*THE HON’BLE MR JUSTICE L.NARASIMHA REDDY Writ Petition No.20203 of 2004 % 23.12.2008 Between: Bandaru China Narayana Murthy. .... PETITIONER AND The A.P. State Finance Corporation and others. ...RESPONDENTS ! COUNSEL FOR PETITIONER: Sri P.B.Vijay Kumar ^ COUNSEL FOR RESPONDENTS 1 and 2 : Sri Sreemannaryana ^ COUNSER FOR RESPONDNET 3 : Smt. Mammu Vani < Gist: > Head Note: ? CITATIONS: 1. 2004(7) SCC 151 2. 2005(4) SCC 456 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY WRIT PETITION No.20203 of 2004 ORDER: The petitioner intended to establish a modern rice mill at Kovuluwada Village, Bogapuram Mandal, Vizianagaram District. He acquired Ac.0.50 cents of land for that purpose. With a view to mobilize resources, he approached the A.P. State Financial Corporation, 1st respondent herein, for sanction of loan. Through a letter, dated 16.03.1993, the 1st respondent sanctioned a sum of Rs.5,90,000/-. Almost about one year thereafter, a sum of Rs.4,91,000/- was released to the petitioner. The amount was repayable in 11 half-yearly instalments. The mill became functional in January 1995. However, it was seized shortly thereafter, on the ground that the petitioner failed to pay the instalemtns. It was put to auction on 26.07.1997. The 3rd respondent herein offered Rs.6,30,000/- towards consideration. At that stage, the petitioner approached this Court by filing another writ petition. He has also paid a sum of Rs.1,50,000/-. In view of this development, the sale was not confirmed and the mill was handed over to the petitioner. The Corporation evolved a scheme of One Time Settlement (OTS) to its borrowers on 29.11.2002. The petitioner submitted an application to avail the benefit and he was required to pay a sum of Rs.93,000/- representing the 15% of the probable amount. The amount was paid. An order was passed on 20.11.2002, to the effect that the loan account of the petitioner shall stand closed if an amount of Rs.6,15,000/- is paid within one year. On the ground that the petitioner did not adhere to the terms of the scheme, the order, dated 20.11.2002, was recalled on 21.10.2003. The petitioner was informed that he has to pay a sum of Rs.14,24,000/-. The mill was seized on 01.12.2003. On 05.02.2004, a sale notice was issued, keeping the offer open for 90 days. A tender submitted for Rs.4,86,000/- in response to this was rejected. Another sale notice was published on 15.07.2004. The petitioner states that he persuaded some of the intending purchasers to offer more than Rs.5,00,000/-, and still the 1st respondent is not accepting the same. This writ petition is filed initially for a declaration that the action of the respondents in not accepting the offers made by the prospective buyers arranged by the petitioner for purchase of the mill is illegal and arbitrary. It was admitted and interim orders were passed. The 3rd respondent got himself impleaded and filed an application to vacate the interim orders. He pleaded that in response to the sale notice, dated 15.07.2004, he submitted a tender on 21.08.2004 for a sum of Rs.3,49,000/- for the mill, together with the land; and Rs.2,00,000/- for the land in different survey number offered as collateral security. It is stated that the amount was deposited on 20.09.2004 and that the sale was confirmed on 04.11.2004. In the light of these pleadings, the petitioner filed an application for amendment of the prayer in the writ petition, which was directed against the sale itself and for consequential reliefs. The application was ordered. The petitioner contends that the sale of the mill conducted by the 1st respondent in favour of the 3rd respondent is illegal and contrary to the settled principles of law. According to him, when the mill fetched a sum of Rs.6,30,000/- in December 1997, the sale of the same for Rs.3,49,000/- in August 2004, is illegal, arbitrary and capricious. He alleges collusion between the Corporation and the 3rd respondent. It is also stated that the 3rd respondent, who is Sarpanch of the Village, was bent upon, from the inception, knock away the mill and was instrumental in creating hurdles from time to time. Respondents 1 and 2 filed separate counter affidavits. According to them, the petitioner was given number of opportunities to clear the loan and only when he did not evince any interest, the sale of the property was effected. They contend that the sale offer was kept open for 90 days and the sale was effected in favour of the 3rd respondent strictly in accordance with the conditions stipulated in the sale notice. The allegation that the property was sold at a price below the actual value is denied. The 3rd respondent filed a counter affidavit. According to him, the sale does not suffer from any illegality or infirmity and he became the absolute owner on deposit of the entire consideration. He states that being a chronic defaulter, the petitioner cannot take exception to the sale, which is conducted purely in accordance with the relevant provisions of law. Sri P.B.Vijay Kumar, learned counsel for the petitioner submits that the action of the respondents herein is contrary to the settled principles of law. He submits that even according to the valuation undertaken by the respondents, the mill, together with