IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN, JAIPUR BENCH, JAIPUR. JUDGMENT M/s. O.S. Marbles Pvt. Ltd. Vs. Rajasthan Financial Corporation & Others (S. B. Civil Writ Petition No.6999/2002) S. B. Civil Writ Petition under Article 226 of the Constitution of India. Date of Judgment: May 6th, 2010 PRESENT Hon'ble Mr. Justice R. S. Chauhan Mr. V. L. Mathur, for the petitioner. Mr. Prahlad Singh, for the R.F.C. Mr. N.K. Maloo, for respondent No.4. BY THE COURT: Aggrieved by the orders dated 26-12-2001, 26-8-2002, and 20- 9-2002 the petitioner has approached this Court. By the first order the Rajasthan Financial Corporation (`the RFC' for short) had informed the petitioner that it would be taking over possession of the petitioner's unit, i.e. land, building and machinery and other fixed assets, on 7-1-2002. It had directed the petitioner to be present on the said date. By the second order, the petitioner was directed to attend the auction proceeding scheduled to be held on 18-9-2002, 18-10-2002 and 18-11-2002 at 12.30 PM. By the third order, the petitioner was informed that the unit has been auctioned by the RFC. 2. The brief facts of the case are that the petitioner is a private limited company registered under the Companies Act, 1956. It had its plant at F-218, IIIrd phase RIICO Industrial area, Madanganj Kishangarh. The petitioner company was engaged in the business of marble cutting and other allied activities. In order to strengthen its business, the petitioner had applied for a loan of Rs.5 lacs from the RFC. Vide letter dated 20-3-1997, the RFC had sanctioned the said loan. Vide letter dated 22-3-1997, the petitioner company was directed to submit original lease-deed executed by the company for creating equitable mortgage. The petitioner company complied with the same. Despite the economic difficulties, it was facing, the petitioner company deposited following amount with the RFC; On 29-12-1997 Rs. 2,30,000/- On 30-3-1998 Rs. 5,37,075/- On 31-3-1998 Rs. 24,925/- On 31-3-1998 Rs. 49,850/- Since the petitioner could not regularly repay the amount, on 14-9-1998, the RFC issued a notice to the petitioner directing it to pay Rs.2,08,000/- towards principal amount, Rs.4,17,047/- towards interest, thus totaling Rs.6,25,047/-. Again on 23-2-2000 a notice under section 30 of the State Financial Corporation Act,1951 (`the Act' for short) was issued by the RFC. According to the said notice the petitioner company owed Rs.55,34,168/- to the RFC. In compliance of the said notice on 31-3-2000, the petitioner deposited a sum of Rs.2,50,000/- with the RFC. However, as the amount deposited by the petitioner was far less than the amount due, on 13- 4-2000 the RFC issued a notice under section 29 of the Act. The petitioner company immediately submitted advance cheques. Moreover, it deposited following amount:- on 1-5-2000 Rs.1,00,000/-; on 16-5-2000 Rs.1,00,000/-; on 28-7-2000 Rs.1,50,000/-; on 12-10-2000 Rs.2,60,000/-; on 11-12-2000 Rs.1,00,000/-; on 21-12-2000 Rs.3,20,000/-; on 1-1-2001 Rs.3,00,000/-; on 23-2-2001 Rs.1,00,000/-; on 31-3-2001 Rs.1,00,000/-. Vide letter dated 29-1-2001, it requested the RFC for extension of time for repayment of loan; it promised that it will pay the outstanding amount. While trying to overcome its economic difficulties, the petitioner deposited the aforesaid amount from time to time. Again on 6-11-2001, the RFC issued a notice under section 30 of the Act. On 19-11-2001, the petitioner narrated the difficulties it was facing, and prayed for a lenient view to be taken by the RFC. However, on 26-12-2001, the RFC again issued a notice under section 29 of the Act informing the petitioner that it will be taking over the possession of the assets on 7-1-2002. Sensing imminent danger that was looming large, the petitioner company filed a civil suit for injunction against the RFC. Vide order dated 5-1-2002, the Civil Judge (Jr. Dn.), Kishangarh restrained the RFC. However, despite the injunction order, the RFC took over the assets of the company on 2-2-2002. Thereafter on 13-2-2002, the petitioner submitted a representation to the Chairman cum Managing Director, RFC (`CMD' for short) wherein it promised to deposit 15% of the outstanding amount immediately, and to pay 10% of the outstanding amount in the next quarter. It also requested that the possession of the unit be handed back to it. While