IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 15-07-2011 CORAM THE HONOURABLE MR.JUSTICE M.JAICHANDREN Writ Petition Nos.13441 and 18709 of 2010 M.P.Nos.1+1+2+2 of 2010 W.P.No.13441 of 2010 1.V.Jayachandran 2.V.Vijaya .. Petitioners. Versus 1.The Tamil Nadu Industrial Investment Corporation Ltd., Rep. By its Branch Manager, Dr.Gopinath Building-II Floor, 405/1, Perundurai Road, Erode-638 011. 2. Raja Guru Spinning Mills Ltd., rep. By its Director Bajaj Balu @ Balu Veppadai, Pallipalayam, Tiruchengode Taluk, Namakkal District. .. Respondents. Prayer in W.P.13441 of 2010: Petition filed seeking for a Writ of Certiorari, calling for the records relating to the order, dated 31.3.2010, made in TIIC-ERD-LAO-KJS-2009-10, on the file of the respondent herein and quash the same. For Petitioner : Mr.T.Muruga Manickam For Respondents : Mr.K.V.Sundara Rajan (R1) Mr.M.Velmurugan (R2) W.P.No.18709 of 2010 1.M/s.Jagajothi Spinning Mills 2 & 3, Karur Road, Ganthipuram, Railway Colony Post, Erode-2, Rep. By Managing Partner, V.Subramaniyam. 2. V.Subramaniyam, https://hcservices.ecourts.gov.in/hcservices/ Managing Partner, M/s.Jagajothi Spinning Mills, 2 & 3, Karur Road, Ganthipuram, Railway Colony Post, Erode-2. 3.V.Natarajan 4.V.Vadivelu 5.S.Jayakumar .. Petitioners. Versus 1. Tamil Nadu Industrial Investment Corporation Limited, Rep. By its Managing Director, No.473, Anna Salai, Nandanam, Chennai-600 035. 2. The Tamil Nadu Industrial Investment Corporation Limited, Rep. By its Branch Manager, Dr.Gobinath Building-II Floor, 405/1, Perundurai Road, Erode-11, 3. Raja Guru Spinning Mills Ltd., rep. By its Director Bajaj Balu @ Balu Veppadai, Pallipalayam, Tiruchengode Taluk, Namakkal District. .. Respondents. Prayer: Petition filed seeking for a Writ of Certiorarified Mandamus, calling for the records of the respondents 1 and 2 in and by their proceeding in the auction sale held on 31.5.2010, under the auction notic published on 18.5.2010, in `Thina Thanthi', a daily newspaper, in Advertisement No.TIIC/CBE/RO/2010-11/04 and quash the same and consequently, y direct the respondents 1 and 2 to receive the entire loan amount due from the petitioners and discharge the mortgaged properties to them. For Petitioners : Mr.A.S.Baalaji For Respondents : Mr.K.V.Sundara Rajan (R1 & R2) Mr.M.Velmurugan (R3) COMMON ORDER The writ petition, in W.P.No.18709 of 2010, has been filed praying for a Writ of Certiorarified Mandamus, to quash the auction sale held on 31.5.2010, in respect of the immovable properties mortgaged to the Tamilnadu Industrial Investment Corporation Limited, by way of a mortgage deed, on 6.5.1996. https://hcservices.ecourts.gov.in/hcservices/ 2. It has been stated that the first petitioner spinning mill had started in the year, 1980. A sum of rupees 90 lakhs had been borrowed from the first and the second respondents, for the purpose of purchasing machineries, in the year, 1995. However, due to certain disputes that had arisen amongst the partners of the Mill it had been closed in the year, 2004. In the said circumstances, the mortgage loan, availed from the first and the second respondents, had become a non performing asset. 3. It has been further stated that the first and the second respondents had brought the mortgaged property for public auction, on 1.10.2009. In the said public auction V.Jayachandran and V.Vijaya, the son and the wife of the fourth petitioner, respectively, were the highest bidders. Accordingly, they had deposited a sum Rs.30.60 lakhs. However, the first and the second respondents had refused to receive the balance amount from the successful bidders, with ulterior motives. Instead, the first and the second respondents had brought the properties in question for sale, by way of a fresh public auction, held on 31.5.2010, by publishing an auction notice in the Tamil Daily `Thina Thanthi', on 18.5.2010, pursuant to the order passed by the second respondent, dated 31.3.2010. 4. It has been further stated that the public auction held, on 31.5.2010, was illegal, as the earlier auction, held on 1.10.2009, had not been cancelled, as per the procedures established by law. Therefore, the successful bidders of the public auction, held on 1.10.2009, had filed a writ petition before this Court, in W.P.No.13441 of 2010, praying for a writ of Certiorari, to call for the records relating to the order of the Tamilnadu Industrial Investment Corporation Limited, Erode, dated 31.3.2010, and the consequential auction held, on 31.5.2010. 