IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21.9.2011 CORAM: THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.No.7555 of 2009 and M.P.No.1 of 2009 R.J.Kumar .. Petitioner Vs. 1. The Regional Manager Salem Regional Office Tamil Nadu Industrial Investment Corporation Limited 4/22, Shri Lakshmi Complex Omalur Road, Swarnapuri Salem – 636 004. 2. The Branch Manager Tamil Nadu Industrial Investment Corporation Limited Namakkal Branch Sri Bhuvaneswari Complex II Floor, Dr.Sankaran Road Namakkal – 637 001. .. Respondents PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of Certiorarified Mandamus to call for the records of the second respondent in and by his proceeding in Letter TIIC/NKL/LEGAL/2008-09, dated 4.3.2009 and quash the same and direct the respondents to execute the sale deed in favour of the petitioner or his nominee. For Petitioner : Mr.R.Santhanam For Respondents : Mr.A.Ramesh Kumar ORDER The petitioner was a successful auction purchaser of the property in Plot Nos.1 and 4 in S.No.28/2, Kondichettipatti Village, Mohanur Road, Namakkal. The said plot is a house plot measuring 4095.50 Sq.Ft. The plot was mortgaged by M/s.Venkatesh Rig Service and due to default in payment, distraint proceedings were initiated by the respondent/Tamil Nadu Industrial Investment Corporation Limited (for short, "the TIIC") under Section 29 of the State Financial Corporation Act and the plot was brought for auction. https://hcservices.ecourts.gov.in/hcservices/ 2. It is seen from the records that no upset price was fixed at the time of auction and the petitioner made a bid for ` 10 Lakhs and the allotment was made in favour of the petitioner on the petitioner parting with 10% of the bid amount. The remainder amount of ` 9,06,900/- was paid by him on 30.10.2006. The respondents have also handed over the physical possession of the landed property on 15.11.2006, vide their letter dated 15.11.2006. It was thereafter the problem started. Till date the petitioner has not gone to the respondents for execution of the sale deed. 3. The bone of contention between the parties was whether the petitioner should pay a penalty for delay in executing the sale deed. By the impugned communication dated 4.3.2009, the petitioner was informed that he has not taken any steps for execution of the sale deed even after the lapse of one year and therefore, he was requested to take immediate steps for execution of the sale deed on or before 31.3.2009 and also to remit 1% per annum on the bid amount as penalty for delay in executing the sale deed. 4. The contention of the petitioner was that the levy of penalty was not based upon any legal sanction and no notice was given on the levy and no condition was prescribed before the auction that such a levy will be made. 5. Challenging the said communication, the writ petition came to be filed and it was admitted on 16.11.2009. Pending the writ petition, this Court granted interim stay. On notice from this Court, the respondents have filed a counter affidavit dated 19.9.2011. 6. In the counter affidavit, it is stated that the terms and conditions of sale have been duly accepted and signed by the petitioner at the time of auction sale and he is fully aware of the conditions regarding the sale. Despite the lapse of two years, the petitioner has not come forward to execute the sale deed and the impugned communication is only a reminder. 7. The learned counsel appearing for the TIIC also brought to the notice of this Court the circular issued by the Deputy General Manager, TIIC, based on the Board of Directors meeting held on 30.3.2009, stating that if there is any delay in execution of the sale deed, a penalty of 1% per annum will be levied subject to a maximum of 5% per annum of the bid amount, excluding service tax; in case of delay in executing the sale deed, the delay will be calculated 30 days after the clearance of the draft lease deed by the SIPCOT; and the delay also will be calculated after the expiry of 30 days of the final payment of the auction bid amount. The 1% per annum penalty clause was subsequently revised in the subsequent board meeting and the same was also circularized by another circular dated 8.4.2009 to the effect that the penalty will be 1% per annum subject https://hcservices.ecourts.gov.in/hcservices/ to a maximum of 5% of the bid amount, excluding service tax. 8. Though the counsel for the petitioner contended that such a clause was not stipulated in the allotment and there is no legal sanction, this Court is not inclined to go into the said issue. The transaction between the petitioner and the respondent/TIIC is purely contractual and time and again the Supreme Court has held that in any transaction with the State Financial Corporation acting under Section 29 of the State Financial Corporation Act, unless there are any statutory issues involved or the action is wholly unreasonable, the Court cannot interfere with such actions. 9. The Supreme Court in dealing with the transaction by the borrower vis-a-vis State Financial Corporation, after reviewing the previous case laws, had laid down legal principles for exercise of jurisdiction by the High Court vide its judgment in Karnataka State Industrial Investment & Development Corpn. Ltd. v. Cavalet India Ltd., [2005] 4 SCC 456 and in paragraph 19, the Supreme Court had observed as follows: "19.From the aforesaid, the legal principles that emerge are: (i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate authority over the acts and deeds of the Financial Corporation and seek to correct them. The doctrine of fairness does not convert the writ courts into appellate authorities over administrative authorities. (ii) In a matter between the Corporation and its debtor, a writ court has no say except in two situations: (a) there is a statutory violation on the part of the Corporation, or (b) where the Corporation acts unfairly i.e. Unreasonably. (iii) In commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task is assigned. (iv) Unless the action of the Financial Corporation is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the courts or a third party to substitute its decision, however, more prudent, commercial or businesslike it may be, for the decision of the Financial Corporation. Hence, whatever the wisdom (or the lack of it) of the conduct of the Corporation, https://hcservices.ecourts.gov.in/hcservices/ the same cannot be assailed for making the Corporation liable. (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold and this could be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer. (vi) Public auction is not the only mode to secure the best price by inviting maximum public participation, tender and negotiation could also be adopted. (vii) The Financial Corporation is always expected to try and realise 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 the seized unit have to be worked out. (viii) Fairness cannot be a one-way street. The fairness required of the Financial Corporations cannot be carried to the extent of disabling them from recovering what is due to them. While not insisting upon the borrower to honour the commitments undertaken by him, the Financial Corporation alone cannot be shackled hand and foot in the name of fairness. (ix) Reasonableness is to be tested against the dominant consideration to secure the best price. 10. Subsequently, the Supreme Court in Punjab Financial Corporation v. Surya Auto Industries, [2010] 1 SCC 297 has also held that relationship between the corporation and the borrower is that of creditor and debtor and the action initiated by the corporation cannot be nullified by the court unless there is violation of any statutory provisions. In paragraphs 20 to 22, it was observed as follows: "20. Commenting upon the judgment in Mahesh Chandra v. U.P. Financial Corpn., [1993] 2 SCC 279, the three-Judge Bench observed: (Jagdamba Oil Mills case, [2002] 3 SCC 496, SCC pp. 507 & 508, paras 15 & 17-18) https://hcservices.ecourts.gov.in/hcservices/ “15. The view in Mahesh Chandra case appears to have been too widely expressed without taking note of the ground realities and the intended objects of the statute. If the guidelines as indicated are to be strictly followed, it would be giving premium to a dishonest borrower. It would not further the interest of any Corporation and consequently of the industrial undertakings intending to avail financial assistance. It would only provide an unwarranted opportunity to the defaulter (in most cases chronic and deliberate) to stall recovery proceedings. It is not to be understood that in every case the Corporations shall take recourse to action under Section 29. Procedure to be followed, needless to say, has to be observed. 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. The view expressed in Gem Cap case, [1993] 2 SCC 299 appears to be more in line with the legislative intent. Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. (emphasis supplied) As the facts in the present case show, not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been lost sight of by the courts below. It is one thing to assist the borrower who has intention to repay, but is prevented by insurmountable difficulties in meeting the commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying on the decision in Mahesh Chandra case the matter has been decided. 17. The aforesaid guidelines issued in Mahesh Chandra case place unnecessary restrictions on the exercise of power by Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit-holder to be associated or consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra case will only lead to further delay in realisation of the dues by the Corporation by https://hcservices.ecourts.gov.in/hcservices/ sale of assets. It is always expected that the Corporation will try and realise the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible. 18. The subsequent decisions of this Court in Gem Cap, Naini Oxygen, [1995] 2 SCC 754 and Micro Cast Rubber, [1996] 5 SCC 65 run counter to the view expressed in Mahesh Chandra case. In our opinion, the issuance of the said guidelines in Mahesh Chandra case are contrary to the letter and the intent of Section 29. In our view, the said observations in Mahesh Chandra case do not lay down the correct law and the said decision is overruled.” 21. The proposition of law which can be culled out from the decisions noted above is that even though the primary function of a corporation established under Section 3 of the Act is to promote small and medium industries in the State, but it is not obliged to revive and resurrect every sick industrial unit dehors the financial implications of such exercise. The Corporation is not supposed to give loans and refrain from taking action for recovery thereof. Being an instrumentality of the State, the Corporation is expected to act fairly and reasonably qua its borrowers/debtors, but it is not expected to flounder public money for promoting private interests. 22. The relationship between the Corporation and borrower is that of creditor and debtor. The Corporation is expected to recover the loans already given so that it can give fresh loans/financial assistance to others. The proceedings initiated by the Corporation and action taken for recovery of the outstanding dues cannot be nullified by the courts except when such action is found to be in violation of any statutory provision resulting in prejudice to the borrower or where such proceeding/action is shown to be wholly arbitrary, unreasonable and unfair. The court cannot sit as an appellate authority over the action of the Corporation and substitute its decision for the one taken by the Corporation." 11. In the present case, since already the Board has decided that in such transactions if there is any delay in executing the sale deed there will be a penalty levied, the petitioner cannot https://hcservices.ecourts.gov.in/hcservices/ wriggle out of such obligation when especially he is an auction purchaser and such purchase will be subject to all the conditions for such sale. In view of the above, there is no case made out and therefore, the writ petition stands dismissed. No costs. Consequently, M.P.No.1 of 2009 is closed. Sd/- Asst. Registrar //true copy// Sub Asst.Registrar sasi To 1. The Regional Manager Salem Regional Office Tamil Nadu Industrial Investment Corporation Limited 4/22, Shri Lakshmi Complex Omalur Road, Swarnapuri Salem – 636 004. 2. The Branch Manager Tamil Nadu Industrial Investment Corporation Limited Namakkal Branch Sri Bhuvaneswari Complex II Floor, Dr.Sankaran Road Namakkal – 637 001. 1 cc to Mr.A.S.Rajakumar Vadivel, Advocate, Sr.No.58739 W.P.No.7555 of 2009 GR {CO} TP/11.10.2011. https://hcservices.ecourts.gov.in/hcservices/