CIVIL WRIT JURISDICTION CASE No.3561 OF 2001 -------- In the matter of an application under Article 226 of the Constitution of India. ------- 1. M/s. Shyam Cold Storage, Ghorasahan, at & Police Station Ghorasahan, District East Champaran through Hiralal Gadia, son of late Ramanand Gadia, resident of town & Police Station Ghorasahan, district East Champaran 2. Hiralal Gadia, son of late Ramanand Gadia 3. Siddhi Nath Gadia, son of late Ramanand Gadia Both residents of town & Police Station Ghorasahan, District East Champaran-----------------------------------------------------------Petitioners Versus 1. The Bihar State Financial Corporation having its office at Fraser Road, Police Station Gandhi Maidan, Patna Town, District Patna, through its Managing Director 2. The Managing Director, Bihar State Financial Corporation, Fraser Road Patna 3. The Assistant General Manager (Z-1), Bihar State Financial Corporation, Fraser Road, Patna 4. The Branch Manager, Bihar State Financial Corporation, Motihari Branch Having its office at Bhawanipur Zarath, Motihari, at, Police Station and District Motihari 5(a)Anil Kumar Sinha, son of late Gauri Shankar Sinha 5(b)Preadeep Kumar Sinha, son of late Gauri Shankar Sinha 5(c)Most. Bela Sinha,W/O late Dilip Kumar Sinha 5(d)Smt.Anju Sinha, W/O Dr.Sarat Chandra Prasad All resident of village & P.O. Bagaha, P.S.Ghorasahan, District East Champaran--------------------------------------------------------Respondents ------- For the Petitioners : M/S Manik Vedsen, R.N.Pandey & Subhash Chandra Bose,Advocates For the Respondents: Mr.Sriprakash Shrivastava, Advocate For the B.S.F.C. : Mr.Partha Sarathy, Advocate ------ P R E S E N T THE HON'BLE MR. JUSTICE RAMESH KUMAR DATTA ------ R.K.Datta,J. Heard learned counsel for the petitioners, learned counsel for the Bihar State Financial Corporation and learned counsel for the respondent Nos. 5(a) to 5(d). 2 2. The petitioners had filed the writ petition for quashing the order contained in Memo No.468 dated 29.11.2000 of the Managing Director, Bihar State Financial Corporation as also the earlier order contained in letter dated 17.7.1997 by which sale of the mortgaged assets of the petitioner Cold Storage has been sought to be made in favour of the original respondent No.5 Shri Gauri Shankar Sinha. They further seek quashing of the order dated 1.2.2001 issued by the Assistant General Manager (Z-1), Bihar State Financial Corporation conveying the decision of the Managing Director authorizing the Branch Manager, Bihar State Financial Corporation to enter upon the premises of the petitioner Cold Storage and take possession of the mortgaged/hypothecated assets of the petitioner Cold Storage and also for restraining the respondents from taking forceful possession of the Cold Storage in question and also executing any registered document transferring the assets of the petitioner Cold Storage in favour of original respondent No.5. 3. It is, however, the admitted position that the possession of the Cold Storage has already been taken over by the respondent Bihar State Financial Corporation (B.S.F.C.) and handed over to the original respondent No.5, who is now represented by his legal representatives. 4. The petitioners had filed I.A.No.5375 of 2006 in which an amendment was sought to the prayer made in the writ petition seeking a direction upon the respondent B.S.F.C. to permit the petitioner to avail full benefit under part-A of the One Time Settlement (OTS) Scheme, 3 2006 as offered by the B.S.F.C. for the purposes of clearing its dues and for continuing with the possession of the mortgaged assets. Learned counsel for the B.S.F.C. submits with respect to the said prayer for amendment as sought and pressed by learned counsel for the petitioners, that at present O.T.S. Scheme, 2009 has been floated by the B.S.F.C. on 17.8.2008 which shall remain in force till 17.11.2010 and thus it would be open to the petitioners to apply under the said Scheme under the appropriate category in terms of the decision of this Court in this writ petition regarding the prayer made with respect to the quashing of the sale order. The prayer for amendment is, accordingly, disposed of in terms of the aforesaid statement made on behalf of the B.S.F.C. holding that it shall be open to the petitioners to apply under the O.T.S. Scheme, 2009 in the applicable category in terms of the decision of this Court. I.A.No.5375 of 2006 is, accordingly, disposed of. 5. The facts of this case are that the petitioner M/s.Shyam Cold Storage established in 1974 as a partnership venture was sanctioned and disbursed a loan of Rs.3.50 lacs in the year 1974 by the respondent B.S.F.C. On account of certain setback in its business it again filed for sanction of further amount of