5. It has also been stated that, as per the calculation of the first and the second respondents, the outstanding dues, liable to be paid to the Tamilnadu Industrial Investment Corporation Limited, was only Rs.1,42,04,988/-, as on 15.7.2010, whereas, the value of the mortgaged properties was Rs.5,58,73,000/-, as on 21.6.2010, as per the report of the panel valuer of the Corporation. Thus, it is clear that the sale of a portion of the mortgaged properties would be sufficient to satisfy the loan amount due to the first and the second respondents. However, the first and the second respondents had brought the entire mortgaged properties for sale and they had sold the said properties for a meagre price of Rs.3,20,00,000/-, to the third respondent. Instead of cancelling the auction sale, held on 31.5.2010, the first and the second respondents had confirmed the sale in favour of the third respondent, illegally, when the matter has been pending adjudication before this Court. 6. The writ petition, in W.P.No.13441 of 2010, had been filed by the petitioners therein, namely, V.Jayachandran and V.Vijaya, stating https://hcservices.ecourts.gov.in/hcservices/ that they were the successful bidders in the auction sale held, on 1.10.2009, in respect of the mortgaged properties. They had also deposited a huge sum of Rs.30.60 lakhs to the Tamilnadu Industrial Investment Corporation Limited. However, the petitioners could not pay the balance amount of the auction sale due to the pendency of a vexatious civil suit, in O.S.No.613 of 2009, on the file of the Principal District Munsif Court, Erode, relating to the mortgaged properties. Instead of persuading the plaintiffs in the suit to withdraw the same, to enable the petitioners to pay the balance amount of auction sale, the first and the second respondents, in W.P.No.18709 of 2010, had brought mortgaged properties for a fresh auction, in properly, without following the procedures established by law. The auction sale, held on 31.5.2010, in favour of M/s.Rajaguru Spinning Mills Limited, the third respondent in W.P.No.18709 of 2010 and the second respondent in W.P.No.13441 of 2010, for a sum of Rs.3,20,00,000/-, is well below the true value of the properties in question. 7. The learned counsels appearing on behalf of the petitioners had contended that the auction sale of the properties in question, held on 31.5.2010, is illegal and void. Instead of cancelling the auction sale for the reason that the highest bid of Rs.3,20,00,000/-, made by the third respondent in W.P.No.18709 of 2010, was less than half the market price of the properties in question, the said sale had been confirmed in favour of the highest bidder, contrary to the relevant provisions of law. The confirmation of the auction sale in favour of the third respondent, in W.P.No.18709 of 2010, cannot be held to be valid, especially, in view of the fact that the matter was already pending adjudication before this Court. It had also been stated that it was not appropriate for the respondent Corporation to bring the mortgaged properties for sale, when a civil suit, in O.S.No.613 of 2009, wherein the respondent Corporation was also a party, was pending before a Civil Court. 8. It had also been stated that the auction sale of the mortgaged properties concerned cannot be held to be valid in view of the decision of the Supreme Court, in Kerala Financial Corporation Vs. Vincent Paul and another (CDJ 2011 SC 256), wherein the Supreme Court had issued certain directions, inter alia, stating the essential ingredients of sale, including the obtaining of a credit valuation report and the fixing of the Reserve Price and the granting of a reasonable opportunity to the debtor, with regard to the valuation of the properties sought to be sold. Unless such formalities had been followed, the sale would suffer from material irregularity, resulting in serious prejudice being caused to the debtor. 9. It had been further contended that in the present case the Tamilnadu Industrial Investment Corporation Limited had not obtained a proper valuation report and had not fixed the Reserve Price, before https://hcservices.ecourts.gov.in/hcservices/ bringing the mortgaged properties for sale, by public auction. As such the auction sale held, on 31.5.2010, is arbitrary, illegal and void. 10. The learned counsel appearing for the petitioner had relied on the decision reported in FCS Software Solutions Ltd. Vs. La Medical Devices Limited and others (2008(10) SCC 440), wherein the Supreme Court had upheld the re-auction of the property in question, after setting aside the earlier auction sale, due to the non- declaration of certain necessary facts relating to the property in question, to the intending purchasers. 