IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.09.2011 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.No.34131 of 2007 and M.P.Nos.1 and 2 of 2007 Sikora Knits P Ltd., represented by its Director, 19A, Kaliamman koil Street, 15,Velampalayam, Tiruppur-638 652. .. Petitioner Vs. 1.State Industries Promotion Corporation of Tamilnadu Limited, represented by its Chairman cum Managing Director, 19A,Rukmani Lakshmipathi Road, Egmore, Chennai-600 008. 2.Special Tahsildar (Recovery), State Industries Promotion Corporation of Tamilnadu Limited, 19A, Rukmani Lakshmipathi Road, Egmore, Chennai-600 008. .. Respondents This writ petition is preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorari to call for the records pertaining to proceedings bearing No.F&R.I/838/2002, dated 15.10.2007 on the file of the Special Tahsildar (Recovery), State Industries Promotion Corporation of Tamilnadu Limited, 19A, Rukmani Lakshmipathi Road, Egmore, Chennai- 600 008, the second respondent herein and quash the same. For Petitioner : Mr.R.Sugumaran For Respondents : Ms.Narmadha Sampath for R-1 Mr.RM.Muthukumar, GA - - - - ORDER The petitioner company has filed the present writ petition seeking to challenge the proceedings, dated 15.10.2007 passed by the second respondent, Special Tahsildar (Recovery), State Industries https://hcservices.ecourts.gov.in/hcservices/ Promotion Corporation of Tamilnadu Limited (for short SIPCOT) and to set aside the same. 2.When the matter came up on 31.10.2007 for admission, this court while ordering private notice on the writ petition had granted an interim stay on condition that the petitioner deposits a sum of Rs.5 lakhs within two weeks as a condition precedent for grant of stay. Though the petitioner filed M.P.No.2 of 2007 seeking for an extension of time granted for deposit, for reasons best known they never brought up an application for any order by this court so as to extend the time and more than 4 years have elapsed since the date of filing of the writ petition. It is fairly admitted by the counsel for the petitioner that they have not deposited the said amount till date nor made any attempt to deposit the amount in the manner known to law. 3.On notice from this court, the respondents have filed a counter affidavit, dated 1.7.2009. It is seen from the records that the petitioner was sanctioned a term loan of Rs.85 lakhs on 16.12.1996 for modernizing the garment unit of the petitioner located at Velampalayam, Tiruppur. They had availed only Rs.80.64 lakhs and as they did not avail the balance, it got lapsed. At the time of sanctioning loan, the petitioner had agreed to repay the loan with interest at the rate of 21% in 18 installments of Rs.4.75 lakhs covering each installment. Under the term of loan condition, the petitioner has to create primate assets of plant and machinery as a security and also to furnish collateral security. The company though was operating satisfactorily, did not pay the installments as agreed to by them. Therefore, on 22.10.2001, the respondents SIPCOT had passed an order taking possession of collateral property. The petitioner had filed a writ petition being W.P.No.20864 of 2001 and had obtained an interim stay on 01.11.2001. The stay order was modified on 23.11.2001 so as to enable the petitioner to pay Rs.2 lakhs and with a direction to approach the respondent SIPCOT for reschedulement of loan repayment. The petitioner after paying Rs.2 lakhs, had requested for reduction of interest from 20% to 12% which was not acceptable to the respondent SIPCOT as it did not come within the norms of SIPCOT. 4.Since there was no further response from the petitioner, a further notice dated 24.6.2003 was issued for taking possession of collateral security. The petitioner had filed the second writ petition being W.P.No.18594 of 2003 and further obtained a conditional order of stay. The conditional order of stay was also not complied with and the same was vacated by the self working order issued by this court, dated 10.9.2003. Therefore, in the absence of any order interdicting the respondents from taking possession of the property, the possession of the property was taken on 26.9.2003. After taking possession of the property, the property was brought to sale by giving an appropriate advertisement in the newspapers in March, July and September, 2004. Since the offers were very low, a fresh advertisement was issued on 14.2.2005 after giving wide publicity. The highest offer of Rs.46 lakhs was accepted and the sale was confirmed in favour of one N.Subramanian, who was the https://hcservices.ecourts.gov.in/hcservices/ highest bidder. The bidder had also paid the entire amount. The respondents had executed the sale deed on 10.2.2006 in respect of the land measuring 3 acres and 5.5 cents in S.Nos.44/3C and 47/1C located at Velampalayam village, Tiruppur Taluk (presently upgraded as a District). The petitioner was also given notice at the time when the sale was effected directing them to approach the respondent SIPCOT within 7 days with a demand draft equal to 2% of the total outstanding. Even after the sale of collateral, still there was an outstanding of Rs.174.66 lakhs as on 30.6.2005. The petitioner did not take any steps to settle the amount. Therefore, possession of primary assets were to be taken on 14.8.2007. 