ignoring the representation of the petitioner, vide letter dated 26-8-2002, the RFC informed the petitioner that it is about to auction the unit on 18-9- 2002, 18-10-2002 and 18-11-2002. On 27-8-2002, the petitioner again wrote to the RFC about its willingness to repay the amount of loan. Vide letter dated 29-8-2002, addressed to the CMD, RFC the petitioner submitted its proposal to the RFC. According to the proposal, the petitioner was willing to deposit Rs.8 lacs provided the unit were handed back to it. Further, it was willing to submit advance cheques payable from November, 2002 till March, 2003 in four instalments. Regarding interest owed by the petitioner to the RFC, it was further requested that the penal interest be waived. Lastly, it requested that principal amount be re-scheduled to be paid in four to five years. According to the petitioner, this letter was handed over to CMD on 30-8-2002. The petitioner waited for a reaction from the RFC to the said letter. However, vide letter dated 16-9-2002, the RFC merely directed the petitioner to deposit 25% of the outstanding amount before 18-9-2002 i.e. within a period of two days. According to the petitioner the said letter, in fact, was received on 17-9-2002. Immediately on 18-9-2002, the petitioner sent a fax to the RFC praying that its proposal dated 30-8-2002 be considered, and the auction scheduled to be held on 18-9-2002 should be stayed. The petitioner further claims that although its representatives were available in the office of RFC on 18-9-2002, but they were not permitted to participate in the said auction. Therefore, on 19-9-2002, the petitioner requested the RFC for not issuing the sale-letter to the auction purchaser. On 20-9-2002, the Director of the petitioner company met the Dy. General Manager and requested him not to hand over the possession of the unit to respondent No.4, M/s.Sujala Marbles Madanganj-Kishangarh. On the same day 20-9-2002, the petitioner served a notice for demand of justice. However, vide letter dated 20-9-2002, the RFC informed the petitioner that, in fact, the unit had been auctioned on 18-9-2002. Hence this petition before this Court. 3. Mr. V.L. Mathur, the learned counsel for the petitioner, has vehemently raised various contentions: firstly, that the petitioner was not a chronic defaulter, which would be clear from the facts narrated above. Despite the harsh market conditions, inspite of ill health of the Director, the petitioner was repaying the loan to the best of its capabilities. Therefore, the RFC is not justified in claiming that the petitioner is a chronic defaulter. Secondly, vide letter dated 29-8- 2002, the petitioner had submitted a concrete proposal to the RFC for repayment of the interest and the principal amount. Once a proposal was made, the RFC was duty bound to discuss the proposal. However, no discussion was ever held by the RFC. Instead, suddenly, vide letter dated 16-9-2002, the petitioner company was granted merely two days time to deposit 25% of the outstanding amount. The said period of two days was too short a time for repayment of a huge outstanding amount. Moreover, the situation was aggravated by the fact that the said letter was received by the petitioner on 17-9-2002. Thus, within a short period of 24 hours, the petitioner was required to cough up a huge amount. Clearly such an action was arbitrary in nature. Thirdly, that the auction held on 18-9- 2002 was held in hot haste, that too behind the back of the petitioner. Although the petitioner's representatives were very much available in the office, but they were not permitted to participate in the auction. Instead, vide letter dated 20-9-2002, they were merely informed that the unit had been auctioned to respondent No.4. Fourthly, the RFC had not given any details of the auction held, and the amount received from respondent No.4. Therefore, the entire procedure for auctioning of the unit is arbitrary, unreasonable, and unjust. It is in violation of Articles 14, 19 and 21 of the Constitution of India. 