Rs.8.64 lacs on 25.11.1980 but the amount disbursed against the same was to the extent of Rs.3.98 lacs only. It appears that the State Government in the Agriculture Department had constituted a Committee in the year 1981 with respect to the Cold Storages operating in the State and certain 4 recommendations had been made by the said Committee for giving benefits to the Cold Storages and also made specific recommendation with respect to the petitioner Cold Storage including the giving of fresh HT connection of the Bihar State Electricity Board (B.S.E.B.) and the payment of balance amount of Rs.5.11 lacs against the sanctioned loan by the B.S.F.C. It further recommended the Government to give working capital loan as also subsidy and for sharing of the losses of the Cold Storages. However, no steps were taken pursuant to the said recommendations and the petitioner Cold Storage remained non- functional. 6. B.S.F.C. in the meantime advertised the unit for sale under Section 29 of the State Financial Corporations Act on 17.7.1987 and on various other dates. The petitioner also challenged the said action by filing writ petition being C.W.J.C.No.3331 of 1987 in this Court. It appears that other sale notices were published thereafter and lastly it was published on 30.7.1995. In the said sale notice the amount of balance outstanding as on 30.6.1995 was shown as Rs.48.58 lacs and the reserve price was fixed at Rs.28.65 lacs. The said tender notice for sale provided that the offer submitted would be opened in the Corporation Head Office at 11 A.M. on 16.8.1995 but if no acceptable tender is received on the above date the tender shall continue to be received against the said advertisement in the concerned Branch Office or Head Office until the tender is accepted by the Corporation or dues of the Corporation are liquidated by the promoter. Pursuant to the said 5 advertisement one Shri Shailendra Kumar and the original respondent No.5 made separate offers for Rs.4.50 lacs and Rs.7 lacs respectively which was rejected by the Tender Committee and the Managing Director of BSFC. Two years later they raised their offer to Rs.9.5 lacs and Rs.16 lacs respectively on negotiation entered into by the B.S.F.C. with them and ultimately the impugned order dated 17.7.1997 was issued for sale of the mortgaged assets of the petitioner Cold Storage in favour of original respondent No.5 Shri Gauri Shankar Sinha. The sale order provided that out of the consideration money of Rs. 16 lacs, 25% of the amount shall be paid as initial cash down within 21 days from the date of issue of the sale order and the balance 75% amount of Rs. 12 lacs was converted into loan repayable in a period of five years in 20 quarterly instalments of Rs.60,000/- each.. It was further provided that within 21 days from the date of issue of the sale order if the unit is not taken by the original promoter, the purchaser will make payment of the consideration money. Paragraph-7 of the order further provided that difference between balance outstanding and the consideration money as on 22nd day of the issue of the sale order and interest at the rate of 19% with 2% penal interest till date of its realization of the same will be realized from the original promoter by invoking provisions of personal guarantee bond or the PDR Act. It was further stated that the sale order was valid for a period of two months only and thereafter the sale shall not materialize. The order is stated to have been issued by the 6 Managing Director in anticipation of the Executive Committee of the Corporation. 7. Copy of the aforesaid sale order was also forwarded to Shri Ramanand Gadia, partner of the petitioner firm stating that if he was interested to retain the unit on matching terms and conditions he may do so by submitting his acceptance along with matching payment plan as mentioned in the sale order at the Motihari Branch Office within 21 days from the date of issue of the sale notice. Pursuant to the same the petitioner by its letter dated 31.7.1997 accepted the terms and conditions as mentioned in the sale order dated 17.7.1997 stating therein that it intended to retain the mortgaged property and also deposited a sum of Rs.4 lacs by Bank Draft. Thereafter the Branch Manager, B.S.F.C. Motihari by his letter dated 8.9.1997 referring to the letter dated 31.7.1997 stated that he was supposed to deposit an amount of Rs. 43,65,000/- as on 31.7.1997 along with interest at the rate of 19% with 2% penal interest as mentioned in Clause 7 of the letter dated 17.7.1997 but he had failed to submit the payment plan for the same and advised him to submit the payment plan of balance amount of Rs.43,65,500/- as on 31.7.1997 within ten days from the date of the letter failing which it