5.However, the petitioner filed the third writ petition being W.P.No.27011 of 2007. In that writ petition, this court on 14.8.2007 noted that action taken under Section 29 of the State Financial Corporation Act (SFC Act) was stopped. After recording the statement, the writ petition was disposed of giving liberty to the respondents to proceed in accordance with law after giving reasonable opportunity to the petitioner. Thereafter, the respondent SIPCOT had issued a notice dated 15.10.2007 for taking possession of the mortgaged primary assets on 1.11.2007. Challenging this notice, the present writ petition has been filed and an interim stay was granted on condition. The said condition was not complied with. 6.It was submitted by Ms.Narmadha Sampath, learned counsel appearing for SIPCOT that even during the pendency of the proceedings, the petitioner had stealthily removed many of the machineries and the respondent SIPCOT was contemplating a criminal action against the petitioner. Though on the earlier occasion, this court had directed the petitioner to seek for reschedulement of his repayment, the petitioner has not come forward with any acceptable reschedulement proposal. Hence having left with no option, the collateral properties were sold and for the remainder amount, mortgaged assets were sought to be brought under sale. The petitioner even while obtaining an interim order had suppressed the earlier order dated 26.9.2003 regarding taking possession. 7.The contention of the petitioner was that respondents having expressed their intention not to take possession and got the earlier writ petition disposed of in W.P.No.27011 of 2007 cannot once again invoke the machinery. 8.The contention raised by the petitioner is without any merit. The petitioner has been filing writ petition after writ petition and virtually it is the fourth round of litigation. It is nothing but a raid on this court. The contention that the earlier order had disabled the respondents from taking possession is misconceived, because in that same order, this court has given a liberty to the respondent SIPCOT to proceed after giving due notice. Inasmuch as the petitioner has not satisfied the respondents with any step of reschedulement and also failed even to comply with the interim order, the present attempt of the petitioner is nothing but an abuse of process of law. https://hcservices.ecourts.gov.in/hcservices/ 9.It must be noted that the respondent SIPCOT has been declared as a State Financial Corporation under the SFC Act by the notification issued by the Government of India. The Supreme Court in dealing with the transaction by the borrower via-a vis State Financial Corporation, after reviewing the previous case laws, had laid down legal principles for exercise of jurisdiction by the High Court vide its judgment in Karnataka State Industrial Investment & Development Corpn. Ltd. v. Cavalet India Ltd., reported in (2005) 4 SCC 456 and in paragraph 19, the Supreme Court had observed 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 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 adopted. (vii) The Financial Corporation is always https://hcservices.ecourts.gov.in/hcservices/ expected to try and realise 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 the 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. (ix) Reasonableness is to be tested against the dominant consideration to secure the best price. 