4. On the other hand, Mr. Prahlad Singh, the learned counsel for the RFC, has contended that the RFC is a custodian of public money. According to learned counsel, a bare perusal of the facts, narrated above, clearly proves that the petitioner has repeatedly defaulted in repayment of the loan. Thus, it is a chronic defaulter. Secondly, the RFC has repeatedly issued notices under sections 29 and 30 of the Act. Thus, RFC gave ample opportunities to the petitioner to repay the loan. But, despite the notices, still the petitioner defaulted in repayment of the loan. Thirdly, the proposal dated 29-8-2002 was considered by the RFC, and was rejected. Thus, there was no need to negotiate the said proposal with the petitioner. Lastly, the auction was legally held after due notice to the petitioner, and was legally carried out. Thus, the learned counsel has not only supported the impugned orders, but has argued that the action of the RFC is legally justified. 5. Mr. N.K.Maloo, the learned counsel for the respondent No.4, has also justified the auction. He has further contended that when the auction was held on 18-9-2002, there was no litigation pending between the petitioner and the RFC. In fact, there was not even a inkling that the property would became subject matter of a dispute between the petitioner and the RFC. The respondent No.4 is a bonafide purchaser of the unit. Placing reliance on Chinnamal Vs. Arumugham (AIR 1990 SC 1828), Aswin S. Mehta Vs. Custodian (2006) 2 SCC 385, and Janatha Textiles Vs. Tax Recovery Officer (2008) 12 SCC 582, the learned counsel has argued that in case the purchaser is a bonafide purchaser, in case third party rights have been created, the rights of third party cannot be disturbed by setting aside the auction. According to learned counsel since respondent No.4 is a bonafide purchaser, the auction cannot be set aside so as to adversely affect the rights of respondent No.4. 6. Heard learned counsel for the parties, examined the material available on record, and considered the case law cited at the Bar. 7. The RFC was established in order to promote and protect industrialisation of the State. It is not only a statutory body, but most importantly, has been created for the economic upliftment of the people of the State, and for the economic development of the State. It is not only a custodian of the people's money, but most importantly, acts as a trustee while dealing with enterprenurs and industrialists. Being an instrumentality of the State, it is bound by the constitutional mandates and is circumscribed by the constitutional parameters. As a facet of the State it has certain constitutional duties and certain obligations. Thus, its action must fulfill the requirements of constitutional & administrative laws. It can neither be despotic nor arbitrary, neither unreasonable nor unfair, neither callous nor high- handed. It is required legally to be just, fair and reasonable, to be benevolent and sympathetic to the plight of the people. The RFC has been created to bring about an economic revolution to the backward State of Rajasthan, it cannot degenerate itself and cannot behave like petty money-lenders of the foregone era. Therefore, while evaluating the action of the RFC, the parameters as laid down by the Hon'ble Supreme Court, and as contained in the Constitutional preamble, have to be kept in mind. 8. The preamble of the Constitution, which contains the dreams and expectation of the people, envisages economic justice for every person. The Constitution also imposes a legal duty on the instrumentality of the State to assure a socio-economic revolution which would transform a feudal State into a modern one. Thus, the RFC is constitutionally required to play a pro-active role in implementing economic justice. Article 39(b), 39(c) of the Constitution clearly states that assets of the country should be distributed equally amongst the people and should not be concentrated in hands of a few. With a vision to rapidly industrialise the State, with a vision to encourage investments, with a vision to motivate industrialists in establishing their factories and mills, with a vision to catalyse industrial development of the State, the RFC was established. Of course, the RFC is the custodian of the people's money, but simultaneously it must also balance the interest of the borrower. It must not only understand the plight of the borrower, but should also discuss and negotiate the proposals made by the borrower. It must also inform the borrower the reasons for rejecting his/ her proposal. It must deal with him/ her as a citizen, and not as a subject. Even the worst defaulters have to be dealt with reasonably and fairly. They cannot be denied their fundamental rights ostensibly on the ground that they are chronic defaulters. 