IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:25.11.2011 CORAM: THE HONOURABLE MR.JUSTICE D.MURUGESAN and THE HONOURABLE MR.JUSTICE K.K.SASIDHARAN W.A. No.2452 of 2010 Sri Anbalayam Textiles Private Ltd., rep. By its Chairman, P.Veerasamy ... Appellant versus 1.The Chairman cum Managing Director, No.692, Tamil Nadu Industrial Investment Corporation Ltd., Anna Salai, Nandanam, Chennai 35. 2.The Branch Manager, Tamil Nadu Industrial Investment Corporation Ltd., No.405/1, Perundurai Road, Erode 11 3.Palaniappan ... Respondents Writ Appeal filed against the order of this Court made in W.P.No.8055 of 2010 dated 06.10.2010. This petition filed under Article 226 of the constitution of India for the issuance of cetiorarified Mandamus calling for the entire records relating to the impugned order passed by the 2nd respondent in his proceedings TIIC.ERD.LAO - KJS.2009-10 dated 17.9.2009 to quash the same and to consequently direct the respondents 1 and 2 to accept the one time settlement balance amount of Rs.90/- Lakhs together with interest from last date of one Time Settlement till the payment is being paid and handover the possession of the mill along with original documents to the petitioner.(Prayer amended as per order dated 23.9.2010 made in M.P.No.3 of 2010) For Appellant : Mr.C.Prakasam For Respondent : Mr.K.V.Sundararajan, for R-2 Mr.K.Ramu, for R-3 No appearance for R-1 https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT K.K.SASIDHARAN, J. The legality and correctness of the sale of mortgaged property made by the State Finance Corporation for an amount less than the market value indicated in the Valuation Certificate prepared by the Registered Valuer, without fixing the reserve price, rejecting the request made by the borrower to pay the amount quoted by the successful bidder even before the payment of 90% of the balance consideration and thereafter, belatedly accepting the balance amount from the successful bidder without forfeiting the earnest money in accordance with the auction condition, is the core question involved in this writ appeal. CONSPECTUS OF FACTS :- 2.The appellant was granted financial assistance by the Tamil Nadu Industrial Investment Corporation [hereinafter referred to as 'the Corporation'] during the year 1994. The immovable property which is the subject matter of the present litigation was given as security. The appellant was running a spinning mill and due to market recession, they sustained severe loss and as a result, the loan installments were not paid as per the agreement. The Corporation agreed to settle the account by way of one time settlement. As per the terms of settlement, the unit was expected to pay the entire amount by 1 January 2004. Since one time settlement was not honoured in its entirety, the Corporation took possession of the unit on 4 December 2006. The Corporation, through an authorized valuer, valued the property. The valuer fixed the market value at Rs.156.43 lakhs. Subsequently, the property was sold in favour of third respondent for an amount below the market value. 3.The appellant approached the Corporation to pay the bid amount quoted by the successful bidder. However, the request was turned down. The third respondent failed to pay the balance consideration less EMD within the mandatory period of thirty days as stipulated in the auction notification and the order of confirmation. Even then, the successful bidder was permitted to pay the balance of 90% after 92 days and sales certificate was issued. The value of the property was more than Rs.2.50 crores as on the date of sale. Therefore, the appellant was constrained to file the writ petition challenging the sale proceedings. The successful bidder was given possession of the property subject to the result of writ petition. 4.Before the writ court, the Corporation filed a counter wherein it was contended that ample opportunity was given to the appellant to settle the matter. The Corporation showed sufficient indulgence to the appellant by granting waiver. Even then, no action was taken to pay the agreed amount. Therefore, the Corporation was constrained to https://hcservices.ecourts.gov.in/hcservices/ take over the unit under Section 29 of the State Financial Corporation Act. Thereafter, the property was sold in public auction. The Corporation denied the allegation regarding collusion, as according to them, only by way of a transparent procedure, the property was sold. The auction purchaser remitted the entire bid amount on 2 February 2010 and the unit was handed over to him on 13 February 2010. 