IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.11.2011 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.No.21063 of 2010 and M.P.Nos.2,3 and 5 of 2010 M/s.ACL Cements (P) Ltd., Rep. By its Managing Director, A.Chockkalingam ...Petitioner Vs. 1.The Tamil Nadu Industrial Investment Corporation Limited, Rep. By its Regional Manager, Regional Office, No.692, Anna Salai, Nandanam, Chennai - 600 035. 2.The Branch Manager, Tiruvallur Branch, The Tamil Nadu Industrial Investment Corporation Limited, 86, C & D, 2nd Main Road, Ambattur, Industrial Estate, Chennai - 600 058. 3.Senthil ...Respondents Writ Petition preferred under Article 226 of the Constitution of India praying for the issue of a writ of Certiorarified mandamus, calling for the records of the first respondent pertaining to the auction sale notice issued in Advertisement No.11/Se.Ma.A/2010-11 and published in 'Dhina Thandhi' daily dated 29.08.2010, and quash the same by declaring the sale conducted in pursuant the notice on 09.09.2010 as null and void and consequently direct the respondents 1 and 2 herein to pursue the one time settlement proposal submitted by the petitioner on merits. For Petitioner : Mr.G.Arul Murugan For Respondents : Mr.A.Panneerchelvam for R1 and R2 Mr.J.J.R.Edwin for R3 https://hcservices.ecourts.gov.in/hcservices/ O R D E R The petitioner is a private cement company. In this writ petition, they have come forward to challenge the auction sale notice issued through an advertisement in the 'Daily Thandhi' news paper dated 29.08.2010 and seeks to set aside the same and for a further direction to respondents 1 and 2 to pursue the One Time Settlement (OTS) proposal submitted by the petitioner. 2. By the impugned notice, the first respondent called for tenders for auction of the property of the petitioner in which the factory is situated in S.No.243/59 to 66 to the extent of 2.11 acres and S.No.243/89 to the extent of 0.95 cent to a total extent of 3.06 acres including the factory building, office room, lab room. An Earnest Money Deposit of Rs.5,00,000/- was called for from the intending bidders who were directed to submit sealed tenders on 09.09.2010 and also to inspect the property on 02.09.2010. 3. The writ petition was admitted on 15.09.2010. Pending the writ petition, this Court directed the payment of Principal amount of Rs.42,15,631/- within a period of three weeks and confirmation of auction sale was stayed. It was also stated if the amount was not deposited, stay will be automatically vacated. The Court also recorded the submission made by the respondent TIIC that auction has already been conducted and sale has been proposed to be confirmed to the tune of Rs.1,61,00,000/-. On 07.10.2010, this Court recorded that the petitioner having paid the amount, the stay granted was extended until further orders. 4. The application filed for extension of time for making payment was dismissed as withdrawn. In the applications for grant of interim injunction, stay of further proceedings of the auction as well as direction to remove the lock and seal of the petitioner factory, since the petitioner had made substantial payments and also complied with the interim order, this Court directed the respondent TIIC to file statement of accounts and in the meantime to hand over possession to the petitioner to operate the industry without any delay. Thereafter, when the matter came up on 18.11.2010, this Court directed the petitioner to go before the respondents for OTS as per the Roll Over Scheme formulated in the year 2003 and if any application was made, the respondent TIIC was directed to consider the same. 5. The petitioner company admitted that the respondents sanctioned a sum of Rs.130 lakhs as loan as early as 04.07.1996. But out of the loan sanctioned, they availed only a sum of Rs.107 lakhs. After availing the loan, hey had also built the factory and installed the machineries. For the loan amount, the petitioner has given his personal properties including the property of his brother-in-law. However, they could not operate the company from 1997 to 2002 and they did not repay the instalments. But from 2002, they are operating the company effectively. They also sent representation for waiver of loan. In the meanwhile, the company's property was brought for auction and it is claimed that auction can be made only after giving wide publicity and upset price was also not fixed by the respondents. https://hcservices.ecourts.gov.in/hcservices/ 6. As directed by this Court, the respondents have filed a statement of accounts showing the due payable by the petitioner company. They have also filed a counter affidavit dated 22.10.2010. In the counter affidavit, it was stated that petitioner company delayed the implementation of the project. The respondent extended