IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.04.2011 CORAM : THE HON'BLE MR. JUSTICE S.MANIKUMAR W.P.No.28460 of 2010 M.P.Nos.2 of 2010 and 1 of 2011 Llasar Flow Controls (P) Ltd., rep. by Ex.Director A.K.Kandaswamy ... Petitioner Vs... 1. The Tamil Nadu Industrial Investment Corporation, rep., by its Managing Director, 473, Anna Salai, Nandanam, Chennai 600 035. 2. The Tamil Nadu Industrial Investment Corporation, Coimbatore Regional Office, United Shopping Complex, 94, Dr.Nanjappa Road, Coimbatore 641 018. 3. The State Bank of India, Industrial Branch, 401, Trichy Road, Coimbatore 18. ... Respondents Prayer: Writ Petition filed under Article 226 of the Constitution of India, praying for a Writ of Ceritiorarified Mandamus, to call for the records, relating to publication of Tender-cum-Public auction notice published in"Dina Thanthi" and "Economic Times" issues, dated 22.11.2010, in respect of the property at S.F.No.441/1, Ganapathy Village, Athipalayam Road, Ganapathy, Coimbatore, quash the same and consequently, directing the setting aside of the sale held on 10.12.2010 in respect of the property at S.F.No.441/1, Ganapathy Village, Athipalayam Road, Ganapathy, Coimbatore. For Petitioners : Mr.R.Thyagarajan, SC for Mr.M.Muthappan For Respondents 1 & 2: Mr.S. Ramasamy, AAG, for Mr. A.Panneerselvam O R D E R Tender cum auction notification, published in Daily Thanthi and Economic Times on 22.11.2010 for sale of the lands to an extent of 1.40 acres with buildings, in Survey No.441/1, Ganapathy Village, Athipalayam Road, Ganapathy, Coimbatore District, for recovery of dues to the Tamil Nadu Industrial Investment Corporation Limited, under Section 29 of the State Financial Corporation Act, 1951, is challenged in this writ petition. 2. The Executive Director of Llasar Flow Controls (P) Ltd., Coimbatore, petitioner herein, in his supporting affidavit, has contended that the petitioner-company, engaged in the manufacturing of Alloy Steel Castings, Manganese Steel Castings and other allied products, has borrowed a sum of Rs.25 Lakhs as term loan in the year 1984 from the Tamil Nadu Industrial Investment Corporation Ltd., (hereinafter referred as "TIIC"). Approximately, a sum of Rs.12 Lakhs upto the year' 1997, was repaid. In addition to the above, the Company has also borrowed a sum of Rs.25 Lakhs from the State Bank of India, as working capital. 3. In the year' 1989, the company has become sick, due to heavy loss and one of the creditors, viz., State Bank of India, Industrial Branch third respondent herein, made a reference to the Board of Industrial Finance and Reconstruction, New Delhi, (BIFR) under Section 15(1) of the SICA Act and that the petitioner-company was declared as sick Company. Industrial Investment Bank of India was appointed as "Operating Agency" under Section 17(3) of the Act to explore various measures of rehabilitations under Section 18 of the Act. Proposals for one time settlement was submitted by the third respondent-Bank, but it was not accepted by the respondents. Ultimately, BIFR dismissed the reference of the petitioner for rehabilitation on 29.08.2000 and directed winding up of the company under Section 20(1) of the SICA Act. Aggrieved by the same, the petitioner preferred an appeal before the AAFIR, New Delhi, in Appeal No.409 of 2000, which was also dismissed on 28.08.2001. 4. Thereafter, when the Regional Office of the Tamil Nadu Industrial Investment Corporation, Coimbatore, has issued a notice for taking possession of the property on 16.10.2000 and assets of the company on 31.10.2000, the same was challenged in W.P.No.19826 of 2000 and this Court has granted interim stay. However, the main writ petition was dismissed lateron. Another company, by name, M/s.Sri Ranga Alloys Ltd., had taken the land and building of their company on lease and erected its machineries and buildings, worth about Rs.15 Crores. Though the said investments and machineries have nothing to do with the petitioner-Company, TIIC, without following the proper procedure, auctioned the land, building and machineries, worth about Rs.15 Crores, lying in the premises of the petitioner-company on 22.11.2002. According to the petitioner, all the machineries and the plants of M/s.Sri Ranga Alloys Ltd., were pledged with the Bank of Maurities, the creditor of the said company. 