the land and machinery would cost Rs.5,35,000/-, whereas it was sold for Rs.3,49,000/- He further submits that such a course is opposed to law laid down by the Supreme Court. Learned counsel contends that the very withdrawal of OTS before the due date discloses the arbitrariness on the part of the respondents. Learned counsel submits that his client is entitled not only for the return of the mill in working condition but also for the damages suffered by him on account of the illegal action. Sri Srimannarayana, learned counsel for respondents 1 and 2 and Smt. Mammu Vani, learned counsel for respondent No.3 submit that the petitioner is a chronic defaulter and that he cannot raise any objection for the sale, which is conducted in terms of the agreement and conditions of the sale notice. They rely upon certain judgments of the Supreme Court and urge that this Court cannot act as an appellate authority over the sale conducted in exercise of power under Section 29 of the State Financial Corporations Act (for short ‘the Act’). The petitioner approached the 1st respondent for sanction of loan to construct a rice mill on his land. Though a sum of Rs.5,90,000/- was sanctioned in March 1993, almost one year thereafter, Rs.4,91,000/- was released. The amount was invested and the mill became functional in January 1995. The amount together with interest was payable in 11 half yearly instalments. There is no dispute that there was default on the part of the petitioner in paying the instalments. This led to seizure of the mill by the 1st respondent in exercise of power under Section 29 of the Act. It was also brought to sale on 26.07.1997. An offer was made by the 3rd respondent at Rs.6,30,000/-. Be it on account of intervention by this Court or on payment of Rs.1,50,000/- by the petitioner herein, the sale was not confirmed and the petitioner was handed over the mill. It was seized once again in the year 1998. The liability of the petitioner appears to have exceeded Rs.10,00,000/- by the year 2002. OTS was in vogue at that time. On an application submitted by the petitioner, a settlement was arrived at to liquidate the loan account on payment of Rs.6,50,000/-. As a condition precedent for extension of this benefit, the petitioner was required to deposit a sum of Rs.93,000/-, which he did promptly. The benefit was extended to the petitioner on 20.11.2002 and the payments were to be made within one year therefrom. However, on the ground that the petitioner did not make the payment of instalments, OTS was withdrawn before the expiry of one year vide proceedings dated 21.10.2003. This was followed by seizure of mill on 01.12.2003. The 1st respondent issued auction notice on 05.02.2004 and in response to the same, an offer was received for Rs.4,86,000/- for the mill constructed over an extent of Ac.0.50 cents and Ac.2.00 of land offered as collateral security. This offer was found to be inadequate and as such, it was rejected. Since the time stipulated under the sale notice, dated 05.02.2004 expired, the 1st respondent issued a fresh notice, dated 15.07.2004. The offer was kept open for 90 days i.e. up to 15.10.2004. It is pertinent to mention here that according to the valuation undertaken by the respondents, the shed and land was estimated at Rs.4,05,000/- and the machinery at Rs.1,70,000/-. This does not include Ac.2.00 of land offered as collateral security. The 3rd respondent offered Rs.3,49,000/- for the mill together with its machinery on 21.08.2004. This was accepted and on 20.09.2004, the amount was deposited. The respondents nowhere have stated that any auction was conducted in pursuance of the sale notice dated 15.07.2004. The result is that the loan tender submitted by the 3rd respondent for Rs.3,49,000/- for the mill was accepted. He also emerged as the highest tender for Ac.2.00 of land offered as collateral security. In Gajraj Jain vs. State of Bihar[1], the Hon’ble Supreme Court discussed the scope and ambit of the power of the State Financial Corporation under Section 29 of the Act. It was held that the extraordinary power conferred under that provision is coupled with the duty to ensure that a unit seized under that provision is sold at a reasonable price. It was pointed out that the predominant consideration must be to realise the best possible price. Fixation of reserve bid is treated as an essential condition. The circumstances, under which this Court can undertake judicial review of the exercise of power under Section 29 of the Act was dealt with by the Supreme Court i n Karnataka State Industrial Investment & Development Corporation Ltd. Vs. Cavalet India Ltd.