IN THE HIGH COURT OF JUDICATURE AT PATNA LPA No.277 of 2008 1. Bihar State Financial Corporation- through it‟s Chairman, Fraser Road, Patna. 2. Managing Director, Bihar State Financial Corporation, Fraser Road, Patna- 800001. 3. Branch Manager, Bihar State Financial Corporation, Magadh Branch, Premises of Arvind Press, Peer Mansoorganj, G. B. Road, Gaya. … Appellants/Respondents. Versus Kedar Nath Lohani, son of late Mahesh Prasad Lohani, resident of Mohalla G. B. Road, P. S. Kotwali, District- Gaya. … Respondent/Petitioner. -------- For the appellants : Mr. P. K. Shahi, Advocate General : Mr. M. K. Thakur, Adv. For the Respondent : Mr. B. K. Chaudhary, Sr. Adv. For the intervenor : Mr. Rabindra Prasad Sinha, Adv. ----------- PRESENT : THE HON'BLE THE CHIEF JUSTICE THE HON'BLE MR. JUSTICE MIHIR KUMAR JHA ORDER ( 22/03/2010) As per Mihir Kumar Jha, J I. A. No. 2760 of 2010 This is an application for impleadment of one Smt. Shushama Sinha as respondent in this appeal on the ground that during the pendency of this appeal the Corporation has issued the sale order to the mortgaged house of respondent-writ petitioner in her favour and as such she would be vitally affected by any order passed in this appeal. 2 2. Heard Mr. P. K. Shahi, learned Advocate General for the appellants, Mr. Basant Kumar Chaudhary, learned senior counsel appearing for respondent-writ petitioner and Mr. Shambhu Nath, learned counsel appearing for intervenor-Smt. Shushama Sinha. 3. For the reasons mentioned in this application, the prayer made therein is allowed and Smt. Shushama Sinha is directed to be impleaded as respondent no. 2 to this appeal. 4. Accordingly, this interlocutory application is disposed of. L.P. A. No. 277 of 2008 5. Heard learned counsel for the parties. 6. In this intra-court appeal, the appellants- Bihar State Financial Corporation and its officials have assailed the order of the learned single Judge dated 3.3.2008 whereby and whereunder the impugned notice of sale dated 1.2.2008 challenged by the respondent-writ petitioner in C.W.J.C. No. 3164 of 2008, in effect, has been allowed by directing the appellant-Corporation to accept the payment of Rs.6.52 Lakh along with interest accrued thereon from 5.2.2007 within a period of three 3 months. 7. Mr. P. K. Shahi, learned Advocate General appearing on behalf of the Corporation has submitted that total balance outstanding against the respondent- writ petitioner for the loan of Rs. 3.24 lakh taken in the year 1989 as on the date of issuance of notice for sale was Rs.44.27 lakh and therefore the direction of the learned single Judge not to give effect to the sale notice by directing the corporation to accept payment of a sum of Rs. 6.52 lakh with interest from 5.2.2007 was wholly unsustainable either in law or on fact. In this context, he has also submitted that the conclusion arrived at by the learned single Judge that had the Corporation allowed the one time settlement scheme in favour of respondent-writ petitioner, his liability could have been only Rs. 6.52 lakh as on 5.2.2007 is based on a mere hypothesis and speculation and is also contrary to the scheme of one time settlement which could not have been made applicable in the case of respondent-writ petitioner inasmuch as he had never applied for such one time settlement. He has also informed this court that the auction sale notice dated 30.1.2008 had already been acted upon and the unit was 4 already auction sold in favour of the intervenor Respondent no. 2 who has already paid a sum of Rs.28 lakh to the Corporation. 8. Per contra, Sri Basant Kumar Chaudhary, learned senior counsel appearing on behalf of respondent-writ petitioner while supporting the impugned order passed by the learned single Judge has submitted that the Corporation cannot be allowed to sale the mortgaged house of the respondent-writ petitioner by inflating principal amount of loan of Rs.3.24 Lakh to Rs.44.27 lakh and that One Time Settlement (OTS) Scheme of the Corporation being a beneficial scheme, the dues of the respondent-writ petitioner ought to have been confined and settled for a sum of Rs.6.52 lakh. He has further submitted that any action taken by the Corporation during the pendency of the writ petition by way of giving effect to the sale notice or accepting the offer of the intervenor for a sum of Rs.28 Lakh could not have defeated the right of respondent-writ petitioner. 9. Counsel appearing on behalf of intervenor- respondent no. 2, the person in whose favour the sale has already been effected, has submitted that there was no 5 question of respondent-writ petitioner of being allowed to now retain the unit, inasmuch as, a third party interest in her favour has already been created wherein she has already paid a sum of Rs.28 Lakh to the Corporation. 10. This court in order to decide the questions involved herein must take note of admitted facts. It is undisputed that in the year 1989, the respondent-writ petitioner had taken a loan of Rs. 3.24 Lakh from the Corporation for purchasing a truck. It is also not in dispute that the respondent-writ petitioner had not cleared such liability despite series of notices given to him by the corporation including notices dated 9/15. 