THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY + Writ Petition No.6326 of 2005 % 05-10-2010 # L.Sanjeeva Rao &Ors. ...Petitioners vs. $ A.P.State Financial Corporation rep. by its Branch Manager, Jayakrishnapuram, Rajahmundry &Ors. …Respondents ! Counsel for the petitioners : Sri P.Venugopal Counsel for the Respondents: Sri Sreemannarayana Sri Reddy Venkataramana Sri B.Appa ao Sri M.V.S.Sai Kumar Sri Siva S.Lanka < Gist : > Head Note: ? Cases referred: AIR 1994 SUPREME COURT 2657 AIR 1993 SUPREME COURT 1435 AIR 2002 SUPREME COURT 834 (2009) 9 SUPREME COURT CASES 478 (2010) 1 SUPREME COURT CASES 297 2009(2) ALD 530 2009(1) ALT 143 2009(2) ALD 690 AIR 1990 ORISSA 42 2004(7) SCC 151 2005(4) SCC 456 THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Writ Petition No.6326 of 2005 Dated: 05th October, 2010 Between: 1. L.Sanjeeva Rao & Ors. …. Petitioners and 1) A.P. State Financial Corporation rep. by its Branch Manager, Jayakrishnapuram, Rajahmundry & Ors. …Respondents *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Writ Petition No.6326 of 2005 ORDER: M/s.Janardhana Earth Movers, initially a partnership concern, comprising L.Janardhana Rao and Srinivasa Rao, subsequently, it has been converted as proprietary concern. M/s. Janardhana Earth Movers availed loan of Rs.26,88,000/- from A.P. State Financial Corporation, Rajahmundry-1st respondent for purchasing excavator 200 (poclaimer). L.Sanjeeva Rao, L.B.Umamaheswara Rao, and L.V.B.Appa Rao are brothers and whereas, Smt.A.Srilakshmi, Smt.T.Rama Kumari are sisters of L.Janardhana Rao. They offered the house plots standing in their names as security for the loan availed by M/s.Janardhana Earth Movers. The borrower failed to pay the installments. Thereupon, the A.P. State Financial Corporation-1st respondent initiated proceedings under Section 29 of the State Financial Corporation Act, 1951, (for short, ‘the Act’) and notified sale of the mortgaged house plots in EENADU newspaper on 14.09.2002. The total extent of the six house plots situated in Survey No.4/6 of Narasimha Nagar, Gopalapatnam village, Visakhapatnam Mandal, is 2970 sq. yards. Some offers received pursuant to the notification. After due negotiations with the persons participated in the bidding, V.Venkateswara Rao offered to purchase house plots at Rs.63,25,000/-. Proceedings came to be issued on 24.12.2002 inviting offers over and above the highest offer made by V.Venkateswara Rao-6th respondent. There being no further offer, the highest offer made by V.Venkateswara Rao-6th respondent, came to be accepted and V.Venkateswara Rao-6th respondent has been directed to pay the bid amount in 60 days vide letter dated 01.101.2003. For better understanding, I may reproduce the text of the letter, which reads as hereunder: “With reference to the above, we are pleased to inform you that our Corporation has approved your offer for purchase of collateral security property of 6 plots covered by S.No.4/6 (Plot Nos.8, 9, 10, 11 & 13 – extent 2970 sq. yds.) forming part of Gopalapatnam (V), Visakhapatnam (M) & Town U/S.29 of SFCs Act, 1951 for a consideration of Rs.63.25 lakhs (Rupees Sixty three lakhs and twenty five thousands only), on 100% down payment basis, subject to the following terms and conditions: 1. You shall pay the entire sale consideration of Rs.63.25 Lakhs (including the EMD of Rs.1.70 Lakhs) within 60 days from the date of this letter and to take possession of the fixed assets offered for sale. 2. If you fail to make payment as stipulated above, the EMD paid by you shall be forfeited without further reference to you. 3. If you fail to pay and take possession of the collateral security of the unit within the stipulated time, the asset carrying costs such as Insurance, Watch and Ward expenses and interest on sale consideration etc., shall be born by you for the delayed period as per the procedure of the Corporation. 