5.The third respondent (auction purchaser) filed a counter wherein it was contended that he was a bona fide purchaser for value and consideration. He has also deposited the amount due to the Sales Tax Department besides incurring an expenditure of Rs.12,00,000/- for registration of sale deed. According to the third respondent, the Corporation has not committed any illegality in the matter of sale. 6.The learned single Judge negatived the contentions primarily on the ground that the appellant has not repaid the amount within the time granted by the Corporation and as such, it was not open to them to challenge the auction proceedings. The challenge regarding the failure to fix the minimum upset price was negatived on the ground that the same is not likely to be fetched in the auction, meaning thereby, it is not an essential requirement. Accordingly, the writ petition was dismissed. It is the said order, which is impugned in this writ appeal. RIVAL SUBMISSIONS :- 7.The learned counsel for the appellant would contend thus :- (i)The appellant has made substantial payments towards one time settlement and they were prepared at all point of time to pay interest for the delayed period. However the Corporation was not prepared to accept the payment subsequent to the expiry of the time prescribed under one time settlement. (ii)The Valuer appointed by the Corporation fixed the market value of the property at Rs.156.43 lakhs. However, the property was sold for a sum of Rs.1.20 crores. Since the sale was made below the market rate, the same is liable to be set aside. (iii)The Corporation was expected to indicate the reserve price in the sale notification. However, no such reserve price was fixed. (iv)The property was worth more than Rs.2.50 crores as on the date of public auction. However, it was sold for a sum of Rs.1.20 crores; (v)There were only two bidders and it was in fact, a collusive sale and the same is evident from the difference of price quoted by the successful bidder and the other bidder. The difference was only a sum of Rs.50,000/-. (vi)The auction notification contains a mandatory clause regarding payment of sale consideration. As per the terms of auction, the bidder should pay the sale amount within thirty days from the date of confirmation, failing which, earnest money deposit would https://hcservices.ecourts.gov.in/hcservices/ be forfeited. Notwithstanding the mandatory clause, payment was accepted from the third respondent belatedly without forfeiting the earnest money deposited by him. (vii)Even before the payment of 90% of the amount by the successful bidder, the appellant has submitted a representation agreeing to pay the amount quoted by the third respondent. However, the application was rejected. It was only thereafter, the third respondent has deposited the amount, that too beyond the time prescribed in the order of confirmation. Therefore, the sale in favour of the third respondent was in violation of the auction conditions and as such, the same is liable to be set aside. 8.The learned Standing Counsel for the Corporation contended that sufficient opportunity was given to the appellant to repay the amount and it was only on account of their failure to honour their commitment, the Corporation took possession of the property and it was sold later. According to the learned counsel, the Corporation followed the usual practice in selling the property without fixing the upset price. Therefore, there was no illegality in the sale. The amount quoted by the third respondent was the highest. Though the appellant submitted a representation, it was rejected in view of the past conduct of the appellant. The sale was a transparent one and as such, the same is not liable to be set aside. 9.The learned counsel for the third respondent justified the sale. According to the learned counsel, the third respondent has paid the bid amount of Rs.1.20 crores and he has also discharged the sales tax arrears. Therefore, considering the amount paid to the Corporation, Registration duty paid to the Registration Department and the tax amount paid to the Commercial Tax Department, it cannot be said that the property was sold below the market price. According to the learned counsel, the property is now in the possession of third respondent and in case the sale is set aside at this point of time, serious prejudice would be caused to him. It was his further contention that the appellant has earlier taken steps to sell the property for a lesser amount and as such, it is evident that the sale price was the prevailing market value. ANALYSIS :- 10.There is no dispute that the Corporation has entered into a one time settlement with the appellant. The appellant agreed to pay the entire amount on or before 1 January 2004. It was only on account of their failure to pay one time settlement amount, the Corporation took possession of the unit, invoking Section 29 of the State Financial Corporation Act. The Corporation subsequently obtained a valuation report from their authorized valuer. The valuer fixed the market value of the property at Rs.156.43 crores. The Corporation issued a sale notification dated 8 September 2009 and it was published on 16 September 2009. https://hcservices.ecourts.gov.in/hcservices/ 11.The total extent of property is about 6.12 acres of land and 8722 sq.ft. of factory building besides a tiled roof office building measuring about 3931 sq.ft. Agricultural land to an extent of 0.82.5 hectares was the second item notified for sale. The auction was held on 1 October 2009. 