court was summed up as follows
"19. 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 under Section 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."
34. Thus, viewed from in any angle, the writ petition of the petitioner is
liable to be dismissed. So far as the writ petition filed by the third
respondent is concerned, this Court considered an identical issue in
W.P.Nos.18080 of 2008 and 14816 of 2010 dated 03.01.2014 and held as follows:
"........ The other submission that the Government issued a communication to the
Corporation for cancellation of the sale pursuant to the decision taken by the
A.P. Legislative Council is concerned, as rightly contended by the learned
Standing Counsel for respondent Nos.1 to 3 and Counsel for respondent Nos.4 to
9, the said decision cannot be a policy decision within the meaning of the
Section 39(1) of SFC Act which reads as follows:
"39. Power to give instructions to Financial Corporation on questions of
policy:- (1) In the discharge of its functions, the Board shall be guided by
such instructions on questions of policy as may be given to it by the State
Government [in consultation with [and after obtaining the advice of,] the [Small
Industries Bank]]."
In order to call a decision as a policy decision, it must be applicable to a
wider section of people and not in relation to a single individual or a unit.
Further, as can be seen from the reading of the above provision, the decision
should be in consultation with the Small Industries Development Bank of India.
A decision at the instance of the A.P. Legislative Council by the Government
cannot be termed as a policy decision within the meaning of the Section 39(1) of
the Act. On this count also the submission of the learned Counsel for the
petitioner cannot be appreciated.
35. The learned Standing Counsel for respondents 1 and 2 submitted that the
Committee could not have issued a direction in relation to a pending case and
relied on an article titled 'separation of powers and Legislative interference
in pending cases' published in Sydney Law Review (Vol.30:61). In our Indian
Constitution also there is a clear separation of powers of Legislature and
Judiciary and one body does not interfere in the jurisdiction of another as they
are co-equal wings under the Constitution. In the present case, the Committee
did not interfere with the decision making process of this Court but directed
the Government to take the necessary action and the Government issued impugned
proceedings further directing respondents 1 and 2 to file appropriate counter in
the pending cases for setting aside the sale. As already held, the said
direction of the Government is not binding on the respondents 1 and 2 as the
direction does not relate to a policy decision.
36. In view of the procedural fairness followed by respondents 1 and 2 and
taking over all facts and circumstances of the case, the sale in favour of the
third respondent cannot be held to be invalid and consequently the impugned
proceedings of the Government have to be set aside as no consequence. Even on
equities also, the third respondent has been in possession of the property since
June, 2008 and invested huge amounts and has been running the unit. The
petitioner could not succeed in his attempt to invalidate the sale in favour of
the third respondent.
37. Accordingly, W.P.No.15771 of 2010 is allowed and W.P.No.17435 of 2008 is
dismissed. No order as to costs. Miscellaneous Petitions pending, if any in
these writ petitions, shall stand closed.
______________________________
A.RAMALINGESWARA RAO, J
Date:06.03.2014
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