4. You shall, at your own cost and expenses execute and/or register such instruments/legal documents or do or cause to be done such acts and deeds as maybe required by the Corporation for transfer of the collateral security of the unit offered for sale to you. 5. The Corporation shall not be liable to pay any dues either statutory or otherwise. This letter is issued to you, in duplicate, with a request to return one copy to the Sr. Branch Manager, APSFC, Rajahmudnry Branch, duly signed by you as a token of your acceptance of the above terms and conditions.” V.Venkateswara Rao-6th respondent paid EMD of Rs.1.70 Lakhs by way of Demand Draft on 11.12.2002. Balance sale consideration came to be paid by V.Venkateswara Rao-6th respondent from 31.03.2003 to 28.11.2003. He submitted letter dated 01.12.2003 to the Branch Manager, APSFC, Rajahmundry Branch for waiver of interest on the delayed payments of sale consideration. The text of the letter dated 01.12.2003 reads as hereunder: “We have purchased the collateral security of 6 plots covered by S.No.4/6, Plot Nos.8, 9, 10, 11, 12 & 13 admeasuring 2970 sq. yds. At Goapalapatnam (V) Visakhapatnam (M) & Town, u/s.29 of SFCs Act for a consideration of Rs.63.25 lakhs belonging to Janardhana Earth Movers Pvt. Ltd. As per the sale confirmation letter dt.1.1.2003 we were asked to pay the entire sale consideration of Rs.63.25 lakhs within 60 days i.e., on or before 1-3-2003. Due to the problems faced by us in mobilizing funds, there was delay in payment of the said sale consideration and finally the sale consideration of Rs.63.25 lakhs was paid on different dates by 29.11.2003. We request the corporation to waive the interest on the delayed payments and hand over the collateral security property to us at an early date.” Smt.L.Mahalakshmi, L.Sanjeeva Rao and LBS Uma Maheswara Rao (respondent No.6 and petitioners 1 and 2 herein) filed O.S.No.330 of 2004 on the file of the Principal District Judge at Visakahapatnam, seeking for partition and separate possession of their shares in the joint family properties. L.V.B.Apparao, L.Janardhana Rao, A.Sri Lakshmi, T.Rama Kumari and A.P. State Financial Corporation, Rajahmundry (respondents 4, 3 and petitioners 3 and 4 herein) are the defendants in the said suit. The plaintiffs therein also filed interlocutory application seeking for interim injunction. The Civil Court granted an order of status quo. The six house plots have been shown as item No.2 in the suit schedule. Since the schedule has some significance in this case, I deem it appropriate to refer the description of the plots given in the schedule as item No.2, which reads as hereunder: “Item No.2: Land to the extent of 2,970 sq. yds. situated at Gopalapatnam, Narasimha Nagar in Survey No.4/6, Urban Vacant land residential …. Rs.49,00,500-00” Pending the suit, the plaintiffs therein sought for reference of the dispute to the Lok Adalat. The District Legal Services Authority, Visakhapatnam, issued notice to the parties. The A.P. State Financial Corporation filed memo before the District Legal Services Authority, Visakhapatnam, stating that the mortgaged property has been put to auction and in the auction, V.Venkateswara Rao-6th respondent offered highest price and his offer has been accepted and sale has been approved in his favour. Para.3 of the Memo filed by the APSFC before the District Legal Services Authority reads as hereunder: “3. It is respectfully submitted that the suit schedule property was already sold by this respondent long time back as per their rights conferred under Section 29 of the State Financial Corporation’s Act for realization of the dues for a sum of Rs.63.25 Lakhs (Sixty Three Lakhs Twenty Five Thousand only) in favour of V.Venkateswara Rao and others. Thereafter the entire sale consideration was also paid by the purchaser and therefore the question of the plaintiff and some of the defendants expressing their readiness and willingness to discharge the entire loan amount and showing a demand draft of Rs.38 Lakhs (Rupees Thirty Eight Lakhs only) does not arise at this stage.” Smt.A.Srilaxmi and Smt.T.Ramakumari (petitioners 3 and 4 herein) filed a petition under Section 29 of the Act before the Sate Financial Corporation at Hyderabad, to set aside the auction. The A.P. State Financial Corporation rejected the application filed by them, by order dated 01.03.2005. Thereafter, L.Sanjeeva Rao, L.B.Umamaheswara Rao, Smt.A.Srilakshmi and