12.The communication sent by the Corporation on 30 October 2009 to the appellant contained the market value of the property. However, the Corporation has not disclosed the fact that the property was sold on 1 October 2010 for a sum of Rs.1.20 crores. 13.The auction notification does not contain either the market value or the upset price of the property. The auction was subject to certain conditions. TERMS AND CONDITIONS OF AUCTION :- 14.The auction notification contains the mandatory conditions. Clause 11 of the auction notification deals with terms of payment which reads thus :- II Terms of payment, delivery etc. Outright payment basis :- 1.The highest tenderer/bidder will have to deposit 10% of his tender/ bid as advance on the same day of the auction, in the form of cash/D.D./Pay order payable to the TIIC Ltd., at the place where the auction is held. The balance amount is payable as given below. 2.The balance 90% is payable within 30 days from the date of receipt of confirmation of sale from the Corporation. In case the 10% advance is not paid on the same day, the amounts till then paid will be forfeited. In case after paying the 10% advance, the balance 90% is not paid, then the amounts till then paid will be forfeited. In either of the two circumstances, the Corporation will be at liberty to act as per para III (16). 3.If the entire amount of the bid is paid to the Corporation in the manner stipulated, then the Corporation shall execute and register a sale deed in favour of the highest bidder for the land and building (expenses on bidder's account) and shall execute a delivery note for the plant and machinery and also hand over possession of the assets." 15.Consequences on account of non-remittance of balance amount of 90% was indicated in condition no.III (16) which reads thus :- "In case the stipulated amounts are not paid within the stipulated time or the land, building and/or plant and machinery are not taken possession by the successful tenderer/bidder within three months after receipt of the confirmation of sale, the sale confirmation in his favour will https://hcservices.ecourts.gov.in/hcservices/ be set aside and the amount paid till then will be forfeited without reference to the purchaser. In such an event, the Corporation shall have the option of negotiating with and accepting the offer of the second highest bidder. In such an event also, the amounts till then paid by the highest bidder will be forfeited". 16.The requirement that the entire 90% of the balance consideration should be deposited within a period of thirty days from the date of confirmation was essentially a mandatory condition. Since the consequences for non payment of the sale amount within thirty days was indicated in the sale notification, it should be considered as an essential term of contract. The said condition is mandatory in nature. 17.The auction was on 1 October 2009. There were only two bidders. The third respondent quoted Rs.1.12 Crores as against the offer of Rs.1,01,50,000/- quoted by the other bidder. The sale was confirmed in the name of the third respondent on 2 November 2009. 18.The third respondent initially quoted a sum of Rs.1,12,00,000/- and it was enhanced later and he has agreed to pay a sum of Rs.1.20 crores. CONFIRMATION :- 19.The order of confirmation dated 2 November 2009 reads thus :- In the tender-cum-public auction sale held at our Office on 01.10.2009 in respect of the subject company's land, building thereon and scrap machinery you have quoted a sum of Rs.112.00 lakhs as your highest bid on outright payment basis and subsequently enhanced to Rs.120.00 lakhs (Rupees One crore and twenty lakhs only). Now our Corporation has decided to accept your offer and you are hereby advised to remit the balance bid amount of Rs.108.00 lakhs along with the sales tax amount for the machinery of Rs.9760/- totalling to Rs.1,08,09,760/- after adjusting the 10% bid amount paid by you as detailed below. Sl.No. Receipt No. Date Amount (Rs.) 1 5239 1/10/09 100000 2 5241 1/10/09 1020000 3 5261 26.10.2009 80000 Total 1200000 The above amount should be paid within 30 days from the date of this letter. On failure in remittance of the above amount within the stipulated time, the 10% bid amount already remitted by you will be forfeited without any further notice. https://hcservices.ecourts.gov.in/hcservices/ 20.The confirmation proceedings dated 2 November 2009 indicates that the third respondent has to pay the entire amount within thirty days from the date of confirmation. Therefore, the third respondent was expected to pay the entire amount on or before 2 December 2009. 