IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.03.2010 CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN W.P.No.4864 of 2009 M/S.CHENNIMALAI YARNS (P) LTD. REP.BY ITS MANAGING DIRECTOR P.M.RAMASAMY OFFICE AT CHENNIYANGIRI VALASU MUKASIPIDARIYUR POST CHENNAIMALAI 51 ERODE DISTRICT. .. PETITIONER Vs 1 THE STATE INDUSTRIES PROMOTION CORPORATION OF TAMILNADU LTD. REP. BY MANAGING DIRECTOR NO.19-A RUKMANI LAKSHMIPATHI ROAD CHENNAI-8. 2 SPECIAL TAHSILDAR RECOVERY SIPCOT NO.19-A RUKMANI LAKSHMIPATHI ROAD CHENNAI-8. 3 TAMILNADU INDUSTRIAL INVESTMENT CORPORATION PERUNDURAI ROAD ERODE. 4 N.SUBRAMANIAN ADI GARMENTS NO.1 KPN COLONY 5TH STREET TIRUPUR-641 601. 5 THE SUB REGISTRAR OFFICE OF THE SUB REGISTRAR CHENNIMALAI ERODE. .. RESPONDENTS Prayer: Writ petition filed under Article 226 of the Constitution of India for the issue of a writ of Declaration to declare that the tender process which was held on 18.10.2007 by calling for tender and the undated private negotiation between the first respondent and the fourth respondent based on the publication in the Tamil https://hcservices.ecourts.gov.in/hcservices/ daily Dina Thanthi Kovai edition dated 7.10.2007 falsely stated by the first respondent as 10.7.2007 being item No.2 property in respect of sale of the property of the petitioner company which constitutes all the piece and parcel of land survey fielf No.203 (Part) situated in Chenniyangiri Valasu (Hamlet), Mukasipidariyar Post, Chennimalai, Perundurai Taluk, Erode District, land of an extent of acre 3.78 cents together with the superstructure thereon with a built up area of 28,685 square feet, together with the plant and machinery as null and void and consequently direct the first and second respondents to cancel the sale in favour of the fourth respondent herein and order for fresh sale. For petitioner : Mr.A.Palaniappan For 1st respondent : Mr.M.Devaraj For 3rd respondent : Mr.A.Ramesh Kumar For 4th respondent : Mr.B.Ravi Raja ORDER The petitioner herein availed of finance facilities from the first respondent herein for a sum of Rs.150 lakhs repayable in 24 quarterly instalments. The said loan was sanctioned on 30.1.1995. The petitioner agreed to pay interest at 16% per annum with a default clause of interest payable at 5% per annum with a moratorium period of two years. Admittedly, on the petitioner committing the default in the payment of the principal as well as interest, under proceedings dated 21.4.1998, the loan account was foreclosed. On the date of foreclosure, the petitioner had to pay Rs.111.58 lakhs with interest at Rs.15,00,172/-. It is not denied by the petitioner that after the foreclosure notice, nothing progressed from the part of the petitioner as regards the payment of the defaulted sum. Consequently, the first respondent took proceedings under the provisions of the State Financial Corporation Act, 1951 and issued possession notice on 13.6.2002. The possession was taken on 9.8.2002. In the meantime, the petitioner initiated proceedings before the B.I.F.R., on account of which, the first respondent did not bring the property for sale. Under proceedings dated 23.11.2005, the proceedings before the B.I.F.R. came to an end. Consequent on that, the first respondent brought the property for sale through public auction by causing advertisement in the newspapers dated 11.6.2006. The valuation was done as regards the property at Rs.159.02 lakhs which covered the land, building, plant and machinery. Since there were only two offers and that too were very low, the auction was not conducted as proposed. Once again, the property was brought for sale through advertisement by tender cum auction proceedings on 7.10.2007. There were four offers from one N.Subramanian for Rs.72 lakhs, C.Sivasubramaniam at Rs.50.40 lakhs and K.V.Tex at Rs.47.70 lakhs for the entire assets and from Jesus Enterprises at Rs.28.53 lakhs for plant and machinery alone. Since the bid amount quoted by three of the tenderers were very low when compared to the total https://hcservices.ecourts.gov.in/hcservices/ valuation of Rs.175.37 lakhs, the first respondent called upon the highest bidder namely, the fourth respondent, to improve his offer. After negotiation, the fourth respondent offered to pay a sum of Rs.127 lakhs, apart from meeting the statutory dues. 2. In the tender form submitted, Originally, the fourth respondent restricted his offer excluding the statutory dues; yet, on the negotiation done, he agreed to pay the statutory dues, apart from paying Rs.127 lakhs as consideration to the first respondent. The first respondent accepted the said offer and by proceeding dated 18.6.2008, the Board passed a resolution confirming the said offer as recorded in its office note dated 18.11.2008. 