LPA/121720/2006 1/17 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No. 1217 of 2006 With CIVIL APPLICATION No. 8478 of 2007 In LETTERS PATENT APPEAL No. 1217 of 2006 For Approval and Signature: HONOURABLE MR. JUSTICE MOHIT S. SHAH HONOURABLE MS. JUSTICE H.N.DEVANI ========================================= = 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= = HELLO INDUSTRIES LTD - Appellant(s) Versus GUJARAT INDUSTRIAL INVESTMENT CORPORATION LIMITED & 1 - Respondent(s) ========================================= = Appearance : MR MIHIR JOSHI, SR. ADVOCATE with MR HARSHIT S TOLIA for Appellant(s) : 1, MR SN SHELAT, SR. ADVOCATE with MR RD DAVE for Respondent(s) : 1, MR AJAY R MEHTA for Respondent(s) : 2, ========================================= = CORAM : HONOURABLE MR. JUSTICE MOHIT S. SHAH and HONOURABLE MS. JUSTICE H.N.DEVANI LPA/121720/2006 2/17 JUDGMENT Date : 20/10/2008 ORAL JUDGMENT (Per : HONOURABLE MR. JUSTICE MOHIT S. SHAH) This appeal is directed against the judgment dated 25th April, 2006 dismissing the appellant's petition which was directed against the action of the respondent Corporation in cancelling the settlement earlier offered to the appellant – petitioner. 2. The facts leading to filing of this appeal are briefly stated as under:- In the year 1997, the appellant Company applied to the respondent Corporation seeking financial assistance of Rs.3 crores to set up a water park at land bearing Block No.86, Village – Karan, Nr. Kadodara Char Rasta, National Highway No.8, Tal: Palsana, District Surat which, according to the appellant, was a project involving an investment of about Rs.25 crores. In the year 1998, the GIIC sanctioned a loan of Rs.2 crores for the said project with liability to pay interest at the rate of 19.50% per annum by quarterly raised instalments. According to the appellant, since the appellant committed default in repayment of loan, the possession of the unit was taken by GIIC in May, 2000. The implementation of the project thereafter commenced and the water park and resort was incorporated in the year 2001. Upon the appellant assuring to repay the dues, the possession of the unit had been given back to the appellant in February, 2001. Again the appellant LPA/121720/2006 3/17 JUDGMENT defaulted and, therefore, possession was once again taken over by the GIIC on 15th March, 2004. In June, 2004, GIIC issued an advertisement inviting offers. The highest offer was of Rs.3.18 crores which was accepted by the GIIC on 12th August, 2004. However, the first three highest bidders, whose E.M.D. were retained by the respondent, failed to make any down payment and, therefore, the unit was not sold by the GIIC to any party. 3. The GIIC had floated One Time Settlement (OTS) Scheme. The appellant applied under the said Scheme on 14th June, 2005 and the Chief Board of Directors, GIIC resolved to grant benefit of OTS scheme to the appellant. As per the OTS Scheme, the appellant was to pay total sum of Rs.336.73 lacs in full and final settlement of its dues subject to various terms and conditions. Thereafter, a letter dated 25th June, 2005 was issued to the appellant. However, vide letter dated 22nd July, 2005, the GIIC sanctioned One Time Settlement in favour of the appellant in the following terms:- “The corporation is pleased to inform you that Board of Directors of GIIC Limited, in its 400th Meeting held on 15th July, 2005, has accorded to settle the dues under OTS Scheme – I at Rs.336.73 Lacs (Rupees Three hundred thirty six lacs and seventy three thousand only), subject to the following terms and conditions:- 1. To accept the OTS proposal at Rs.336.73 lacs. LPA/121720/2006 4/17 JUDGMENT 2. The company shall make down payment of 25% by Demand Draft within 30 days from the date of sanction of OTS proposal. 3. The balance 75% shall be paid within 6 months thereafter without interest in equal monthly instalments by Post Dated Cheques alongwith stamped undertaking as per the standard format of the corporation. 4. If the company fails to pay as stipulated in condition No.2 & 3, the OTS shall be treated as cancelled and the corporation shall take action u/s. 29 of the SFC Act to recover the dues. 5. The possession of the unit shall be handed over after the entire recovery towards OTS including interest for delayed period, if any. 6. Non-compliance of the aforesaid terms and conditions shall lead to automatic cancellation of reliefs and concessions and the liquidated damages, penal interest, waived amounts of interest/principal shall be recharged. 