Smt.T.Rama Kumari filed this Writ Petition on 23.03.2005 seeking the following relief: “For the reasons stated in the accompanying affidavit, the petitioners herein pray that this Hon’ble Court may be pleased to issue a WRIT OF MANDAMUS declaring the alleged sale by the 1st respondent in favour of the 6th respondent of Plots 8-13 admeasuring 2970 sq. yds. In S.No.4/6, Narasimha Nagar, Gopalapatnam on 18.12.2002 and the subsequent proceedings of the 1st respondent in Ref.No.AFC/MR& R/2004-05, Dt.1.3.05 as illegal, arbitrary, mala fide, unreasonable and violative of Arts.14 and 300-A of the Constitution of India and consequently direct R.1 to return the original title deeds pertaining to Plots Nos.8 to 11 in Sy.No.4/6 of Narasimhanagar, Gopalapatnam, Visakhaptnam on receipt of proportionate amount due towards their share from the 2nd respondent as on the date of sale notification.” 2. Sale of the mortgaged property in favour of V.Venkateswara Rao- 6th respondent is challenged on the following grounds: i) The period fixed for receipt of offers is unusual; ii) The account has not been transferred to non-performing asset as on the date of sale; iii) The auction purchaser/6th respondent has not paid the sale amount within 60 days as stipulated in the letter dated 01.01.2003; iv) As on the date of acceptance of the offer, the 6th respondent has not deposited the EMD. There is a collusion between the 1st respondent and the 6th respondent; v) Had the sale been true, the account would have been closed after adjusting the sale proceeds, balance ought to have been paid to the sureties/guarantors. Even on 05.11.2003 the 1st respondent Corporation informed the sureties/guarantors to pay the instalment of Rs.62,500/- by 30.12.2003, which indicates that the account has not been treated as non-performing asset; vi) Action of the 1st respondent Corporation in putting the 6 plots in one block when the sale consideration of some of the plots is adequate to clear the outstanding liability in the account of M/S.Janardhana Earth Movers is unjust; vii) The quantum of amount offered by the 6th respondent is far below the market value. 3. Rule Nisi came to be issued on 25.03.2005. 4. Respondents 1 and 6 filed separate counter-affidavits. 5. S.V.Adinarayana, Deputy Manager (Legal), A.P. State Financial Corporation, Rajahmundry, has sworn to the counter-affidavit filed on behalf of 1st respondent. It is stated in the counter-affidavit that the petitioners having availed alternative remedy by approaching the civil Court by filing two civil suits against this respondent in respect of the lis cannot be permitted to invoke the extra-ordinary jurisdiction of this Court under Article 226 of the Constitution of India. The petition is also liable to be summarily dismissed since the petitioners have initiated successive proceedings questioning the sale conducted by the 1st respondent Corporation. The 1st respondent Corporation advertised sale of the mortgaged plots in EENADU daily on 23.03.2002. None responded to the sale notification. Therefore, a fresh advertisement came to be issued on 14.09.2002 in EENADU daily. In response to the said advertisement, the 6th respondent herein offered to purchase the mortgaged plots for a total consideration of Rs.63.25 Lakhs. The 6th respondent paid the entire sale consideration of Rs.63.25 Lakhs by 29.11.2003. While so, L.Janardhana Rao claiming himself to be the proprietor of M/s.Janardhana Earth Movers filed O.S.No.3429 of 2003 on the file of the Junior Civil Judge, Visakhapatnam and sought for interim injunction against the 1st respondent Corporation from effecting sale of the secured plots. The said application being I.A.No.1439 of 2003 ended in dismissal on 23.11.2004. Thereafter, the petitioners 1 and 2 and 5th respondent in the writ petition filed a partition suit being O.S.No.153 of 2004 on the file of the Vacation Civil Judge, Visakhapatnam and subsequently, the suit came to be transferred to the file of the District Judge, Visakhapatnam and renumbered as O.S.No.330 of 2004. The plaintiffs therein filed I.A.No.311 of 2004 and obtained an order of status quo. The 1st respondent Corporation filed counter