[2]. It was observed that this Court cannot act as an appellate authority over the decisions taken by the Financial Corporation under Section 29 of the Act, except where the Corporation acts unfairly or unreasonably. Relevant guidelines in this regard are summed up in paragraph 19 of the judgment. It was reiterated that the securing of best possible price shall be the predominant factor. Reference can also made to several other judgments in this regard. If one applies the principles enunciated by the Supreme Court to the facts of this case, it clearly emerges that the 1st respondent acted in arbitrary and unreasonable manner. Firstly, OTS was withdrawn much before the expiry of the due date. If the petitioner failed to make the payments as per the scheme, adequate opportunity ought to have been given. By canceling the OTS prematurely, the liability of the petitioner was enhanced almost by Rs.10,00,000/-. It is stated that in response to the sale notice, dated 05.02.2004 only one offer was received for a sum of Rs.4,86,000/-. The record does not disclose that auction was held on any specified date. The second sale notice was issued on 15.07.2004. It is matter of record that the offer through the notice was kept open for 90 days. In other words, it was open for any intending bidders to submit their tenders within 90 days. The Corporation reserved to itself, the right to finalise the auction, in case, satisfactory offers are received before expiry of 90 days. Provision is also made in the notification for conducting of auctions on every Wednesday, during the currency of the sale notice. It is a matter of record that the 3rd respondent himself offered a sum of Rs.6,30,000/- in December 1997, when the mill was put to sale. In August, 2004, he made an offer of Rs.3,49,000/- for that very unit. Learned Standing Counsel for the 1st respondent, has made available, a copy of the estimation of the mill before the sale notice was issued. It has already been pointed out that the estimate was for Rs.5,75,000/-, after allowing the depreciation for every item. The offer made by the 3rd respondent was no way nearer to the estimated value of the mill. The record does not disclose that any auction was conducted even during the currency of the sale notice. The allegation of the petitioner that he arranged purchasers and their offer was not accepted by the 1st respondent needs serious consideration. His further allegation that the 3rd respondent was determined to knock away the mill at any cost is another aspect. It is not as if the 1st respondent did not receive any further bids within 90 days. The deal was finalized half way through. No effort was made to conduct public auction on any specified date. An important factor, viz., the amount offered by the 3rd respondent is almost half of what he offered in 1997, and far below than the estimated value would certainly impinge upon the reasonableness of the effort made by the 1st respondent. The Financial Corporations are conferred with extraordinary powers under Section 29 of the Act, relieving them from the necessity or ordeal of approaching a civil Court or Debt Recovery Tribunal for a decree and executing Court for implementation thereof. Such drastic power which is not even conferred by the sovereign governments, is naturally coupled with the duty to act fairly and reasonably. This case clearly demonstrates that the extraordinary power was utilized not only to hoodwink the petitioner but also to help the 3rd respondent, out of the way. The petitioner was virtually prevented from running the mill even for a reasonable period. At every stage, obviously at the instance of the 3rd respondent, the power under Section 29 of the Act was invoked frequently and intermittently. Redelivery of possession was hardly of any use to the petitioner. Once a mill is under seizure and closed for few months, the entire business gets adversely effected and even if it is handed over, it would take quite some time for the business to pick up. The facility of OTS which was extended with right hand was snatched with left hand, that too before the expiry. The action of the 1st respondent in effecting the sale of the mill, in the facts and circumstances stated above, smacks of arbitrariness, unreasonableness and gross misuse of power under Section 29 of the Act. The sale deserves to be set aside and the petitioner deserves to be compensated for the period, during which he was kept out of business, even while being made liable to pay the amount due. Being a statutory agency created to help the entrepreneurs to establish industries, the 1st respondent cannot be permitted to squeeze the petitioners as Shylock. Hence, the writ petition is allowed directing that – (a) the sale of the rice mill of the petitioner together with the land, plant and machinery effected in favour of the 3rd respondent in pursuance of the sale notice, dated 15.07.2004 is set aside; (b) respondents 1 and 2 shall be under obligation to refund the sale consideration to the 3rd respondent and respondents 1 to 3 shall be under obligation to restore the possession of the mill to the petitioner within four (4) weeks from today; (c) the petitioner shall be entitled to claim damages for the deprivation of his right to run the mill ever since the date of sale in favour of the 3rd respondent by filing a suit; and (d) the 1st respondent shall be entitled to recover the amount of Rs.6,15,000/- with simple interest at the rate of 12% from 20.11.2002 till the date of payment and the amount, if any, already paid by the petitioner shall be given credit to. There shall be no order as to costs. _________ 23.12.2008 Note: Issue C.C. in one week. L.R.Copy to be marked. (B/o) JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY WRIT PETITION No.20203 of 2004 Date: 23.12.2008 JSU [1] 2004(7) SCC 151 [2] 2005(4) SCC 456