would be presumed that he was no longer interested to retain the mortgaged assets and, as such, the sale will stand materialized in favour of Shri Gauri Shankar Sinha and the amount deposited by him shall be adjusted against the balance amount. The petitioner protested by sending legal notice dated 17.9.1997 7 mentioning that it had complied with the conditions put forth in the order dated 17.7.1997 by depositing an amount of Rs. 4 lacs within the prescribed period and also given an offer in writing that it was prepared to offer the remaining amount of Rs.12 lacs under the same schedule of payment as was offered to the original respondent No.5 and that the direction to deposit an amount of Rs. 43,65,500/- was wholly uncalled for and arbitrary and the matching terms and conditions would only mean payment of Rs.16 lacs for the present. It had also been requested in the legal notice that the Corporation should permit the petitioner to sell the vacant piece of land apart from the area on which the Cold Storage was situated so that it could repay the entire loan amount. The Corporation replied to the legal notice taking a similar stand as in the letter dated 8.9.1997. The B.S.F.C. thereafter treated that the petitioner had failed to make a matching offer. 8. The original respondent No.5 by his letter dated 21.10.1997 to the Managing Director, B.S.F.C. demanded return of Rs.75,000/- which was deposited for the purchase of the unit stating that he was leaving security money Rs.20,000/- which was deposited on 20.10.1997 and after finalization of the sale he will deposit Rs.4 lacs in terms of the sale order dated 17.7.1997. The sum of Rs. 75,000/- was returned to him by cheque dated 21.10.1997. 9. The petitioner had earlier filed C.W.J.C.No.3331 of 1987 wherein initially notice had been issued and the same had remained pending and a direction was also issued in the said case in the year 8 1998 to the petitioners to get in touch with the Managing Director, BSFC and to explain to him the manner in which they wished to liquidate the outstanding dues and the Managing Director was also directed to consider the request of the petitioners within five days. The petitioners made their offer on 14.8.1998 through letter of their learned counsel. The petitioners reiterated their intention to clear the balance dues of Rs.12 lacs and also the remaining dues if they were permitted to sell the vacant land and the sale proceeds could be deposited with the BSFC. It was also their stand that they were prepared to accept the matching settlement offer. However, no response came from the Managing Director, BSFC which fact has also been placed on the record of the pending writ petition. Thereafter the writ petition was dismissed for default on 12.7.2000 for which restoration application was filed being MJC No. 2467 of 2000 which was pending at the time of filing of this writ petition. After dismissal for default of the earlier writ petition the Managing Director passed the impugned order contained in Memo No.468 dated 29.11.2000 effecting sale of the mortgaged assets of the petitioner in favour of original respondent No.5. It was stated in the said impugned sale order that after the disposal of the earlier writ petition on 12.7.2000 fresh negotiation was entered into with respondent No.5 and on considering the request the rate of interest on the balance outstanding was reduced from 20% to 18% and the first instalment of Rs.60,000/- was also payable after completion of six months from the execution of the sale agreement or 9 the handover of the assets whichever is earlier. The said order was not communicated to the petitioner. Thereafter the order dated 24.1.2001 was passed by the Managing Director for taking over the possession of the assets of the petitioner. Upon steps being taken for taking over possession the petitioner learnt about the two impugned orders and filed the present writ petition. 10. On 5.3.2001 MJC No. 2467 of 2000 was allowed and C.W.J.C.No. 3331 of 1987 was restored to its original file. Subsequently when the said writ petition came up before a Division Bench of this Court this Court held that in view of the challenge to the sale orders of 1997 and 2000 in the present writ petition the said writ application had become infructuous and dismissed the same with the observation that all the contentions which have been raised in that writ petition shall be available in the present writ application. 11. Learned counsel for the petitioner submits that the sale order dated 17.7.1997 was vitiated by arbitrariness and mala fide as the same has been made without advertising the assets for sale on the basis of the negotiation made with the original respondent No.5. The claim that it was on the basis of the continuous advertisement of 1995, according to learned counsel, has no legs to stand in view of the fact that the earlier offer made by respondent No.5 had already been rejected by the Corporation. 