7. The personal Guarantee of existing LPA/121720/2006 5/17 JUDGMENT guarantors and corporate guarantee shall continue till the dues of the corporation are fully paid. 8. The company shall arrange to sign duplicate copy of this sanction letter by its director as token of acceptance of the terms and conditions and return to GIIC within 7 days from the date of receipt of this letter. 9. The directors of the company shall execute any legal documents, if so warranted by the legal division of the corporation. 10. All other terms and conditions mentioned in our earlier sanction letter/s as amended from time to time shall remain unaltered. 11. The company shall obtain similar relief and concessions from other involved financial institutions/bankers, if any.” The said terms and conditions were revised by letter dated 26th August, 2005 as under:- “Revised Condition No.2 : The company shall make down payment of LPA/121720/2006 6/17 JUDGMENT 25% of sanctioned OTS amount by demand draft within 30 days from the receipt of sanction letter. Revised Condition No.5 : The possession of the unit shall be handed over after down payment of 25% of sanction amount subject to submission of undertaking as desired by Legal Division of the corporation. All other terms and conditions of aforesaid sanction letter dated 22nd July, 2005 shall remain unaltered.” It appears that ultimately, by their letter dated 17th/19th November, 2005, the GIIC confirmed the OTS in favour of the appellant on the following terms:- 1. The corporation confirm validity of OTS. 2. The corporation has approved the repayment schedule for OTS amount as under : Due date of Payment Amount (In Rs.) Immediately (Down payment 8420000/- by D.D.) 14.12.2005 4208833/- 14.01.2006 4208833/- 14.02.2006 4208833/- 14.03.2006 4208833/- 14.04.2006 4208833/- LPA/121720/2006 7/17 JUDGMENT 14.05.2006 4208833/- ------------------- TOTAL RS. 3,36,73,000/- 3. In case of any delay in making payment of OTS amount as per schedule referred above, for whatsoever reason, the company shall pay interest for the delayed period @ 14.25% p.a. for a period of 12 months and @ 18% p.a. for further delay period as per policy and practice of the Corporation, if the extension for the delay period is approved by the Board of Directors of the corporation. 4. All other terms & conditions stipulated in our earlier OTS/revised sanction letters dtd. 22.7.2005, 28.7.2005 and 26.8.2005 as well as earlier sanction letter/s remain unchanged. 4. The appellant thereafter addressed a letter dated 28th November, 2005 to the Company Secretary & Chief Adviser (Legal) of the respondent Corporation in the following terms:- “With regard to above, after receipt of your letter confirming validity of OTS date 19.11.2005, we came to your office on 23.11.2005 along with intending investor of New Delhi. The investing party came with demand drafts and PDC cheques as per terms of OTS letter. Our legal advisor was also LPA/121720/2006 8/17 JUDGMENT present at that day. We request you to complete the formalities to handover possession of the unit, but because of your insistence the documents and formalities could not be completed, due to reasons on your part as stated above. We hereby inform you to let us know regarding filling of our undertaking and its format and also to know us other formalities, in order to see that we can take possession of the unit. We anticipate your prompt action in this regard.” 5. Again, by letter dated 03rd December, 2005, the appellant informed the Company Secretary & Chief Adviser (Legal) of the respondent Corporation that the appellant had requested to revise the form of undertaking and to remove one of the conditions so that undertaking can be given by all the Directors who are from different places like Mumbai, Vapi, Baroda and Idar. The appellant ultimately ended the said letter with the following request:- “We request you to avoid further delay. Please allow us to go with general format of undertaking for immediate possession after paying 25% of OTS amount (84.20 lacs).” However vide letter dated 28th December, 2005, the appellant was informed that as the appellant had failed to pay as per stipulation in revised condition No.2, it has been decided in LPA/121720/2006 9/17 JUDGMENT terms of condition No.4 of the sanction letter dated 22nd July, 2005 to cancel One Time Settlement sanctioned in its favour, with immediate effect. 