9. Vide letter dated 29-8-2002, the petitioner had made concrete proposals for the consideration of the RFC. Although the learned counsel for the RFC claims that the said proposal was considered, discussed, and debated, but there is nothing in record of RFC to prove this assertion. There is nothing in record to reveal that the petitioner was ever invited for a discussion, or for any negotiation. In fact, once the proposal was made by the petitioner to the RFC, being a facet of the State the RFC was required to discuss the proposal and to give a patient hearing to the petitioner before taking any adverse action against him. It is, indeed, trite to state that before affecting the civil rights or the fundamental rights of a citizen, an opportunity of hearing should have been given to the citizen. However, while denying the opportunity of hearing to the petitioner, suddenly vide letter dated 16-9-2002, the petitioner was merely dictated to deposit 25% of the outstanding amount, or to face the consequences. To say the least, a time period of two days was too short a time for a person to deposit a large amount. Considering the fact that the said letter was received on 17-9-2002, a period of 24 hours, was, indeed, a very short time for its compliance. Before the economic death knell can be sounded, before the rights of the petitioner are buried, a sufficient and a reasonable time should have been given to the petitioner to deposit the amount. However, in an arbitrary manner, the RFC had merely given only 48 hours, and in fact, only 24 hours, to the petitioner to deposit a huge amount. Therefore, the letter dated 16-9-2002 certainly smacks of arbitrariness, unreasonableness, and unfairness on the part of the RFC. 10. According to the petitioner, it was not permitted to participate in the auction proceedings held on 18-9-2002, although its representatives were very much present in the office of the RFC. Again there is no evidence in record of the RFC to prove the fact that petitioner's representatives were permitted to participate in the auction proceedings. Since petitioner's unit was being put on the auction block, the RFC was duty bound to permit the petitioner's representatives to participate in the auction proceedings. By denying the opportunity to participate in auction proceeding, the RFC has violated civil and fundamental rights of the petitioner. Thus, the action of the RFC is legally untenable. 11. Indeed, a quixotic situation has arisen: although, the action and the auction held by the RFC is illegal, simultaneously, the rights of respondent No.4 have been created. Admittedly on 18-9-2002 no litigation was pending between the petitioner and the RFC. Therefore, respondent No.4 is certainly justified in claiming that it had no inkling that litigation would suddenly erupt between the two parties. There is nothing on record to prove that the RFC had warned the respondent No.4 about the possibility of litigation that might sprout between the RFC and the petitioner. Thus, the respondent No.4, on the date of auction, was a bonafide purchaser. The respondent No.4 has not only invested its capital, but has also placed its goodwill on the line. In case of Chinnamal Vs. Arumugham (supra) the Hon'ble Supreme Court has held that rights of a bonafide purchaser should not be disturbed by setting aside the auction. This view has subsequently been reiterated and re-enforced in the case of Aswin S. Mehta Vs. Custodian (supra) and Janatha Textiles Vs. Tax Recovery Officer (supra). 12. Therefore, notwithstanding the fact, this Court is convinced that the action of the RFC, and the auction held by the RFC were illegal, but still this Court cannot set aside the auction. In this view of the matter, since the interests of the petitioner, and of respondent No.4 need to be balanced, without disturbing the rights of respondent No.4, in order to compensate the petitioner, for the harm caused by the RFC, the RFC is directed to pay Rs.one lac to the petitioner. Moreover, it is clarified that the petitioner shall be free to avail any other legal remedy, available to it, for seeking compensation from the RFC before court of law. 13. For the reasons, mentioned above, the writ petition is, hereby, disposed of. There shall be no order as to cost. ( R.S. CHAUHAN ) J. arn