in the said I.A. The plaintiffs therein got the matter referred to Lok Adalat for exploring the possibility of amicable settlement. Since the 1st respondent Corporation received entire sale consideration from the purchaser, it expressed inability for any settlement. The Senior Manager and Law Officer of the 1st respondent Corporation attended the Lok Adalat on 18.01.2005 and submitted a memorandum expressing the inability of the respondent Corporation to settle the matter. Thereafter, the file came to be transmitted back to the District Court for taking necessary action. The petitioners filed this Writ Petition apprehending dismissal of their injunction application by the civil Court. The 2nd respondent firm availed loan for acquisition of Excavator 200 and offered six house plots in Survey No.4/6 of Narasimha Nagar, Gopalapatnam village, Visakhapatnam Mandal, admeasuring 2970 sq. yards, as collateral security. Sale of collateral securities has been properly effected by the respondent Corporation. Before the sale, neither the promoters nor the petitioners approached the respondent Corporation for settlement of outstanding dues. It is only after confirmation of the sale, the petitioners and others resorted to initiate several proceedings. The 6th respondent participated in a meeting of the Operations Committee held on 18.12.2002 after duly paying the EMD on 11.12.2002, and not on 27.12.2002 as claimed by the petitioners. As per Clause No.3 of the sale confirmation letter, this respondent Corporation maintained the account of the unit even after auction upto 31.08.2004 duly disclosing the balance payable as Rs.41,88,988/- since the sale consideration was not adjusted to the loan account in view of status quo order obtained in I.A.No.1439 of 2003 in O.S.No.3429 of 2003 initially and in O.S.No.330 of 2004 subsequently. This respondent Corporation had not adjusted the outstanding dues payable to it in a sum of Rs.33.09 lakhs as on 30.10.2003, since the total sale consideration was not received from the 6th respondent by then. The 2nd respondent herein failed to respond to several notices issued, after filing O.S.No.153 of 2004. Neither the 2nd respondent nor the 3rd respondent offered to close the account by clearing the outstanding dues. It is only after dismissal of the injunction application and after a year of the payment of entire sale consideration by the 6th respondent herein, some of the sureties filed O.S.No.330 of 2004 on the file of the District Court, Visakhapatnam. 6. The counter-affidavit of the 6th respondent, in brief, is: The other partner in M/s.Janardhana Earth Movers is no other than the husband of the 4th petitioner herein. The 2nd respondent herein committed default in payment of instalments and interest and failed to respond to various letters of demand addressed by the 1st respondent Corporation. Way back in the year 2000 itself, the 1st respondent Corporation informed the petitioners of their failure to clear the loan amount and thereby compelling it to proceed against the secured properties. Thereupon, the 2nd respondent under letter dated 13.12.2000 promised to repay the loan amount while paying a sum of Rs.15,000/-. However, he failed to pay the outstanding dues. The 1st respondent Corporation has given him the account copy vide letter dated 31.05.2001 and the petitioners acknowledged the same, but made no payments to liquidate the liability. Ultimately, the 1st respondent Corporation was constrained to issue letter dated 12.12.2001 calling upon all the persons concerned to regularize the loan account. Even the telegrams issued to them had no effect. Therefore, the 1st respondent Corporation published a sale notice dated 21.03.2002. Subsequently, on 30.04.2002 the 1s t petitioner assured the 1st respondent Corporation to regularize the account and sought time for payment, but no payment has been made by him. The 1st respondent Corporation issued a reminder to all the concerned. Again on 16.07.2002 the 2nd petitioner promised to regularize the loan account, but in vain. The plaintiffs in O.S.No.330 of 2004 filed the suit on 31.05.2004 and whereas, he made entire payment of Rs.63.25 Lakhs by 