6. Aggrieved by the above cancellation of the OTS, the appellant preferred Special Civil Application No.125 of 2006 before the learned Single Judge. At the first hearing of the petition on 10th January, 2006, the learned Single Judge recorded the appellant's statement that the appellant was ready and willing to pay Rs.84,20,000/- as down payment within one week and two monthly instalments of Rs.42,08,833/- each by 30th January, 2006 and the appellant also agreed to pay subsequent instalments as per the One Time Settlement Scheme. A separate undertaking was also tendered before the court in the same terms. The learned Single Judge accordingly directed the appellant to make payment as per the above statement and subject to the said condition, the GIIC was directed not to sell the property to any third party. On the next date of hearing i.e. on 31st January, 2006, it was brought to the notice of the Court through a further affidavit filed on behalf of the appellant that the entire amount of Rs.3,36,73,000/- was paid by the appellant to the respondent GIIC. The appellant further agreed to deposit a further sum of Rs.28,18,000/- because the respondent GIIC had informed the appellant by letter dated 24th January, 2006 as under:- “xxx xxx the total amount towards one time settlement (OTS) has been reworked as under (as on 31.1.2006) OTS amount Rs. 363.25 lacs LPA/121720/2006 10/17 JUDGMENT Legal expenses of head office Rs. 0.52 lacs Legal expenses of Zonal Office, Surat Rs. 0.04 lacs Security expenses of five months at Rs. 0.22 lacs per month Rs. 1.10 lacs Total Rs. 364.91 lacs The aforesaid revised amount of OTS has been calculated as on 31.1.2006 with reference to the original OTS letter dated 22.7.2005 (as on 30.6.2005), which was cancelled on 28.12.2005. This is subject to the post facto approval of the Board of Directors of GIIC Limited.” 7. The learned Single Judge directed the appellant to pay the said additional amount of Rs.28,18,000/- by 10th February, 2006, without prejudice to the rights and contentions of the parties and continued the interim relief till final hearing. 8. The appellant deposited the said amount with the respondent GIIC. When the matter was taken up for final hearing before another learned Single Judge, the learned Single Judge took the view that since the appellant had committed defaults in the past and had not made payment as per the OTS, the petitioner was not entitled to any relief. The learned Single Judge further noted the fact that during pendency of the petition, the property in question was put up for auction sale and the respondent had received the offer of Rs.6.84 crores against the outstanding dues of the appellant which were to the tune of Rs.7.26 crores. The contention urged on behalf of LPA/121720/2006 11/17 JUDGMENT the appellant that the respondent GIIC had granted extension for payment of OTS amount to other parties did not commend to the learned Single Judge. The petition was, accordingly, dismissed and the respondent GIIC was directed to refund the amount of Rs.3.64 crores paid by the appellant during pendency of the petition. 9. Aggrieved by the above judgment of the learned Single Judge, the appellant is in appeal before us. 10. Before enumerating the contentions urged on behalf of the appellant, we may note that the party which had made the highest offer of Rs.6.84 crores during pendency of the petition, backed out from the said offer and the respondent GIIC had again put up the property for auction and on this occasion, the highest offer received was Rs.6.03 crores. 11. It appears that at the hearing of this appeal on 12th September, 2007, the court noted the above offer and called upon the counsel for the appellant to state whether the appellant was prepared to pay Rs.6.03 crores for the property in question. On the next date of hearing i.e. on 24th September, 2007, the learned counsel for the appellant stated that the appellant was ready and willing to purchase the premises in question for a consideration of Rs.6 crores if the respondent Corporation gave credit of the amount of Rs.3,64,91,000/- paid earlier and the balance amount to be paid by the appellant in 12 equal instalments within a period of one year. It appears that however, the respondent GIIC did not agree and, therefore, the matter has finally been heard. LPA/121720/2006 12/17 JUDGMENT 12. Mr. Mihir Joshi, learned counsel for the appellant submitted that after the respondent sanctioned the OTS on 22nd July, 2005 and revised its terms on 26th August, 2005, the appellant was always ready and willing