10.Subsequently, the Supreme Court in Punjab Financial Corporation v. Surya Auto Industries reported in (2010) 1 SCC 297 has also held that relationship between the corporation ad the borrower is that of creditor and debtor and the action initiated by the corporation cannot be nullified by the court unless there is violation of any statutory provisions. In paragraphs 20 to 22, it was observed as follows: 20.Commenting upon the judgment in Mahesh Chandra v. U.P. Financial Corpn.3, the three-Judge Bench observed: (Jagdamba Oil Mills case7, SCC pp. 507 & 508, paras 15 & 17-18) “15. The view in Mahesh Chandra case3 appears to have been too widely expressed without taking note of the ground realities and the intended objects of the statute. If the guidelines as indicated are to be strictly followed, it would be giving premium to a dishonest borrower. It would not further the interest of any Corporation and consequently of the industrial undertakings intending to avail financial assistance. It would only provide an unwarranted opportunity to the defaulter (in most cases chronic and deliberate) to stall recovery proceedings. It is not to be understood that in every case the Corporations shall take recourse to action under Section 29. Procedure to be followed, needless to say, has to be observed. 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 https://hcservices.ecourts.gov.in/hcservices/ action under Section 29 of the Act is called for. Thereafter, the modalities for disposal of seized unit have to be worked out. The view expressed in Gem Cap case4 appears to be more in line with the legislative intent. Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. (emphasis supplied) As the facts in the present case show, not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been lost sight of by the courts below. It is one thing to assist the borrower who has intention to repay, but is prevented by insurmountable difficulties in meeting the commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying on the decision in Mahesh Chandra case3 the matter has been decided. * * * 17. The aforesaid guidelines issued in Mahesh Chandra case3 place unnecessary restrictions on the exercise of power by Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit-holder to be associated or consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra case3 will only lead to further delay in realisation of the dues by the Corporation by sale of assets. It is always expected that the Corporation will try and realise the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible. 18. The subsequent decisions of this Court in Gem Cap4, Naini Oxygen5 and Micro Cast Rubber6 run counter to the view expressed in Mahesh Chandra case3. In our opinion, the issuance of the said guidelines in Mahesh Chandra case3 are contrary to the letter and the intent of Section 29. In our view, the said observations in Mahesh Chandra case3 do not lay down the correct law and the said decision is overruled.” 21.The proposition of law which can be culled out from the decisions noted above is that even though the primary function of a corporation established under Section 3 of the Act is to promote small and medium industries in the State, but it is not obliged to https://hcservices.ecourts.gov.in/hcservices/ revive and resurrect every sick industrial unit dehors the financial implications of such exercise. The Corporation is not supposed to give loans and refrain from taking action for recovery thereof. Being an instrumentality of the State, the Corporation is expected to act fairly and reasonably qua its borrowers/debtors, but it is not expected to flounder public money for promoting private interests. 22.The relationship between the Corporation and borrower is that of creditor and debtor. The Corporation is expected to recover the loans already given so that it can give fresh loans/financial assistance to others. The proceedings initiated by the Corporation and action taken for recovery of the outstanding dues cannot be nullified by the courts except when such action is found to be in violation of any statutory provision resulting in prejudice to the borrower or where such proceeding/action is shown to be wholly arbitrary, unreasonable and unfair. The court cannot sit as an appellate authority over the action of the Corporation and substitute its decision for the one taken by the Corporation. 11.In view of the above, there is no case made out by the petitioner. Accordingly, the writ petition will stand dismissed with costs of Rs.5000/- payable by the petitioner towards counsel fee. Consequently connected miscellaneous petitions stand closed. vvk Sd/- Asst. Registrar //True Copy// Sub Asst. Registrar To 1.The Chairman cum Managing Director, State Industries Promotion Corporation of Tamilnadu Limited, 19A,Rukmani Lakshmipathi Road, Egmore, Chennai-600 008. 2.The Special Tahsildar (Recovery), State Industries Promotion Corporation of Tamilnadu Limited, 19A, Rukmani Lakshmipathi Road, Egmore, Chennai-600 008. https://hcservices.ecourts.gov.in/hcservices/ + 1 cc to Government Pleader, SR No.56479 + 1 cc to M/s. Narmadha Samapth, Advocate SR No.56338 SSK(CO) SR/22.9.2010 ORDER IN W.P.NO.34131 of 2007 https://hcservices.ecourts.gov.in/hcservices/