5. The petitioner has further submitted that on the date of taking possession of their premises by TIIC on 31.10.2000, M/s.Sri Ranga Alloys Ltd., had obtained an order of interim injunction and subsequently, a suit in O.S.No.3909 of 1996, pending on the file of the District Munsif Court, Coimbatore, was decreed in favour of the said company. The notification issued by TIIC, proposing an auction of the properties, fixed on 22.11.2002, was challenged in O.S.No.1219 of 2002 on the file of the District Munsif Court, Coimbatore, but no stay was granted. Since the auction itself has been conducted, the said suit has become infructuous. Thereafter, the petitioner filed W.P.No.6417 of 2003, challenging the auction sale. Subsequently, M/s.Sri Ranga Alloys Ltd., has filed another suit in O.S.No.205 of 2003, restraining the respondents therein from removing machineries. According to the petitioner, respondents 1 and 2 have not given any notice to the State Bank of India (Industrial Branch), third respondent herein, who holds the second charge for a sum of Rs.75 Lakhs on the date of auction sale. 6. It is the further case of the petitioner-company that the Executive Director of M/s.Sri Ranga Alloys Ltd., has filed W.P.No.11042 of 2003, challenging the removal of the machineries and consequently, sought for a direction to recover those already removed. The above two writ petitions came to be dismissed on the ground that the petitioner therein filed an application in C.P.No.129 of 1997 and that the same was pending. It is the further contention of the petitioner that inspite of the knowledge that M/s.Sri.Ranga Alloys Ltd., is functioning in their premises from 20.11.1995, TIIC, abusing the statutory powers, has brought the properties for auction under Section 29 of the Act. The State Bank of India, Industrial Branch, co-creditor, has also filed a petition in T.A.No.1499 of 1977 before the Debt Recovery Tribunal and the matter is still pending. 7. When the matter stood thus, the respondents 1 and 2 have issued a notification, dated 09.12.2004 for bringing the property to sale by public auction/sealed tender on 29.12.2004 in the advertisement published in Dina Thanthi, dated 13.12.2004 for sale, through public auction/sealed tender scheduled on 29.12.2004, in respect of the property comprised in S.F.No.441/1, Ganapathy Village, Athipalayam Road, Ganapathy, Coimbatore District. Challenging the same, the petitioner filed W.P.No.38988 of 2004, for quashing the same and this Court, by an order, dated 07.09.2010, disposed of the writ petition, stating that in view of the interim order granted by this Court, the auction conducted on 29.12.2004, was not confirmed and as the value of the property has been increased, the impugned notification cannot be given effect to, as on the date of passing of the order and therefore, liberty was given to the respondents therein to initiate fresh proceedings for recovery of dues from the petitioner. Subsequent to the dismissal of W.P.No.38788 of 2004, the respondents, by an order, dated 07.09.2010, have caused a publication for sale of the petitioner's land, in Tamil newspaper, viz., Dina Thanti and Economic Times, dated 22.11.2010. The said notification is challenged in this writ petition. 8. Assailing the correctness of the notification, Mr.R.Thyagarajan, Learned Senior Counsel for the petitioner submitted that the impugned sale notice is bad in law, as the same does not indicate the extent of liability of the petitioner company, the debt due to the respondents, which resulted in recovery proceedings. According to him, the petitioner had borrowed money from State of Bank, Industrial Branch, third respondent herein, and that therefore, respondents 1 and 2, the principal charge holders, are under an obligation to ascertain that best price is realized, in the auction sale, so that the surplus amount could be made available to discharge the loan obtained from the third respondent-bank. According to the learned Senior Counsel, respondents 1 and 2, a financial corporation, are charged with a duty to fix the upset price of the properties, sought to be auctioned and that for the abovesaid purpose, they have to ascertain the market value. In this context, he also placed reliance on an unreported decision in W.P.No.2244 of 2004, dated 07.07.2006. 9. Learned Senior Counsel further submitted that respondents 1 and 2, who have taken possession of the plant and machineries, in exercise of its statutory power, have an obligation, not only to act as a bailee, but also to act as a trustee, before floating a sale notice, by tender-cum-public auction and in the absence of any exercise undertaken by them in ascertaining the market value, by calling for a valuation report, the impugned notification, dated 22.10.2010, is liable to be set aside, as it is contrary to the decisions of the Supreme Court in Gajraj Jain v. State of Bihar reported in 2004 (7) SCC 151. 