3. It may be noted that the petitioner had also borrowed money from TIIC, the third respondent in the writ proceedings. The first respondent informed the third respondent as to the steps taken and on receipt of the sale consideration from the fourth respondent, it settled the dues of the third respondent. 4. It is seen from the records that the fourth respondent has also settled the statutory dues by paying the dues to the Commercial Tax Department, EPF and other statutiory dues. In the background of the said facts, on the fourth respondent making the payment to the first respondent on 10.11.2008, the sale deed in respect of the immovable property was executed on 16.3.2009 in favour of the fourth respondent by the first respondent. The executed sale deed was handed over to the fourth respondent on 17.3.2009. 5. The petitioner, the owner of the land and building and plant and machinery and had given it as security to the first respondent in respect of the term loan availed of, submits that the tender proceedings and the sale are writ with illegalities on account of the mala fide conduct of the first respondent and consequently, aggrieved by the same, has approached this Court under Article 226 of the Constitution of India. The petitioner states that when compared to the value of the property and the value made by the first respondent, the price offered by the fourth respondent is very low and constituted only 72%. Hence, the property was sold for a sum prejudicial to the interest of the petitioner. Hence, the petitioner states that the unfair practice in the conduct of the sale demands that the sale be set aside. 6. It is further contended before this Court that there is no transparency in the conduct of the proceedings by the first respondent as regards the sale or as regards the negotiation which went on between the first respondent and the fourth respondent and in the said proceedings, the other secured creditor namely, the third respondent, was not involved at all. In the background of the said facts, the sale proceedings are illegal and hence, liable to be set aside. https://hcservices.ecourts.gov.in/hcservices/ 7. The petitioner further submits that the petitioner got the notice as regards the price offered by the fourth respondent and the number of persons participated in the auction only through an application made under the Right to Information Act and after the receipt of the said information, the petitioner interacted on the same only to find that the offer made by the fourth respondent and accepted by the first respondent at Rs.127 lakhs was a mismatch to the valuation done. The advertisement effected carried no details as regards the valuation done and that there was no sufficient notice as to the proposed auction. The petitioner further submits that in the absence of proper publicity made, substantial prejudice has been caused to the petitioner. In these circumstances, the petitioner sought for a writ of Declaration declaring the tender process held on 18.10.2007 based on the advertisements in the Tamil Daily Dinathanthi Kovai Edition on 7.10.2007 to bring the property of the petitioner back to sale as null and void and to consequently direct the first and second respondents to cancel the sale in favour of the fourth respondent and order for fresh sale. 8. On notice, the first respondent has filed a counter affidavit denying the allegations. It is stated that as regards the first advertisement, since there were only two offers received and which were also very low, namely, the offer of Rs.63 lakhs from one N.Subramanian and Rs.35 lakhs from one M.Santhameena for the property valued at Rs.159.02, the first respondent thought fit to reject the same and subsequently, once again, the property was advertised for sale under the tender cum auction notice on 7.10.2007. Since the offer quoted by the fourth respondent was at Rs.72 lakhs, which was the best offer, the said party was called upon to improve his offer and he ultimately improved his offer to a sum of Rs.127 lakhs, which was accepted by the Board as a good price. 9. The first respondent states that in spite of several notices, the petitioner never responded to clear the dues and even after having come to know about the demand to clear the dues, the default continued. Hence, after issuing the foreclosure notice issued as early as 1998, possession taken in the year 2003. In any event, having regard to the fact that it was open to the petitioner to repay the loan within 7 days of the publication, or in the alternative, to assist the first respondent in securing the best price, the petitioner adopted a non-cooperative attitude did nothing to either repay or participate at the time of the auction. Hence, on the basis of the negotiation that went on between the highest bidder and the Board, the second respondent arrived at a sale consideration of Rs.127 lakhs. The first respondent further pointed out that the petition filed by the petitioner before the B.I.F.R. was rejected on 23.11.2005. Hence, with the amount remaining outstanding and with no progress from the side of the petitioner to repay the dues even after repossession, the only https://hcservices.ecourts.gov.in/hcservices/ course open to the first respondent was to bring the property for sale. 10. It is contended in the counter affidavit that there are no materials to support the allegation that there was no fair play in the conduct of the auction proceedings in the matter of valuation and acceptance of the offer by the fourth respondent at Rs.127 lakhs. In this background of the facts which are evident from the records, the first respondent submits that the petition has to be dismissed. 