1.2002 directing him to pay balance outstanding of Rs. 18.33 lakh as on 31.8.2001 and again by separate notice dated 8.11.2007 directing him to pay a sum of Rs. 44,27 lacs approximately. It was under these circumstances that the Corporation in exercise of its power under Section 29 of the State Financial Corporation Act (hereinafter referred to as “the Act”) had issued sale notice dated 1.2.2008 putting on auction the freehold land measuring 1254 sft (2.88 decimals/0.92 khatas) with three storeyed pacca building having a plinth area 1198 sft for realization of the amount 6 with interest which was advanced to the respondent-writ petitioner for purchasing a truck in the year 1989. In fact as soon as the said sale notice was published the writ petition was filed by respondent-writ petitioner for the following relief namely:- “ 1. That this is an application for issuance of an appropriate writ, order or direction for quashing the advertisement dated 1.2.2008 published in the Hindi daily Newspaper „Hindustan‟ by which tenders have been invited for auction sale of the residential pucca building of the petitioner as well as a truck bearing no. 1210/42B- 1989 model for which loan was taken, as advertisement without sending any notice for the seizure of the same as has been contemplated in section 31 of the State Financial Corporation Act of 1951 and issuance of a direction to afford an opportunity to the petitioner for settling the dues under one time settlement scheme of the Corporation taking in view the pathetic condition of the petitioner.” 11. The case of the writ petitioner in this regard case was that he had already paid a sum of Rs.1.19 lakh and the Corporation instead of putting his mortgaged house on sale by the impugned sale notice ought to have afforded an opportunity to him for one time settlement of the loan amount as per circular No. 2 of 2004-05. 12. The Corporation thereafter had filed its counter 7 affidavit wherein a specific stand was taken that original amount of Rs.3.24 Lakh advanced on 18.3.1989 had swayed to Rs.44.27 Lakh as on 31.8.2007 and the respondent-writ petitioner who had made payment of Rs.1.19 lakh was a defaulter and therefore the Corporation had no option but to take recourse to the provision of Section 29 of the Act. As with regard to the scheme of one time settlement of respondent-writ petitioner, the Corporation had taken the following stand:- “6. That as desired by this Hon‟ble Court, with regard to giving details if the petitioner would have applied for settlement under OTS Scheme, 2006. The plan wise settlement amount would have as follows:- Opted Plan Application amount Last dt. For filing OTS appln Grace period allowed Grace period penalty to be deposited with the OTS appln. Settlement amount in lacs. Plan A 50% of P.O.S. 05.02.2007 7 days 10% of Appl money Rs.3,60,400/- Plan B 25% of P.O.S. 05.02.2007 7 days 10% of Appl money Rs. 4.09/- Plan C 10% of P.O.S. 05.02.2007 One month 10% of Appl money Rs.4.90/- Plan D 10% of P.O.S. 05.02.2007 One month 10% of Appl money Rs.6.52/- It is relevant to bring to the notice of this Hon‟ble Court, that the time of filing application under OTS Scheme, 2006 has already lapsed long back. Since the time period of filing the application under OTS Scheme, 2006, is over, the BSFC is unable to accept his OTS Application now." 8 13. It thus becomes clear that respondent-writ petitioner had neither applied under the OTS Scheme 2006 nor the said scheme was is existence on the date the writ petition was filed. In fact, the Corporation had clearly informed this Court that it was unable to accept the OTS application of respondent-writ petitioner. 14. In view of the fact that direction of the learned Single Judge was given as with regard to implementing the OTS Scheme which according to the respondent-writ petitioner was in vogue in terms of Circular No. 2 of 2004- 05, it would be necessary to decide as to whether such OTS Scheme was an everlasting scheme so as to given its benefit to any and every defaulter of the Corporation and as to whether in fact it was for the loanees to avail the scheme or a compulsion of the Corporation to go to each and every loanee and offer OTS Scheme on a platter. 15. The Corporation in past has periodically, in keeping with guidelines issued by the Reserve Bank of India given offers of OTS to the loanee under which it had to file an application within a prescribed period by depositing 10 % of the Balance outstanding dues along with the application which was to be adjusted against his 9 dues in any event on receipt of such application and depending on the viability of the assets to the Corporation was to take decision for such one time settlement on case to case basis. 16. In this context it would be useful to take into account the scope of Circular no. 02/04-05 dated 11.11.2004 wherein it was provided that the last date of filing OTS application had expired on 25.5.2005 but the Respondent writ petitioner did not choose to file his application. 17. It is also significant to note here that another OTS Scheme was floated by appellant B.S.F.C. vide its Circular no. 5/06-07 dated 15.7.2006 in which last date for filing application was 2.11.2006/2.1.2007 wherein it was provided that the period of the said OTS Scheme was extended subsequently by Circular no. 07/06-07 dated 4.11.2006 upto 11.12.2006 but the Respondent writ petitioner did not file his application even in response to this OTS Scheme. 