12. It is further submitted that the sale order dated 17.7.1997 had been passed by the Managing Director without any authority as 10 only the Executive Committee of the respondent Corporation is empowered to make the sale. The order having been passed in anticipation of the approval of the Executive Committee cannot be held to be within the jurisdiction of the Managing Director and until the same was accepted and approved by the Executive Committee it could not take effect. 13. Learned counsel further assails the principle of continuous advertisement as made in the advertisement dated 30.7.1995 and submits that the same is bad and illegal. In support of the same he relies upon a decision of learned Single Judge of this Court in the case of Santu Lal Gupta vs. Bihar State Financial Corporation and others : AIR 2000 Patna 300 in paragraphs 11 & 12 of which it has been held as follows: “11. On the other hand, Mr.A.Sahay, learned counsel for the Corporation, submitted that on the basis of advertisement notice dated 14th December, 1995 sale of the property in favour of the respondent No.4 in 1998 is perfectly legal and valid. According to the learned counsel there was no need to issue a fresh auction notice and to invite persons to participate in the auction and that there is no illegality in the sale of the property by private negotiation with the respondent No.4. I do not find any force in the submission of Mr.Sahay, counsel for the Corporation. 12. Admittedly, the advertisement for auction of the petitioner‟s unit was issued on 31.12.1995 but no one submitted their tender or participated in the auction and consequently the unit could not be sold. Thereafter no fresh advertisement was made or any notice for auction sale of the petitioner‟s unit was issued by the Corporation rather after three years the unit was sold to the respondent No.4 on negotiation and a sale order was issued in favour of respondent No.4. This fact has not been controverted by the 11 Corporation. It is also not disputed that the petitioner is a handicapped person and was disbursed only a sum of Rs. 15,000/- and for that amount together with interest the unit of the petitioner worth more than Rs. 6.00 lacs has been sold in favour of respondent No.4. I, therefore, strict my view that the action of the Corporation in selling the property of the petitioner in favour of the respondent No.4 is illegal, arbitrary and unjustified.” 14. The further submission of learned counsel is that even with respect to the sale order dated 17.7.1997 a matching offer was made to the petitioner to accept the same on the same terms and conditions as offered to the respondent No.5 within 21 days and the petitioner complied the same within two weeks through his letter dated 31.7.1997 to the BSFC and also by enclosing a Demand Draft of Rs. 4 lacs towards payment of 25% of the sale price as per the sale order and accepting to pay the balance amount in terms thereof. However, in a most collusive and mala fide manner the respondent authorities created a situation stating that the matching offer exists upon payment of the entire outstanding amount of Rs. 43,65,500/- within ten days, contrary to the terms and conditions of the sale order dated 17.7.1997 and when the petitioner resisted the same pointing out the terms and conditions of the sale order, it was treated by the respondent BSFC that it had failed to meet the matching offer and holding that it was not entitled to the benefit of the same. It is stated by learned counsel that in terms of paragraph-7 of the sale order the difference between the balance outstanding and the consideration money was to be realized from the original promoter (i.e., the petitioners) by invoking provisions of 12 personal guarantee bond or PDR Act. It is urged by learned counsel that only such a condition could be considered as reasonable and not a condition imposed upon the original promoter while making a matching offer to make payment of the balance amount. The said deliberate wrong action of the respondent authorities would only create a situation that no matching offer can ever be made except upon payment of the entire dues which cannot be said to be a matching offer nor it is required by the original sale order dated 21.10.1997. 15. It is also the stand of learned counsel that the respondent No.5 had withdrawn an amount of Rs.75,000/- on 21.10.1997 and once the same had been withdrawn the sale order dated 29.11.2000 could not have been issued in his favour as it amounted to withdrawal of the offer made by him. In that circumstance, it was not open to the authorities to have issued the second sale order in favour of respondent No.5. 