11. It is seen from the records produced before this Court that by order dated 30.3.2009 in M.P.No.1 of 2009, this Court passed an order of status quo to be maintained, considering the allegations made by the petitioner and the prayer of the petitioner to forbear the first respondent from executing any sale deed and register the same in favour of the fourth respondent. 12. On the order passed by this Court dated 30th March 2009, the petitioner sent a telegraphic communication as well as a letter to the respondents herein informing about the status quo order passed by this Court. However, the sale deed was registered on 16.3.2009 which resulted in a contempt petition filed before this Court by the petitioner herein. 13. Subsequent to the registration of the same, a modified order was passed on 6.7.2009, wherein, this Court held that having regard to the registration of the document in favour of the fourth respondent, taking note of the balance of convenience and the need for protecting and safeguarding of the property in question, the order of status quo was modified and this Court directed the fourth respondent to take control of the property and protect and safeguard the same till the final disposal of the writ petition. 14. By order dated 5th August 2009 in Contempt Petition 505 of 2009, this Court pointed out that the document was presented before the fifth respondent on 3.4.2009 and was registered on 15.4.2009. It is seen from the order in the contempt petition that although there was disobedience of the order of this Court in presenting and registering the document, yet, without going into the question whether the disobedience was wilful or wanton, taking note of the modification order, learned single Judge directed the main writ petition to be posted for hearing. 15. It is a fact that as of today, the first respondent is not in possession of the property and the fourth respondent had already taken possession of the same. The petitioner does not deny this. Taking me through the averments in the writ petition as well as in the counter affidavits, learned counsel for the petitioner raised an issue that when the entire proceedings are writ with mala fides, the petitioner is entitled to come before this Court with https://hcservices.ecourts.gov.in/hcservices/ the writ petition under Article 226 of the Constitution of India seeking necessary relief. 16. In this regard, learned counsel for the petitioner placed reliance on the decision reported in (2004) 7 SCC 166 (S.J.S. Business Enterprises (P) Ltd. Vs. State of Bihar and others) that where the auction proceedings suffer from irregularities and the sale itself is for a price much below the upset price, the absence of the other bidders in the negotiation table takes away the transparency from the conduct of the sale. He further pointed out that there was no fair play either in the publication of sale or in the conduct of the auction proceedings. He further pointed out that in the context of the decision reported in (2004) 7 SCC 166 (S.J.S. Business Enterprises (P) Ltd. Vs. State of Bihar and others), when the proceedings are writ with mala fides, the mere existence of an alternative remedy does not stand in the way of this Court exercising its jurisdiction under Article 226 of the Constitution of India. He pointed out that the first respondent must act in accordance with law in a fair and reasonable manner, failing which, the action of the first respondent is amenable to writ jurisdiction. 17. In the absence of any attempt to secure a good price by causing adequate publicity to ensure maximum participation by the bidders, the mere acceptance of the offer of the fourth respondent is of no indication that the conduct of the auction proceedings was proper. Hence, as held by the Apex Court, this Court is bound to interfere in such a case of mala fide action and protect the interest of the borrowers like the petitioner. He pointed out that there are hardly any material in the files to show that there was a proper publication. Referring to the bid document from the fourth respondent containing the hand-written note at the bottom of the tender document that the price quoted did not include the statutory dues and that the fourth respondent had expressed his unwillingmess to pay the statutory dues as contrary to the terms of the auction notice and comparing the same with the copy of the said document filed in the typed set of papers before this Court not carrying any such statement, the petitioner pointed out that the original containing the hand-written statement is an after-thought and hence unreliable. He pointed out that at the time of the price negotiation taking place between the fourth respondent and the first respondent, the head of the Committee was absent and that this vitiates the entire proceedings. 