11. The learned counsel appearing on behalf of the Tamilnadu Industrial Investment Corporation Limited had submitted that the Corporation had sanctioned a term loan of Rs.90,00,000/-, to M/s.Jagajothi Spinning Mills, the petitioner, in W.P.No.18709 of 2010, on 28.12.1995, for the expansion of its units, by importing two Elitex Open End Spinning machines. The loan had been secured, by mortgaging the factory land measuring 1,64,000/- sq.ft, together with the building and the machinery, situated at Door Nos.2 and 3, Karur Road, Erode "C", Village, Erode District. The borrower had defaulted in the repayment of the loan. In spite of the various concessions granted, including the rejection in the rate of interest under the roll over scheme, rescheduling of the principal outstanding, funding of interest, the borrower concerned had failed to repay the loan. Further, the Mill in question had been locked due to certain disputes that had arisen amongst the partners of the Mill. As there was no scope of the revival of the unit the respondent Corporation had taken possession of the mortgaged assets and had brought them for sale, by public auction, on several occasions. In the third auction conducted on 29.1.2009, the machinery alone had been sold for a sum rupees 30 lakhs, in favour of one C.Sathyanarayana. However, as the offers received in respect of the land, building and the machinery were not in conformity with the norms of the respondent Corporation, they had been rejected. 12. It had been further stated that in the third auction, held on 1.10.2009, the highest offer of rupees 200 lakhs had been made by V.Jayachandran and V.Vijaya, the son and the wife of one of the partners, namely, V.Vadivel the fourth petitioner, in W.P.No.18709 of 2010. The offer had been enhanced to rupees 230 lakhs, by way of negotiations. Thereafter, the respondent Corporation had confirmed the auction sale in their favour. However, the highest bidders of the auction sale had not come forward to pay the balance amount. As such, they had forfeited the amount of rupees 30.60 lakhs, remitted in favour of the respondent Corporation. In such circumstances, the mortgaged assets had been brought for re-auction, on 31.5.2010. There were 15 bidders in the open auction. The third respondent in W.P.18709 of 2010, namely, M/s.Rajaguru Spinning Mills Private Limited, and the second respondent in W.P.No.13441 of 2010, had https://hcservices.ecourts.gov.in/hcservices/ offered the highest bid of rupees 320 lakhs. Therefore, the respondent Corporation had confirmed the offer in favour of the highest bidder, by way of a communication, vide letter, dated 22.6.2010. The highest bidder had remitted the entire sale consideration and the assets had been handed over to the highest bidder, by the respondent Corporation, on 15.7.2010. The sale proceeds had been credited in favour of the loan account of the borrower concerned. After crediting the amount, a surplus sum of Rs.1,75,00,000/- is lying with the respondent Corporation. There is no irregularity or illegality in the sale of the mortgaged properties, by way of a public auction, held on 31.5.2010. All the necessary procedures had been followed in the process of the bringing the properties for sale, by public auction. 13. The contentions raised on behalf of the petitioners that the public auction, held on 31.5.2010, is illegal and void, cannot be accepted. The public auction had been held, on 31.5.2010, by calling for bidders, by way of an advertisement made in the newspapers. The third respondent, in Writ petition No.18709 of 2010, made the highest bid of Rs.3,20,00,000/-. As such, the sale had been confirmed in favour of the third respondent, in W.P.No.18709 of 2010, by way of letter issued by the first respondent, dated 15.7.2010, as the entire bid amount of Rs.3,20,00,000/- had been paid in full. Further, the possession of the properties had also been handed over to the auction purchaser, on 15.7.2010, in `as is where is' condition. 