16. It is urged by learned counsel that the second sale order is all the more bad and illegal not only for the reason that the person concerned had withdrawn the earlier offer by withdrawing the initial amount of Rs.75,000/- towards the offer but also because it was finalised by negotiation without re-advertising more than three and a half years after the lapse of the original sale order. It is also contended by learned counsel that the order is completely without jurisdiction as the same had been passed by the Managing Director without any fresh approval from the Executive Committee and no such approval was ever granted. 13 17. It is also the contention of learned counsel that the collusive and mala fide nature of the action of the officials of the respondent Corporation is all the more evident from the fact that the sale orders have been made in favour of respondent No.5 who as a loanee in respect of M/s. Shankar Rerolling Mills was already a defaulter to the tune of more than Rs.1 crore which fact has been asserted in the writ petition and not denied either by the respondent Corporation or the respondent No.5. This shows the gross manipulation that has been made in order to show undue favour towards the respondent No.5 by the authorities of the respondent Corporation. 18. Learned counsel also submits that the entire exercise of making the sale that too by private negotiation is bad and illegal also for the reason that no valuation report of an independent valuer was taken before the sale had been made, that too when the petitioner had repeatedly written to the authorities of the Corporation that the value of the vacant land itself was of such an extent that if it was permitted to sell the vacant land then the entire outstanding dues of the Corporation could be liquidated. In such circumstances, learned counsel submits that the entire action of the respondent authorities was to provide undue benefit to the respondent No.5 by selling assets worth 4 to 5 times more to him at a price of Rs.16 lacs. In this regard learned counsel submits that the so-called valuation report submitted by the Branch Manager by letter dated 11.12.1996 cannot be considered as a valuation 14 report in the eye of law as the same had been made on the basis not of any independent authorized valuer. 19. Learned counsel also assails the subsequent sale order dated 29.11.2000 on the ground that it has changed the terms and conditions of the earlier sale order with respect to the rate of interest as also the time for payment of the first instalment without obtaining any approval of the Executive Committee. 20. It is also the stand of learned counsel that the petitioner at all times applied for the benefit of various OTS Schemes floated by the respondent Corporation in the years 2004 and 2006 but the same was denied to it and for which the relief was sought by filing amendment petitions before this Court. 21. In support of the aforesaid stand learned counsel relies upon a decision of the Supreme Court in the case of M/s. S.J.S. Business Enterprises (P) Ltd. vs. State of Bihar and Ors. :2004(2) PLJR 171 (SC) in paragraphs 17,18,19 & 21 of which, it has been held as follows : “17. We are of the view that the sale effected in favour of respondent No.6 cannot be sustained. It is axiomatic that the statutory powers vested in the State Financial Corporation under the State Financial Corporation Act, must be exercised bonafide. The presumption that public officials will discharge their duties honestly and in accordance with the law may be regulated by establishing circumstances which reasonably probabalize the abuse of that power. In such event it is for the concerned officer to explain the circumstances which are set up against him. If there is no credible explanation forthcoming the Court can assume that the impugned action was improper[See : M/s Pannalal Binjraj & Ors. vs. Union of India & Ors. AIR 1957 SC 15 397, 409]. Doubtless some of the restrictions placed on State Financial Corporation exercising their power under Section 29 of the State Financial Corporation Act, as prescribed in Mahesh Chandra vs. Regional Manager, U.P. Financial Corpn., 1993(2) SCC 279, are no longer in place in view of the subsequent decision in Haryana Financial State Corporation vs. Jagdamaba Oils Mills. However, in overruling the decision in Mahesh Chandra, this Court has affirmed the view taken in Chairman and Managing Director, SIPCOT, Madras vs. Contromix Pvt. Ltd., 1995(4) SCC 595 and said that in the matter of sale under Section 29, the State Financial Corporation must act in accordance with the statute and must not