concessions under rollover Scheme and reduced the rate of interest from 21% p.a. to 16% p.a. and also rescheduled the principal outstanding and funded the interest unpaid in the loan account. The liability as on 20.09.2010 stood at Rs.291.52 lakhs. The respondents have sent a demand notice for the funded interest account. The respondent Corporation has waited for more than 14 years for the settlement of the loan amount and only when the petitioner failed to settle the loan, coercive proceedings of sale of the property given as security was thought of. 7. In this context, reference was made to the judgment of the Supreme Court in UP Financial Corporation v. Gem Cap India P Ltd reported in AIR 1993 SC 1435 for contending that the power of the Court to go into the loan transaction is limited. Reference was also made to the judgment of this Court in TIIC v. Millenium Business Solutions P. Ltd. reported in 2004 (5) CTC 689, wherein the Courts were directed not to interfere with the loan transaction including suggesting OTS or rescheduling of the loan amount. 8. With reference to the direction issued by this Court to consider the petitioner's request for OTS, a letter dated 26.05.2011 sent by second respondent Branch Manager is also produced in the typed set, wherein, it was stated as follows:- "With reference to the above, we have communicated you to remit the settlement amount of Rs.2,29,52,333/- excluding the down payment of Rs.41,80,121/- towards the settlement of loan amount along with broken period interest at 13.50% p.a on simple basis from 07.12.2010 till the date of settlement. We regret to note that there is already delay in payment of OTS for more than 4 ½ months and failed to comply with the above remittance norms, inspite of repeated reminders, we request you to remit the OTS amount immediately failing which the waiver concession of entire penal interest of Rs.22,38,320/- granted stands cancelled automatically." 9. Mr.G.Arul Murugan, learned counsel appearing for the petitioner strenuously contended that the petitioner has sent further representations dated 28.01.2011 and 10.03.2011 to reconsider the settlement and the respondents have not given any proper reply. He also submitted that the balance payable by them is only to the extent of Rs.125 lakhs. Despite their best efforts, they could not clear it and they are seeking OTS of the amount by giving some time extension. https://hcservices.ecourts.gov.in/hcservices/ 10.However, this Court is not inclined to accept the stand of the petitioner as it is not within the province of this Court to suggest any OTS proposal. The correspondence shows that whatever relief that was possible has been given to the petitioner. But however the point relating to fixing the upset price is concerned, it is the contention of the petitioner that the property is worth more than Rs.10 crores and it cannot be sold for a song. The auction notice must necessarily estimate the value and fix the upset price. 11.In this context, it is necessary to refer to a decision of the Supreme Court in Falcon Retreat (P) Ltd. v. EDC Ltd., reported in (2006) 13 SCC 223 relating to a State Financial Corporation. In paragraph 11, it was observed as follows: "11..... it is expected to act fairly and in accordance with law. As long as it acts within the parameters of the law, and its action is not found to be arbitrary or unreasonable, it is entitled to take a decision which is in the interest of Respondent 1 Corporation. ..... it is always open to the respondent to take necessary steps to safeguard the interest of Respondent 1 Corporation which includes inter alia the consideration of other offers made by other parties." 12.Further, the Supreme Court in Gajraj Jain v. State of Bihar reported in (2004) 7 SCC 151 had emphasized the need by SFC for getting valuation report on the property to be sold and also the need to give advance publicity over the value of the property. The Supreme Court also held that the assets shall not be bid for the dues of the corporation, but the aim is to fetch market price of the property. In this context, the following passage found in paragraph 14 of the said judgment may be usefully quoted, which reads as follows: "14..... In the case of S.J.S. Business Enterprises (P) Ltd.1 it has been held that the financial corporation, in the matter of sale under Section 29, must act in accordance with the statute and must not act unreasonably. In this case, the Corporation fails on both the counts. It has neither complied with the provisions of sub-sections (1) and (4) of Section 29, nor has it acted fairly. The test of reasonableness has been laid down in the above judgment in which it is held that reasonableness is to be tested against the dominant consideration to secure the best price. Value or price is fixed by the market. In the case of a going concern, one has to value the assets shown in the balance sheet (Datta, S.: Valuation of Real Property, p. 198). In our view, if the object of Section 29 of the Act is to obtain the best possible price then the Corporation ought to have called for the valuation report. This has not been done.......... If publicity and maximum participation is to be attained then the bidders should https://hcservices.ecourts.gov.in/hcservices/ know the details of the assets (or itemised value). In the absence of the proper mechanism the auction-sale becomes only a pretence. ........ Lastly, in this case, the price of the assets is pegged to the dues of the Corporation and Central Bank of India. The assets are agreed to be sold to Respondent 4 not for the market price but against repayment of dues of the Corporation plus a promise to discharge the liability of Central Bank of India. Therefore, the Corporation, Respondent 2, has not acted reasonably. It has not taken any steps to secure the best price. In fact it has failed to protect the interest of Central Bank of India, which is having the second charge on the assets transferred to Respondent 4 as well as the mortgagor which would be entitled to the balance of the sale proceeds, if any. It was contended that as the bids were withdrawn, the offer of Respondent 4 was accepted. Even assuming for the sake of argument, that there were no offers except the offer of Respondent 4, it shows that value of the assets was Rs 198.85 lakhs (i.e. Rs 28.85 lakhs + Rs 170 lakhs). No reason has been given why Respondent 2 did not insist on downright payment of Rs 198.85 lakhs." 13.Further, the Supreme court in Jammigumpula Sivaiah v. A.P. State Financial Corporation reported in (2004) 13 SCC 653 in paragraph 5 had observed as follows: "5.It is, however, to be noted that even in Haryana Financial Corpn. case2, this Court has held that the Corporation must always try and realise the maximum price. It has been held that the assets must be sold by following a procedure which is transparent and acceptable, after due publicity." 14.Subsequently, the previous judgments of the Supreme Court in the matter of interpretation of Section 29 of the SFC Act came to be reviewed by the Supreme Court in Karnataka State Industrial Investment & Development Corporaton Ltd. v. Cavalet India Ltd., reported in (2005) 4 SCC 456 and following guidelines were laid down in paragraph 19, which reads 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: https://hcservices.ecourts.gov.in/hcservices/ (a) there is a statutory violation on the part of the Corporation, or (b) where the Corporation acts unfairly i.e. unreasonably. ........... (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 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. ......... (ix) Reasonableness is to be tested against the dominant consideration to secure the best price. 15.In the very same judgment, in paragraphs 17 and 18, it was observed as follows: "17...... The Court held that it was always expected that the Corporation would 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. The Court approved the view expressed in Gem Cap2 and found it to be more in line with the legislative intent behind enacting the Act. https://hcservices.ecourts.gov.in/hcservices/ 18.Recently in S.J.S. Business Enterprises (P) Ltd. v. State of Bihar7 while reiterating the aforestated legal position, it was held that reasonableness of the action of the Financial Corporation under Section 29 of the Act should be tested against the dominant consideration to secure the best price." 16. In view of the above, while this Court is not inclined to order any revised repayment schedule. But at the same time, the impugned notice issued by the respondent TIIC does not satisfy the dicta laid down by the Supreme Court in the cases referred to above. Hence, the impugned notice is set aside with liberty to TIIC to issue fresh notification after assessing the value of the property and mention the same and also to fix the upset price before the auction is notified. 17.With the above direction, the writ petition is disposed of. No costs. Consequently, connected miscellaneous petitions are closed. Sd/ Asst. Registrar /True Copy/ Sub Asst.Registrar svki To 1.The Regional Manager, The Tamil Nadu Industrial Investment Corporation Limited,Regional Office, No.692, Anna Salai,Nandanam, Chennai - 600 035. 2.The Branch Manager, Tiruvallur Branch, The Tamil Nadu Industrial Investment Corporation Limited, 86, C & D, 2nd Main Road, Ambattur, Industrial Estate, Chennai - 600 058. +One CC to Mr.A.Panneer Chelvam Advocate SR.68809 +One CC to Mr.G.Arulmurugan, Advocate SR.67918 Order in W.P.No.2163 of 2010 TRM (CO) KSA (29/11/2011) https://hcservices.ecourts.gov.in/hcservices/