18. He further pointed out that with TIIC as a major secured creditor and with no participation, the chances of getting the best price thus not there, the proceedings are one- sided and prejudicial to the rights of this petitioner. Apart from this, he pointed out that the sale deed is silient about when the fourth respondent paid the sale consideration and complied with the terms of the auction and even before the full consideration was https://hcservices.ecourts.gov.in/hcservices/ passed, possession was handed over and the sale deed was executed only thereafter. Adding to this illegality, on the aspect of registration by the first respondent of the sale deed in favour of the fourth respondent, he pointed out that this Court had granted a status quo order as early as 30.3.2009 and the parties were informed about the order passed by this Court immediately. In spite of this, for reasons best known, there was a rush for registration of the document, a fact which cannot be lost sight of in assessing the mala fide nature of the conduct of the parties herein. In this background, he submitted that the conduct of the parties right from the tender proceedings to the date of registration of the document, the manner of negotiation, the lack of transparency in the conduct of negotiation and the acceptance of the price which is 72% of the valuation done, lead to an irresistible conclusion that the proceedings are writ with mala fides and merits to be interfered with by this Court. 19. In support of his contention, learned counsel for the petitioner placed reiance on the decision reported in (2004) 7 SCC 166 (S.J.S. Business Enterprises (P) Ltd. Vs. State of Bihar and others) as to the jurisdiction of this Court to interfere with the proceedings. He referred to the decision reported in (1993) 2 SCC 299 (U.P. Financial Corporation Vs. Gem Cap (India) Pvt. Ltd. and others) and (1988) 1 SCC 166 (Haji T.M.Hassan Rawther Vs. Kerala Financial Corporation) in support of his plea that when the respondents had not been disclosed the details of the private negotiation and hence lacking in transparency, apart from there being no public auction as originally proposed, the sale consideration reached on the private negotiation and the sale deed thus executed have to be set aside by this Court. 20. He further referred to the decision reported in 2002 (1) CTC 503 (Haryana Financial Corporation and another Vs. Jagdamba Oil Mills and another) in support of his contention that when on a comparison of the valuation of the property, the one arrived at as offered by the fourth respondent indicated lack of fair play, this Court's jurisdiction is not ousted; wherever the conduct of the proceedings is writ with mala fides, judicial review of such action is available to an aggrieved party. Learned counsel further referred to the decisions reported in (2005) 4 SCC 456 (Karnataka State Industrial Investment & Development Corpn. Ltd. Vs. Cavalet India Ltd. and others) and 2002 (1) CTC 503 (Haryana Financial Corporation and another Vs. Jagdamba Oil Mills and another) that, when there is a violation on the part of the statutory corporation or when there is unfairness and unreasonableness in the action of the statutory corporation , then under the above two circumstances,the Court is bound to interfere with the action taken by the statutory corporation. In the background of the said decisions, he prayed that the action of the first respondent be set aside. https://hcservices.ecourts.gov.in/hcservices/ 21. Per contra, learned counsel appearing for the first respondent, bringing out the various aspects of the sale right from the date of borrowing made by the first respondent and to the possession taken thereafterwards and the auction done twice, took me through the files and the Board Resolution indicating the confirmation on the offer made by the fourth respondent as well as to the intimation to TIIC as regards the sale and the realisation of the amount. He also pointed out to the relevant documents before this Court as regards the deliberations that had taken place between the fourth respondent and the first respondent in the matter of arriving at the best price. 