to pay the amounts as per the OTS and, in fact, the schedule was worked out and communicated to the appellant vide respondent's letter dated 17th/19th November, 2005. He further submitted that it was only on account of the efforts made by the appellant to have some revision in the contents of the undertaking which was required to be given by the Directors of the appellant Company that the appellant did not make the down payment. The appellant had been requesting the respondent Corporation through letters dated 28th November, 2005 and 03rd December, 2005. A bare perusal of the said letters would indicate that the appellant had always been ready and willing to make payments as per the OTS Scheme and the decision of the respondent, communicated through letter dated 28th December, 2005, was arbitrary and unreasonable. In the facts and circumstances of the case, it can never be said that the appellant had failed to pay the OTS amount. It is submitted that if the respondent had responded to the appellant's letters dated 28th November, 2005 and 03rd December, 2005 and had informed the appellant that the appellant's request was turned down, the appellant would have made the payments as per the letter dated 17th/19th November, 2005. It is further submitted that the bona fides of the appellant are apparent from the fact that the entire OTS amount of Rs.3,36,73,000/- was already paid by the appellant on 30th January, 2006 and even a further amount of Rs.28,18,000/- was paid by the appellant by 01st February, 2006. It is also submitted by Mr. Joshi for the appellant that in view of this factual position and clearance of LPA/121720/2006 13/17 JUDGMENT all dues by 01st February, 2006, the learned Single Judge ought to have allowed the petition and issued appropriate directions to the respondent GIIC to close the chapter in view of receipt of the amount of Rs.3,64,91,000/- which amount was paid well before 14th May, 2006 which was the date of payment of last instalment as per the OTS letter dated 17th/19th November, 2005. 13. Mr. Joshi also submitted that the letter dated 17th/19th November, 2005 was not a mere concession offered by the respondent Corporation to a single isolated debtor like the appellant but it was a scheme applicable to all the borrowers who satisfied the eligibility criteria indicated in the scheme, as approved by the Board of Directors on 04th May, 2005 and it was issued in the form of a circular on 12th May, 2005. It is also submitted that the impugned decision dated 28th December, 2005 was arbitrary and violative of the appellant's fundamental right under Article 14 of the Constitution. Mr. Joshi further submitted that OTS terms clearly provide that if there was any delay in payment, the Corporation would charge interest at the rate of 14.25% per annum and that, therefore, at the most, the Corporation could have charged the said amount of interest for the period between 19th November, 2005 and 30th January, 2006. In fact, there was no justification for charging such interest because the appellant has already paid the entire amount four months in advance of the last date stipulated in the OTS. It is also submitted that the impugned communication dated 28th December, 2005 was not on the basis of any decision of the Board of Directors but a decision of an individual officer of the Board. LPA/121720/2006 14/17 JUDGMENT 14. On the other hand, Mr. S.N. Shelat with Mr. R.D. Dave, learned counsel for the respondent Corporation have opposed the appeal and submitted that looking to the past conduct of the appellant in not paying the dues, committing several defaults and not paying any amount even after the OTS was sanctioned on 22nd July, 2005 and even after issuance of the letter dated 17th/19th November, 2005, the appellant is not entitled to any discretionary relief from this court. The learned counsel for the respondent Corporation have relied on the following decisions:- (i) United Bank of India vs. Ramdas Mahadeo Prashad & Ors. [Judgements Today 2003 (8) SC 609] (ii) Karnataka State Industrial Investment and Development Corporation Ltd. vs. M/s. Cavalet India Ltd. and Ors. [Judgements Today 2005 (3) SC 570] (iii) Rama Industries, Rewari & Anr. vs. The Assistant General Manager, State Bank of India, Chandigarh & Anr. [AIR 2006 Punjab and Haryana 95] On the basis of the above authorities, it is submitted that when the borrower fails to make the required payment within the time stipulated in the One Time Settlement Scheme, the head of