21.In the meantime, the appellant submitted a representation on 2 November 2009 and in the said representation, a request was made to the Corporation to permit them to pay the amount quoted by the third respondent and release the document thereafter. The said representation was received by the Corporation on 10 November 2009. However, the Corporation rejected the said request as per their communication dated 17 November 2009. 22.The third respondent failed to deposit the amount on or before 2 December 2009 as per the conditions of the auction notification and the order of confirmation. The auction notification does not contain any indication that the Corporation has reserved their right to extend the time for payment. The notification very specifically stated that the entire amount has to be paid within thirty days from the date of confirmation, failing which, earnest money deposit would be forfeited. The confirmation letter also contains a similar clause indicating that the condition is mandatory. 23.The third respondent without making payment issued cheques in favour of the Corporation on 30 November 2009. Along with the cheques, he has also given a letter requesting the Corporation not to present the cheques till instruction is given by him. Therefore, it is evident that the third respondent was not having the necessary funds with him to pay the balance consideration. 24.Though the third respondent has given cheques for a sum of Rs.98 lakhs, the cheques were not presented by the Corporation in view of the request to that effect. Subsequently, on 29 December 2009, the third respondent deposited a sum of Rs.70 lakhs. However, he requested the Corporation not to present the remaining cheques as he was not having the funds in his account. The payment of Rs.70 lakhs on 29 December 2009 itself was beyond the prescribed period. It was delayed by 27 days, excluding thirty days time given to make the payment. Subsequently, he has made payment on various dates and the last payment was on 2 December 2010. Therefore, even according to the Corporation, there was a delay of 92 days in making payment. However, very strangely, the Corporation condoned the delay and issued the sales certificate. 25.The issue is whether the auction sale was a nullity. The further question is whether the Corporation was justified in condoning the delay by not taking steps to forfeit the earnest money deposit made by the third respondent in view of the mandatory conditions as contained in the auction notification and the subsequent order of confirmation. https://hcservices.ecourts.gov.in/hcservices/ 26.The auction notification was very specific that the entire payment should be paid within thirty days. In case the auction notification contains an indication that the time for payment of balance 90% would be extended by the Corporation, there would be more people to take part in the auction. The conditions in the auction notification was reproduced in the order of confirmation also. Since consequence of non-compliance was also indicated, the condition has to be treated as mandatory and not directory. 27.In Lakshmanasami Gounder v. C.I.T. Selvamani and Ors. (1992 (1) SCC 91) the Supreme Court observed that in case the consequence of violation of a condition is indicated, the word "shall" should be construed as mandatory. 28.In State of Jharkhand & Ors. vs. Ambay Cements & Anr., [(2005) 1 SCC 368], the Supreme Court held that when a particular act is to be done in a particular manner and the penalty for failure to comply with the requirement also is indicated, such requirement will be mandatory. The Supreme Court said::- "26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way." 29.In Indian Banks' Association, Bombay and others vs. Devkala Consultancy Service and others, 2004 (11) SCC 1, the Supreme Court observed that "it is well settled that when a procedure has been laid down, the Statutory Authority must exercise its power in the manner prescribed or not at all". 