18. Admittedly, the last date of application under OTS Scheme vide Circular No. 2 of 2004-05 referred to and relied by the Respondent writ petitioner in his writ 10 petitioner had expired on 25.5.2005 much earlier prior to the sale notice dated 30.1.2008 and the writ application filed by respondent- writ petitioner assailing the same on 12.2.2008. In such circumstances, a direction to the Corporation to settle the dues of respondent-writ petitioner in a non-existing OTS scheme on date of passing the impugned order cannot be sustained. This Court in exercise of power under Article 226 of the Constitution cannot direct the Corporation to do something by way of One Time Settlement which is not permissible in law and that too against non-existing OTS Scheme in vogue. 19. Judicial Review of the scheme under one time settlement has been gone into by this Court in the case of M/s. Mayur Hotel Private Ltd. Vs. the State of Bihar reported in 2000(2) PLJR 408 wherein it has been held that one time settlement scheme is available only to specified category to those who are not willful defaulter. Such transaction being commercial in nature cannot be interfered by the Court as the Corporation is best judge of it. 20. It is significant to take into note that the respondent-writ petitioner had not even placed the Circular 11 of OTS Scheme on record and even when the Corporation had communicated its total firm denial of allowing the benefits of OTS Scheme for its being extended to respondent-writ petitioner, the learned single Judge without going into the scope of such OTS Scheme had proceeded that if such OTS could have been made applicable the liability of the respondent-writ petitioner could have been confined to Rs.6.52 lakh only. 21. In the opinion of this Court, learned single Judge was not correct in adopting this course in view of limited parameters of OTS Scheme as referred above. The power of High Court under Article 226 of the Constitution in the matter of making judicial review of an action of Corporation under Section 29 of the Act has time and again been considered by Apex Court and consensus of such decision is that reasonableness of the action of the Financial Corporation under Section 29 of the Act should be tested against dominant consideration to secure the best price. In fact, in the case of Haryana State Financial Corporation Vs. Jagdamba Oil Mills while overruling the decision of Mahesh Chandra reported in AIR 1993 (2) SCC 279 it was held that the procedure indicated in 12 Mahesh Chandra’s case (supra) for sale of the mortgaged assets with the financial Corporation would lead to further delay in realization of dues by sale of assets. The Apex Court again in the case of Karnataka State Industrial and Development Corporation Ltd. vs. Calvalet India Ldt. & Ors. reported in 2005(2) PLJR 202 (SC) while holding that writ court does not act as appellate authority over the acts and deeds of Financial Corporation and seek to correct them had laid down the law in following terms:- “….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 13 party to substitute its decision, however more prudent, commercial or business like 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 every body 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. (vii) 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. 20. True, the exercise of the right 14 by a financial corporation under section 29 of the Act should be fair and reasonable. Ultimately, whether the action of the financial corporation is bona fide or not would depend on the facts and circumstances of each case. 21. The examination of the facts, in the light of the aforenoted legal principles reveals that KSIIDC acted in a bona fide manner. The procedure followed by KSIIDC to dispose of the assets of the borrower to realize the dues cannot be held to be unreasonable or unfair. The sale was conducted by issuing advertisements in the newspaper. Steps were taken to secure the best price. The question before the High Court was only about the validity of sale of Vinpack and the plea of the borrower was that the unit was sold at ridiculously low price. The learned Single Judge gave reasonable opportunity to the borrower to pay the same amount as payable by Vinpack failing which unit was directed to be sold to Vinpack after specified date. The borrower failed to comply with the order of the learned single Judge or seek extension of time and also did not challenge it in writ appeal within time specified in the order of learned Single Judge. Under these circumstances, the unit was sold to Vinpack and the possession handed over to it. The Division Bench, after holding that the procedure adapted was not in conformity with the guidelines enumerated in Mahesh Chandra‟s Case did not examine the effect of offer given to the borrower and not availed by him resulting the sale in favour of Vinpack. In this view, the approach of the Division Bench cannot be sustained. Further, the subsequent line of cases distinguishing Mahesh Chandra and the decision in the case of Jagdamba Oil Mills (supra), which overruled Mahesh Chandra have already been noticed 15 hereinbefore. 