the institution is justified in cancelling the OTS offer and putting the property to sale. LPA/121720/2006 15/17 JUDGMENT 15. Having heard the learned counsel for the parties, we find that in the years 1998 and 1999, the total disbursement made by the respondent GIIC to the appellant was Rs.170.30 lacs. A further sum of Rs.29.70 lacs was disbursed in the year 2001. Against the aforesaid loan amount with interest thereon, the appellant has already paid a sum of Rs.3,64,91,000/- by 10th February, 2006. The appellant further made a statement before this court on 24th September, 2007 that the appellant was prepared to pay further amount to make it total payment of Rs.6 crores. Having gone through the correspondence between the parties on the record of these proceedings and particularly, the appellant's letter dated 28th November, 2005 and two letters dated 03rd December, 2005, it appears that the appellant was only requesting the respondent Corporation to modify the terms and conditions of the undertaking. The very fact that the appellant paid the entire OTS amount of Rs.3,36,73,000/- by 30th January, 2006 and paid a further sum of Rs.28,18,000/- on 10th February, 2006 is sufficient to show the appellant's bona fides as well as their capacity to pay. It is true that during pendency of these proceedings, the Corporation has received offer of Rs.6.03 crores from another party for purchasing the property which was put up for auction sale and the appellant had even indicated his willingness on 24th September, 2007 to pay the balance amount. 16. We are, therefore, of the view that interest of justice would be served if this appeal is allowed and the respondent Corporation is directed to accept total amount of Rs.6.03 crores including the amount of Rs.3,64,91,000/- already paid by the appellant to the respondent on 30th January, 2006/10th February, 2006. LPA/121720/2006 16/17 JUDGMENT 17. At this stage, Mr. Joshi, learned counsel for the appellant submitted that since the amount of Rs.3,64,91,000/- was paid by the appellant on 30th January, 2006/10th February, 2006 long back and even prior to the offer of Rs.6.03 crores made by another party in September, 2007, the appellant shall be given the benefit of interest calculation for the payment made about 20 months in advance. 18. We are, however, not inclined to accept the above submission because apart from the fact that the appellant is a debtor of the respondent Corporation, the appellant will be making the payment of the balance amount of Rs.2,38,09,000/- after one year from the date on which the third party would have made the total payment of Rs.6.03 crores. 19. As regards the decisions relied upon by the learned counsel for the respondent Corporation, those decisions deal with a situation where the borrower committed default and had not yet made the payments unlike the case on hand where the appellant has already made the payment as per the OTS sanctioned by the respondent Corporation and communicated on 17th/19th November, 2005. As indicated earlier, the appellant took some time because he was negotiating with the respondent Corporation about the terms and conditions to be mentioned in the undertaking. But, in any case, the payment of the OTS amount was already made long back on 30th January, 2006/10th February, 2006, of course, without prejudice to the rights and contentions of the respondent Corporation. However, in view of the further development that the highest offer for the property in question has been received by the LPA/121720/2006 17/17 JUDGMENT respondent Corporation at Rs.6.03 crores and the appellant is being directed to pay the balance amount, we see no impediment in directing the respondent Corporation to accept the amounts of Rs.3,64,91,000/- plus Rs.2,38,09,000/- as One Time Settlement Scheme amount and to give the appellant Company all the benefits of the One Time Settlement Scheme which was sanctioned by the Corporation on 22nd July, 2005. The balance amount of Rs.2,38,09,000/- shall be paid by the appellant to the respondent Corporation within a period of four months from today. 20. In the result, the judgment and order dated 25th April, 2006 passed by the learned Single in Special Civil Application No.125 of 2006 is hereby set aside and the appeal is allowed in the aforesaid terms. Civil Application No.8478 of 2007 In view of the order passed in Letters Patent Appeal, the Civil Application does not survive and is disposed of. ( Mohit S. Shah, J. ) ( Harsha Devani, J. ) hki