29.11.2003. He deposited EMD before participating in the Operations Committee meeting. The 1st respondent Corporation deposited the demand draft submitted by him for collection on 23.12.2002. He obtained the demand draft for EMD on 11.12.2002 and submitted the same on 13.12.2002 to the 1st respondent Corporation and not on 27.12.2002 as alleged by the petitioners. The Committee has valued all the six house plots covered by S.No.4/6 (Plot Nos.8, 9, 10, 11, 12 and 13) admeasuring 2970 sq. yds. at Rs.44.55 Lakhs and accordingly, all the plots are put to auction as one block. The petitioners having availed the alternative remedy by filing O.S.No.330 of 2004 on the file of the Principal District Judge, Visakhapatnam, are not entitled to invoke the extraordinary jurisdiction of this Court. 7. The writ petitioners filed reply affidavit. It is stated in the reply affidavit that the 1st respondent Corporation failed to obtain the best possible price for the mortgaged assets of the petitioners, but instead colluded with the 6th respondent and got the properties worth of Rs.1.50 Crores disposed for Rs.63.25 Lakhs to realize its due of Rs.33,44,361/-. Although the mortgaged assets could be sold on itemized basis, all the plots came to be put to sale as one block and thereby, the 1st respondent Corporation acted unfairly, unreasonably and improperly. Mere filing of suit by L.Janardhana Rao cannot be a bar to the petitioners for filing the present writ petition. Request for one time settlement was made on 09.11.2003 by respondents 2 and 3 herein and it was made much prior to the payment of sale consideration by the 6t h respondent, but the 1st respondent corporation has not considered their request for one time settlement with a mala fide intention to favour the 6th respondent, who supposed to have made payments as per letter dated 01.01.2003 by 02.03.2003. The reasons for giving such indulgence to the 6th respondent enabling him to make payments in 8 months are obvious i.e. to favour 6th respondent. The 6th respondent never participated in the meeting of Operations Committee on 18.12.2002 after making payment of EMD. 8. Heard Sri P.Venugopal, learned counsel appearing for the petitioners, Sri Sreemannarayana Vattikuti, learned counsel appearing for the 1st respondent, Sri Reddy Venkata Ramana, learned counsel appearing for the respondents 2 and 3, Sri B.Appa Rao, learned counsel appearing for the respondent No.4, Sri M.V.S.Sai Kumar, learned counsel appearing for the respondent No.5 and Sri Siva S.Lanka, learned counsel appearing for respondent No.6. 9. Learned counsel appearing for the petitioners submits that the very procedure adopted by the 1st respondent for sale of the mortgaged property is most unusual and the confirmation of sale in favour of the 6th respondent is illegal and arbitrary since he failed to deposit the sale consideration within sixty days as stipulated in the letter dated 1.1.2003 and permitting the 6th respondent for payment of the sale consideration in instalments is not in accordance with the terms and conditions of sale notice. He would also submit that the amount offered by the 6th respondent is far below the market value, and therefore, his offer cannot be termed as fair and acceptance of the unfair offer of the 6th respondent by the 1st respondent indicates collusion between them. A further contention has been advanced by the learned counsel that by the date of sale notice, the account of M/s.Janardhana Earth Movers has not been categorized as Non Performing Asset (NPA) and the application dated 9.11.2003 under OTS scheme has been pending and in which case, initiation of proceedings under Section 29 of the Act is not legal and proper and consequently, proceedings thereto are deemed to non est in law. It is vehemently contended by the learned counsel that by the date of 6th respondent submitting its offer, EMD has not been paid, in which case, the very offer of him has become invalid. According to the learned counsel, the petitioner paid the EMD on 27.12.2008, which is much later to his submitting the offer and as his offer does not contain the EMD, the said offer is to be treated as invalid. In support of his submissions, reliance has been placed on the decision of the Supreme Court in The Maharashtra State Financial Corporation v. M/s.Suvarna Board Mills and another[1], wherein it has been held that State Finance Corporation being a public body should communicate its response to the representation before deciding to take over possession. 