14. The learned counsel appearing on behalf of the third respondent, in W.P.No.18709 of 2010 and the second respondent, in W.P.No.13441 of 2010, had submitted that the auction sale, held on 31.5.2010, was in accordance with the procedures established by law. Since, the third respondent in the writ petition, in W.P.No.18709 of 2010, was the highest bidder with the bid amount of Rs.3,20,00,000/-, the sale of the properties in question had been confirmed in its favour. Thereafter, on payment of the entire bid amount, a letter, dated 15.7.2010, had been issued by the first respondent confirming the auction sale in its favour and the possession of the properties had also been handed over to the said respondent. 15. It had also been contended by the learned counsels appearing on behalf of the respondents that the decision of the Supreme Court, in Kerala Financial Corporation Vs. Vincent Paul and another (CDJ 2011 SC 256), cannot be applicable to the present case, as the said decision had been made regarding the auctioning of the properties belonging to Kerala Financial Corporation, without framing proper guidelines. Directions had been issued to the Kerala Financial Corporation to follow certain procedures in bringing such properties for sale, by public auction. The said decision would not be relevant for the purpose of deciding the issues arising out of the present writ petitions, as the Tamilnadu Industrial Investment Corporation Limited had followed all the necessary procedures prescribed by law. https://hcservices.ecourts.gov.in/hcservices/ Therefore, the auction sale in favour of the third respondent, in W.P.No.18709 of 2010, on 31.5.2010, is valid in the eye of law. 16. The learned counsels had relied on the following decisions in support of their contention that this Court does not, in normal circumstances, interfere with the auction sales conducted by the various authorities like the respondent Corporation, by invoking the powers vested in it, under Article 226 of the Constitution of India. 17. The learned counsel appearing on behalf of the Tamilnadu Industrial Investment Corporation Limited had relied on the decision of the Supreme Court, reported in Haryana Financial Corporation Vs. Jagdamba Oil Mills (2002(3) SCC 496), wherein, it had been held as follows: "6. The Corporation as an instrumentality of the State deals with public money. There can be no doubt that the approach has to be public oriented. It can operate effectively if there is regular realization of the instalments. While the Corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the instalments in time, unless prevented by unsurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception. If the repayments are not received as per the scheduled time frame, it will disturb the equilibrium of the financial arrangements of the Corporations. They do not have at their disposal unlimited funds. They have to cater to the needs of the intended borrowers with the available finance. Non- payment of the instalment by a defaulter may stand on the way of a deserving borrower getting financial assistance. .......... 8.The guidelines were stated to be necessary to ensure fair play. That decision, as the factual position would go to show was rendered in a case where the borrower intended to repay the debt and was anxious to do so. While not insisting upon the borrower to honour the commitments undertaking by him, the Corporation alone cannot be shackled hand and foot in the name of fairness. 9. In matters like the present one, fairness cannot be a one- way street. Corporations borrow money from the Government or other financial corporations and are required to pay interest thereon. Where the borrower has no genuine intention to repay and adopts pretexts and ploys to avoid payment, he cannot make the grievance that Corporation was not acting fairly, even if requisite procedures have been followed. https://hcservices.ecourts.gov.in/hcservices/ ............ 