22. To the specific allegation made by the learned counsel for the petitioner to the photocopy of the tender document furnished to the Court not containing the written portion, he pointed out to the defective photocopying of the document produced before this Court and showed the original only to state that the photocopy was a defective one and the absence of the written portion in the photocopy filed before this Court was an inadvertent mistake. Further, there was no need for misleading anyone on this written portion, wherein, the fourth respondent, at the time of placing the bid, stated his reservation on paying the sale tax dues. Hence, the original produced before this Court containing the writing by hand by the fourth respondent clearly belies the contention as regards the allegation of mala fides. He further pointed out to the deliberations, wherein, subsequently, the fourth respondent had untertaken to pay the statutory liability and in fact, had paid the same. In these circumstances, it is not open to the petitioner to attribute motive and there is no material to substantiate the allegations on this aspect indicative of mala fides. 23. He pointed out that the fourth respondent had paid the sale consideration as agreed and had also paid the statutory dues. The documents available show that the petitioner had not cooperated at any point of time either on receipt of the possession notice or even thereafter to participate in the conduct of the auction, as required under the publication effected. In the above circumstances, the contention of the petitioner does not merit any consideration before this Court. 24. Placing reliance on the decision reported in (2005) 4 SCC 456 (Karnataka State Industrial Investment & Development Corpn. Ltd. Vs. Cavalet India Ltd. and others), he pointed that when there are no unreasonableness or unfairness in the conduct of the proceedings, and as evident from the documents produced before this Court, the fourth respondent had also improved on the price offered to match the valuation to enable the first respondent to get the maximum price, as pointed out by the Apex Court, the question of substitution of the price to the one arrived at after deliberation does not arise in this case. There are no merits in the contention of the petitioner and hence, the writ petition is liable to be dismissed. https://hcservices.ecourts.gov.in/hcservices/ 25. Heard learned counsel appearing on either side. 26. I have perused the files produced before this Court. I am satisfied that the allegations are not supported by any materials. I am not in a position to find any material to support the plea of the petitioner that the proceedings are writ with mala fides. Going through the records, I am at a loss to find any material or circumstance to support the contention that the respondents acted mala fide and in an unfair manner which causes serious prejudice to the petitioner. 27. the Apex Court pointed out in the decision reported in (2004) 7 SCC 166 (S.J.S. Business Enterprises (P) Ltd. Vs. State of Bihar and others) that in matters of sale by the State Financial Corporation, interference is warranted only in cases where the action was unfair or unreasonable or was in violation of any statutory provision. The Supreme Court pointed out that the presumption that public officials will not discharge their duties honestly and in accordance with the law may be rebutted by establishing circumstances which reasonably probablize the abuse of that power. In such circumstances, it would be for the officer concerned to explain the circumstances set up against him. The Apex Court further pointed out that in the matter of sale under Section 29, the reasonableness of the action taken by the State Financial Corporation has to be tested against the dominant consideration to secure the best price for the property to be sold. The Apex Court further pointed out that there must be material to show that adequate publicity was effected to ensure maximum participation of the bidders, apart from the fact that there are no extraordinary circumstances which vitiates the sale notice. In the decision reported in (1993) 2 SCC 299 (U.P.Financial Corporation Vs. Gem Cap (India) Pvt. Ltd.), the Apex Court pointed out that while there can be no doubt that the Corporation has to act within the four corners of the State Financial Corporation Act, 1951 and in furtherance of the object underlying the same, yet, the said fact cannot be carried to the extent of obligating the Corporation to revive and resurrect every sick industry irrespective of the cost involved. The Supreme Court further pointed out that fairness is not a one way street, more particularly in matters where the borrower fails to honour the commitment, that fairness required of the Corporation cannot be carried to the extent of disabling it from recovering what is due to it. The obligation