10. Learned counsel appearing for the 1st respondent submits that the borrower and the guarantors have been put on notice before initiation of proceedings under Section 29 of the Act and number of opportunities have been given to them to liquidate the liability and as a last resort only, proceedings have been initiated under Section 29 of the Act, and in which case, neither the petitioners nor the respondents 2 to 5 can be permitted to contend that recourse to Section 29 of the Act has been taken without putting them on notice. He would also contend that the petitioners and the respondents 3 to 5 made their efforts to stall the proceedings initiated under Section 29 of the Act by taking recourse to civil Court and obtained status quo orders for a limited period and subsequently, failed to get any relief. After exhausting their efforts to stall the sale proceedings, some of the members of the joint family have chosen to approach this Court by invoking jurisdiction under Article 226 of the Constitution of India, and in the given facts and circumstances, invocation of jurisdiction of this Court by the petitioners under Article 226 of the Constitution of India is wholly unjustified. Even, the representation for One Time settlement has been made by the petitioners 3 and 4 after the sale has been held. Proper response has been given to the petitioners 3 and 4 rejecting their petition. The present writ petition has been filed with the sole object of delaying further proceedings consequent on the sale being approved in favour of the respondent No.6. It is stated by the learned counsel that respondent No.6 deposited EMD on 11.12.2002 along with his offer, and therefore, the plea advanced by the petitioners that the offer of the 6th respondent has not been accompanied by EMD does not hold water. It is also submitted by the learned counsel that the 6th respondent paid Rs.3,66,296/- on 13.01.2004 towards interest on delayed payments and the process left over, pursuant to the sale notification, is execution of the sale deed in favour of the 6th respondent. Learned counsel clarifies that the sale proceeds could not be adjusted in the year 2003 because of some parties approaching civil Court and obtaining interim orders and soon after the interim orders are vacated, the sale proceeds have been adjusted to loan account and treated as account closed and the same has been communicated to respondent No.3 under letter dated 23.12.2003. While answering the plea of the petitioners that the offer made by the 6th respondent is not fair, learned counsel refers the plaint copy in O.S.No.330 of 2004 on the file of the Principal District Judge, Visakhapatnam and contends that the plaintiffs therein including petitioner No.1, 2 and respondent No.5 put the valuation of the mortgaged property which is shown as item No.2 at Rs.49,00,500/- as on 31.5.2004, and whereas the property has been purchased by the 6th respondent for Rs.62,50,000/- which is far higher than the valuation given by the plaintiffs in the suit, which itself suggests that the plea taken by the petitioners herein is wholly unsustainable. 11. Learned counsel appearing for the 6th respondent while adopting the arguments of the learned counsel appearing for the 1st respondent submits that the sale conducted by the 1st respondent is fair, reasonable and the price offered by the 6th respondent is far higher than the valuation made by the plaintiffs in O.S.No.330 of 2004 to which the petitioners herein and the respondents 1 to 5 are parties. Learned counsel contends that the Court exercising power under Article 226 cannot act as an appellate authority over the decision taken by the State Financial Corporation under Section 29 of the Act. In support of his contention, learned counsel placed reliance on the decisions of the Supreme Court in