22. The submission about the genuine reason of the borrower for default and about non-cooperation of KSIIDC is not rescheduling loan, are not relevant at this stage as the main issue urged before the High Court was about validity of sale. That apart, it does appear from the facts that KSIIDC had been considerate and sympathetic towards the borrower and gave it ample opportunities. KSIIDC after passing an order under Section 29 of the Act, did not implement it for the considerable time. The correspondence that followed between KSIIDC and the borrower shows that sufficient opportunity was given to the borrower to enter to arrangement with third parties to work the unit. It was only when the borrower failed to enter into arrangement with the third parties or repay the amount, steps were taken to realize the dues. In this regard, the object enacting Section 29 of the Act has to kept in mind. As was observed in Gem Cap and Jagdamaba Oil Mills, the legislative intent in enacting the statute was to promote industrialization of the States by encouraging small and medium industries by giving financial assistance in the shape of loans and advances, repayable within a stipulated period. Though the Corporation is not like an ordinary money lender or a bank which lends money, there is purpose in its lending i.e. to promote small and medium industries. The relationship between the Corporation and the borrower is that of a creditor and debtor. That basic feature cannot be lost sight of. A Corporation is not supposed to give loan and then to write it off as a bad debt and ultimately to go out of business. It has to recover the amounts due so that fresh loans can be given. In that way industrialization, which is the intended object, can be 16 promoted. It certainly is not and cannot be called upon to pump in more money to revive and resurrect each and every sick industrial unit irrespective of the cost involved. That would be throwing good money after bad money. As observed in Gem Cap promoting industrialization does not serve public interest if it is at the cost of public funds. It may amount to transferring public money to private account. Further, Financial Corporation cannot wait indefinitely to recover its dues. ..” 22. Judged on the aforesaid parameters, this Court is of the view that the direction of the learned single Judge to settle the dues of respondent/writ petitioner which already had exceeded beyond Rs.44.27 lakh by accepting the amount of Rs.6.52 Lakh only is indefensible specially when it was already brought on record that offer of Rs.28 lakh of Respondent no. 2 was subsisting with the Corporation. Public revenue and public interest would always warrant realization of best price of a mortgaged unit inasmuch as the Financial Corporation do not have their own minting house to distribute loan by way of charity to the financial entrepreneurs who would having obtained loan easily forget their liability and later on take plea of equity or helplessness in clearing the amount outstanding loan. It has to be always kept in mind that 17 each and every financial corporation has to also arrange finance by borrowing it from financial institutions and has to pay interest over such loan and therefore they cannot either exempt or right it off such loan as has been held by Apex Court in the case of Karnataka State Industrial Development Corporation’ case (supra). 23. At this stage, we must take also note of the fact that after the writ application was disposed of on the aforesaid direction to the Corporation to accept the payment of Rs.6.52 Lakh, the respondent – writ petitioner had made payment of Rs.1.58 Lakh only by 10th of July 2008 and had further made payment of Rs.1.30 lakh on 12.11.2008 as well as Rs.34000/- on 20.11.2008 which would make the total payment made by respondent-writ petitioner to Rs.3.12 lakh as against amount of Rs. 6.52 lakh. It was on these premises, the Division Bench of this Court while admitting this appeal had stayed the operation of the impugned order by order dated 25.11.2008 in following terms:- “…3. Letters Patent Appeal from the impugned order has already been admitted by us. We are informed by the counsel for the appellant (Bihar State Financial Corporation) that the borrower (writ petitioner) has not even paid Rs.6.52 18 lacs along with interest under the impugned order. This fact is admitted by the counsel for the petitioner. It, thus, appears that the borrower is a chronic defaulter. 4. In the circumstances, we are satisfied that the impugned order deserves to be stayed and we order accordingly.” 24. After such stay was granted the Corporation had initiated for sale of mortgaged house with respondent no. 2 for a sum of Rs.28 Lakh and sale order issued on 18.12.2009 and an offer was given to respondent-writ petitioner to retain the vehicle and the house on matching terms and conditions by making payment of amount. The respondent- writ petitioner however had not availed the said offer and consequently sale was confirmed in favour of respondent no. 2 of this appeal by taking possession of the mortgaged assets vide order dated 22.2.2010. 25. We had, however, by way of last opportunity also given an offer to respondent- writ petitioner to pay the amount of Rs.28 lakh as originally deposited by respondent no. 2 but Mr. Chaudhary learned Senior Counsel for the Respondent writ petitioner had declined to accept such offer by