13. The fairness required of the Corporations cannot be carried to the extent of disabling them from recovering what is due to them. The matter can be looked at from another angle. The Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge. As such in the discharge of its functions, it is free to act according to its own light. The views it forms and decisions it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations. Unless its action is mala fide, even a wrong decision 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, for the decision of the Corporation. As was observed by this Court in U.P. Financial Corporation and Ors. vs. Naini Oxygen & Acetylene Gas Ltd. and Anr. (1995 (2) SCC 754), in commercial matters the courts should not risk their judgments for the judgments of the bodies to whom that task is assigned. As was rightly observed by this Court in Karnataka State Financial Corporation vs. Micro Cast Rubber & Allied Products (P) Ltd. & Ors. (JT 1996 (6) SC 37), in the matter of action by the Corporation in exercise of the powers conferred on it under Section 29 of the Act, the scope of judicial review is confined to two circumstances i.e. (a) where there is statutory violation on the part of the State Financial Corporation, or, (b) where the State Financial Corporation acts unfairly i.e. unreasonably. While exercising its jurisdiction under Article 226 of the Constitution of India, 1950 (in short 'the Constitution'), the High Court does not sit as an appellate authority over the acts and deeds of the Corporation. Similarly, the courts other than the High Courts are not to interfere with action under Section 29 of the Act unless the aforesaid two situations exist." 18. The learned counsel had also relied on the decision of the Supreme Court, reported in Karnataka State Industrial Investment and Development Corporation Ltd. Vs. Cavalet India Ltd. (2005(4) SCC 456), wherein it had been held 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 https://hcservices.ecourts.gov.in/hcservices/ 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, 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 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. (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. https://hcservices.ecourts.gov.in/hcservices/ (ix) Reasonableness is to be tested against the dominant consideration to secure the best price." 19. In view of the averments made on behalf of the petitioner, as well as the respondents and in view of the submissions made by the learned counsels appearing on behalf of the parties concerned and on a perusal of the records available, this Court is of the considered view that it would not be appropriate for this Court to interfere with the auction sale conducted on 31.5.2010, by the Tamilnadu Industrial Investment Corporation Limited in respect of the mortgage properties in question. 20. From the decisions cited before this Court, it is clear that the writ jurisdiction, under Article 226 of the Constitution of India, cannot be invoked to set aside the sale, in respect of the properties concerned, unless it is found that the auction of the respondent Corporation was unfair, unreasonable or in violation of any statutory provision. Even a wrong decision taken by the Tamilnadu Industrial Investment Corporation Limited is not open to challenge unless the same is found to be mala fide in nature. The power of judicial review, under Article 226 of the Constitution of India, cannot be made use of to convert the Writ Courts into an Appellate Forum, with regard to the administrative actions of the respondent Corporation. Unless such actions are found to be arbitrary and mala fide in nature, or in violation of any statutory provision, this Court would be reluctant to interfere with the same. 21. In the present case, it is found that the respondent Corporation had brought the properties in question for sale, by public auction, due to the default committed by the borrower in the repayment of the loan borrowed. It is found that the respondent Corporation had followed the necessary procedures, by obtaining a valuation report and by advertising in the newspapers, before bringing the properties in question for sale, by public auction. There is nothing shown on behalf of the petitioner to convince this Court to arrive at the conclusion that the auction of the respondent Corporation, by bringing mortgaged properties for sale, by pubic auction, was mala fide in nature or that such auction was in contravention of certain statutory provisions. The decision of the Supreme Court, reported in Kerala Financial Corporation Vs. Vincent Paul and another (CDJ 2011 SC 256), had been made, in view of the peculiar facts and circumstances of the said case. As such, it cannot be said that the auction procedures followed by the respondent Corporation in bringing the mortgaged properties for sale, by way of a public auction, held on 31.5.2010, is invalid in the eye of law. 22. It is for the petitioners, in Writ Petition No.13441 of 2010, to approach the appropriate civil forum, if they are so advised, to establish their rights,