10. He further submitted that the auction notice is also bad for the reason that it is bereft of details of the assets, itemwise value, etc., and non-disclosure of the particulars, which would result in less participation of the bidders and would not fetch the best price. In these circumstances, he submitted that if the properties are sold in public auction in the above manner, the interest of the petitioners would be seriously affected. 11. Record of proceedings shows that while entertaining the writ petition, this Court, by an order, 14.12.2010, has granted interim stay of the impugned notification, dated 22.10.2010. 12. On the basis of the supporting affidavit filed in M.P.No.1 of 2011, for vacating the interim order, learned senior counsel appearing for respondents 1 and 2, submitted that the petitioner, who is a defaulter in payment of dues to the respondent's Corporation, has filed many writ petitions and suits, preventing the financial corporation from realizing the dues, whenever auction sale was notified. He further submitted that while disposing of W.P.No.38788 of 2004, dated 07.09.2010, this Court has granted liberty to the Corporation to initiate fresh proceedings, in accordance with law, for recovery of dues. Therefore, the Corporation has issued a impugned notification, bringing the assets of the petitioner for auction sale on 10.12.2010, by exercising its rights conferred under Section 29 of the State Financial Corporation Act. 13. Referring to the public notice issued by the writ petitioner on 10.12.2010, in Daily Thanthi Newspaper, stating that the petitioner had already settled the loan due to the Corporation and that the respondent-Corporation has no right to auction the property and that the sale, if any, conducted would be invalid, learned counsel for respondents 1 and 2 submitted that the above publication is violative of the orders passed by this Court in W.P.No.38788 of 2004, dated 07.09.2010 and such distorted version in the newspaper, contrary to the orders of this Court and that would show that the petitioner has approached this Court with unclean hands and therefore, not entitled to any equity from this Court. 14. Learned senior counsel for the respondents-Corporation further submitted that the Corporation has sanctioned a term loan of Rs.25 Lakhs to the petitioner and after purchase of land, buildings were constructed and machineries were errected at Survey No.441/1B, Athipalayam Road, Ganapathy Village, Coimbatore. The petitioner executed necessary documents mortgaging/hopothecating the factory land, building and machinery. He denied the contention that the petitioner has repaid a portion of the loan amount to the tune of Rs.12 Lakhs upto 1997. On the contrary, he submitted that the petitioner is a chronic defaulter right from the beginning and not made even single payment from the borrowed amount. 15. Learned Senior Counsel for the respondents further submitted that the Tamil Nadu Financial Corporation Limited, having a first charge, on the assets of the petitioner's company, is empowered to proceed against the mortgage assets under Section 29 of the State Financial Corporation Act, 1951. After the respondents took possession of the mortgage assets, the machinery and superstructure were sold in favour of M/s.Devi Traders, in the auction held on 22.11.2002 and that the assets were also delivered to the said highest bidder on the same day. He further submitted that a portion of the land was sold in the auction for Rs.46 Lakhs and that was subsequently, enhanced to Rs.50 Lakhs. However, in view of the interim order granted in W.P.No.38788 of 2004, the respondent- Corporation could not pursue further from confirming the auction sale. 16. Refuting the contentions that the respondent-Corporation was not agreeable for any settlement, during the pendency of the proceedings, before the BIFR/AAFIR, learned senior counsel for the respondents submitted that based on the proposal submitted by the petitioner-Company, the Corporation approved waiver of penal and compound interests, including 60% of the simple interest during the year 1995 and despite the above concession, the company has failed to settle the loan amount. He therefore submitted that consequent to the dismissal of the proceedings under SICA Act, the petitioner- Company has no locus, to raise any contentions in this regard. 17. As regards the contention that the plants and machineries belonging to M/s.Sri Ranga Alloys Ltd., were removed during the pendency of the lis between the petitioner and the Corporation, he submitted that even in W.P.No.19826 of 2000, the petitioner had not taken any plea that the machineries of another company were placed inside their premises. No information was also given by the Managing Director, Thiru.A.K.Kandasamy, till the sale was notified on 22.11.2002. Only after the sale of the machineries by the Corporation and handing over of the possession to the same to the successful auction bidder, the Director has come forward with the plea that they are the machineries of another company. According to the learned counsel, the said contention is only an afterthought to defeat the action of the Corporation from recovering the amount due from the petitioner-company. 