30.The third respondent was having time only till 3 December 2009 to pay the balance consideration. Since he has not paid the balance sale consideration of 90% on or before 2 December 2009, the Corporation was bound to cancel the sale and forfeit the earnest money paid by him. 31.The third respondent in his counter affidavit made a futile attempt to justify the delay by contending that it was only on account of the writ petition filed by the appellant, payment was delayed. The said contention is nothing but false. The file contains the letters given by the third respondent as well as the remarks made by the Corporation and those materials clearly indicate the falsity of the case pleaded by him. REQUEST NOT TO ENCASH CHEQUES :- https://hcservices.ecourts.gov.in/hcservices/ 32.The letter sent by the third respondent to the Corporation on 30 November 2009 enclosing five cheques clearly establishes the fact that he was not in possession of funds to pay 90% of the bid amount within the stipulated period of thirty days and therefore, he wanted the Corporation not to present the cheques till he gives permission. The letter reads thus :- From S.Palaniappan, S./o.P.Sengodan, 117, Thillai Nagar, Erode 638 001 To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., Erode Sirs, Sub : Submission of cheques in Bank. We have given to you five cheques for an amount of Rs.98,09,760/- of Axis Bank Ltd., Erode. Details as follows :- 1. Cheque No.057634/30-11-09 Rs.25,00,000/- 2. Cheque No.057635/30-11-09 Rs.25,00,000/- 3. Cheque No.057636/30-11-09 Rs.25,00,000/- 4. Cheque No.057637/30-11-09 Rs.23,00,000/- 5. Cheque No.057638/30-11-09 Rs.9760/- Hereby we request your goodself to present all these cheques only after getting permission from our side. And also we agree to pay the interest for the days up to the realization of these cheques. This is for your kind information. Thanking you, Yours faithfully, 33.In the subsequent letter sent by the third respondent on 29 December 2009, again his difficulty to pay the balance amount, less the amount paid on that date was indicated. From S.Palaniappan, S./o.P.Sengodan, 117, Thillai Nagar, Erode 638 001 To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., Erode https://hcservices.ecourts.gov.in/hcservices/ Sirs, Sub : Auction repayment regarding. Ref : SRI ANBALAYAM TEXTILES P LTD. ------- Today we have made one RTGS to your goodself for an amount of Rs.70/- lakhs instead of our earlier cheques which we have given to you for an amount of Rs.98 lakhs. The RTGS UTI Number is attached for your kind reference. Kindly do not present the cheques which are in your hand and the balance will be settled very soon. This is for your kind information. Thanking you, Yours faithfully, 34.The remittance made by the third respondent is found recorded in page 157 of the auction file, as below :- Date of receipt V.NO Amount Date of realisation 1/10/09 5239 100000 Cash 1/10/09 5241 1020000 5/10/09 26.10.2009 5261 80000 28.10.2009 30.11.2009 5310 1000000 4/12/09 29.12.2009 5346 7000000 29.12.2009 – RTGS 5/1/10 5354 9760 8/1/10 28.01.2010 5396 188000 30.01.2010 (D.D.) 28.01.2010 5397 1692000 30.01.2010 (D.D.) 28.01.2010 5398 120000 30.01.2010 (D.D.) 1/2/10 5404 950000 Cash 2/2/10 12159760 35.The mala fides on the part of the Corporation is writ large. The offer made by the appellant at the earliest point of time was rejected on 17 November 2009 simply by saying that the request is unacceptable at this juncture. Thereafter, payments were accepted from the third respondent belatedly by condoning the delay on the ground that the highest bidder expressed his inability to mobilize the funds in time. 36.The sale in question was a first sale. Therefore, it was not a distress sale. Valuer has fixed the market value of the property at Rs.156.43 lakhs. The Corporation was expected to fix the upset price https://hcservices.ecourts.gov.in/hcservices/ to indicate that the property would not be sold below the said price. The sale was not made by way of tenders. It was a public auction. Therefore, the primary requirement was to fix the reserve price and the auction should start only from the indicated price. This essential condition of sale has not been followed by the Corporation. Therefore, sale proceeding is liable to be set aside on this ground also. 37.The appellant having found that the Corporation has agreed to sell the property for a sum of Rs.1.20 crores, immediately submitted a representation on 2 November 2009 agreeing to pay the said amount. It is also a matter of record that the confirmation order was also given on the said date. The Corporation rejected the request made by the appellant on flimsy reasons. It is an admitted position that the third respondent has not paid the balance sale consideration as on the date on which the request of the appellant was rejected by the Corporation. The Corporation was more interested in concluding the sale in favour of third respondent. That appears to be the reason for the rejection of request made by the appellant to pay the amount quoted by the third respondent and at the same time in extending the time to the auction purchaser to pay the balance amount. The very fact that the Corporation accepted the payment 92 days after the expiry of the period prescribed in the auction notification and the order of confirmation clearly indicates the mala fides and the collusive nature of sale. When there were only two bidders and the amount quoted by them was far below the market value