18. It is also his further submission that suits instituted in the name of M/s.Ranga Alloy Ltd., are collusive in nature and it is nothing but an associate company of the petitioner-company, in which, the Director of the petitioner-company is also one of the Directors of former company. Refuting the contentions that the respondent- Corporation has not given due publicity of the description and value of the machineries, itemwise and assets in the notification, he submitted that as on 30.09.2010, the petitioner-company was liable to pay a sum of Rs.14,53,98,746.76 to the Corporation and as per the procedure, normal sale would commence from the total outstanding amount, as initial price to start with. If there are no offers for the initial price, it would be reduced. The participants would then, start bidding and finally, the sale would be knock down, in favour of the highest bidder. 19. According to the learned senior counsel for the respondent- Corporation, the property was valued by the panel valuers of the Corporation on 30.11.2010/07.12.2010. There were about 34 bidders in the auction sale conducted on 10.12.2010 and the highest bid offered was Rs.6.01 Crores. The guideline value of the property was Rs.2,67,18,700/- and that the market value was Rs.6,20,02,300/-. As against the said market value, respondent-Corporation received an offer of Rs.6,01,00,000/-, in the auction sale conducted on 10.12.2010. In the light of the above, learned senior counsel for the respondents-Corporation submitted that proper valuation of the market value has already been done by the panel valuers of the Corporation and in such circumstances, it is not necessary to mention in the notification, the details of the amount due by the petitioner to the Corporation and itemwise valuation, is immaterial. 20. Taking this Court through the various writ petitions and suits filed by the writ petitioner and M/s.Ranga Alloy Ltd., in which, the Director of the petitioner-Company, Thiru.A.K.Kandasamy, is also a Director of other company, he submitted that the present writ petition is nothing but another attempt to thwart the efforts of the State Financial Corporation to realise the amount due from the petitioner-company. He further added that the State Financial Corporation has to obtain finance from other banks or financial institutions for the loans advanced to its constituencies and has to repay the same and in this connection, the Corporation has to borrow money from other sources at higher rate of interest. 21. According to him, Section 29 of the State Financial Corporation Act, is intended for speedy recovery of the public money and when the said Corporation takes necessary steps for recovery of the amount due, the defaulter is not entitled to any indulgence from this Court. Placing reliance on a decision of the Supreme Court in Karnataka State Industrial Investment and Development Corporation Ltd., v. M/s.Cavalet India Ltd., and Others reported in 2006 (1) LW 241, he submitted that this Court, while exercising jurisdiction under Article 226 of the Consitution of India, cannot sit as an appellate authority, over the acts and deeds of the Financial Corporation, when steps are taken to realise the amount due to the Corporation. In the light of the above submission, he submitted that the contentions raised by the writ petitioner are devoid of merits and therefore, prayed to dismiss the writ petition. Heard the learned counsel for the parties and perused the materials available on record. 22. Though the petitioner has narrated the events, which necessitated the Tamil Nadu Industrial Investment Corporation Ltd., to recover the dues, by resorting to auction, for the term loan borrowed in the year 1984 and further contended that his lessee, M/s.Sri Ranga Alloys Ltd., to whom, the premises were let out, had challenged the manner, in which, their machineries were taken possession and sold in auction for realisation of the amounts due from the company, this Court is not inclined to advert for the above to the abovesaid pleadings, except to adjudicate, as to whether the impugned sale notification, dated 22.11.2010, is valid or not and whether the Financial Corporation has acted in a fair and reasonable manner and whether there is any statutory violation, warranting interference. 23. Pleadings disclose that as on 30.03.2010, the liability of the petitioner's company to the Corporation, was stated to be Rs.14,53,98,746.76. Though a loan has been borrowed in the year 1994, when steps were taken to realise the same with interest, the petitioner and M/s.Sri Ranga Alloys Ltd., in which, Thiru.A.K.Kandasamy, is a Director, has filed many writ petitions/suits, the details of which, are as follows: Sl.No. WP/Suit No. Filed by Case for Status 1 W.P.No.19826 of 2000 [High Court of Madras] M/s.Llasar Flow Controls Pvt. Ltd., represented by A.K.Kandasamy Not to sell the assets and for interim injunction WMPs for interim stay dismissed on 04.04.2001 and main writ petition dismissed on 20.08.2008. 2 O.S.No.1219 of 2002, DMC, Coimbatore M/s.Llasar Flow Controls Pvt. Ltd., represented by A.K.Kandasamy For a declaration that the auction procedure and the proposed auction on 22.11.2002 are null and void and for injunction. Dismissed on 02.12.2003 3 W.P.No.6417 of 2003 [High Court of Madras] M/s.Llasar Flow Controls Pvt. Ltd., Challenging the auction sale notice on 01.11.2002 for the auction to be conducted on 22.11.2002 No interim orders. Main writ petition dismissed on 27.01.2009 4 O.S.No.205 of 2003, DMC, Coimbatore. M/s.Ranga Alloys Ltd., (in which Thiru.A.K.Kanda- samy is a director Not to remove the machinery and for an order of injunction Dismissed on 06.03.2003. 5 W.P.Nos.11041 and 11042 of 2003 [High Court of Madras] M/s.Llasar Flow Controls Pvt. Ltd., represented by Thiru.A.K.Kanda- samy Restraining the respondent corporation and the auction purchaser from dealing with the property and for a direction to the auction purchaser not to alienate or transfer the property Dismissed on 09.07.2003 Sl.No. WP/Suit No. Filed by Case for Status 6 W.P.No.38788 of 2004 [High Court of Madras] M/s.Llasar Flow Controls Pvt. Ltd., represented by Thiru.A.K.Kanda- samy Challenging the auction sale to be conducted on 29.12.2004 Disposed of on 07.09.2010 24. From the pleadings and materials on record, it is evident that M/s.Sri Ranga Alloys Ltd., has filed Writ Petitions and suits, expressing their grievance over the manner, in which, the plants and machineries were taken possession by the respondents 1 and 2 and after considering the submissions made therein, appropriate orders have been passed in the writ petitions filed by the said Company, and if they are aggrieved over the orders, it is for the said company to challenge and therefore, it is not open to the writ petitioner to step into the shoes of the lessee to espouse his cause and obstruct the process of realisation of loan amount. 25. Section 29 of the State Financial Corporation Act, 1951 reads as follows: "29. Rights of Financial Corporation in case of default——(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concerns, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. (2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property. (3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods. (4) Where any action has been taken against an industrial concern] under the provisions of sub- section (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto. (5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern." 26. The main objections of the writ petitioner are that the principal charge holders have failed to ascertain the market value of the properties sought to be sold in auction for realistation of the outstanding debt and not furnished the details of the assets, itemwise etc., in the notification and non-disclosure of the same, in the auction notification, would result in less participation, thereby, the best price for the property would not be realised and the said action is therefore, cannot be said to be a fair exercise of power under Section 29 of the Act. According to the petitioner, there is a failure on the part of the respondents 1 and 2 to fulfil their legal obligations in the capacity of bailee. 27. In Everest Wools Pvt. Ltd., v. U.P.Financial Corporation reported in 2008 (1) SCC 643, the Supreme Court, while testing the correctness of the order of the Allahabad High Court, relating to recovery under Section 29 of the State Financial Corporation Act and dealing with the contentions regarding theft of plants and machineries and handing over the possession of the unit, the Supreme Court, opined that the Financial Corporation, apart from its obligation as a bailee, also act as a transferee and therefore, its action should be fair and reasonable. At paragraphs 19 and 20 of the Apex Court has explained the role and status of the Financial Corporation, when they exercise their powers under Sections 29