IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR .. :: ORDER :: (1) M/s Priya Plastics Vs. Rajasthan Financial Corporation &Ors. S.B. CIVIL WRIT PETITION NO.2359/1989. .. (2) Govind Puri Vs. Rajasthan Financial Corporation & Ors. S.B. CIVIL WRIT PETITION NO.1841/1989. .. Date of Order :: 5th July 2006. PRESENT HON’BLE MR. JUSTICE DINESH MAHESHWARI Reportable Mr. M.S. Singhvi, for the petitioner in CWP No.2359/1989 (the respondent No. 5 in CWP No.1841/1989). Mr. J.P. Joshi, for the petitioner in CWP No.1841/1989 (the respondent No.5 in CWP No.2359/1989). Mr. B.D. Sharma, for the respondent No.4 Mr. S.G. Ojha, for the respondent- R.F.C. …. BY THE COURT: These two writ petitions being related to the same matter of sale of assets of M/s Priya Plastics (the petitioner of Writ Petition No.2359/1989) by the Rajasthan Financial Corporation (RFC), and having interconnected facts, have been heard together and are taken up for disposal by this 1 common order. The matter encompasses background facts and so also subsequent developments and could be taken into comprehension as follows: Facts as stated in Writ Petition No.2359/1989. The petitioner of the writ petition No.2359/1989 is the borrower of loan from RFC and defaulter in repayment. The respondent Nos.1 and 2 in the writ petition are the RFC and its Deputy General Manager respectively; the respondent No.3, Shri Rani Dan Soni has been one of the bidders for purchase of the assets of the petitioner M/s. Priya Plastics, and his bid of Rs. 1,76,000/- forms one limb of contentions in these cases; the respondent No.4, Shri R.D. Sharma is the subsequent bidder whose negotiated bid of Rs.1,66,000/- for purchase of the assets in question has admittedly been approved by the RFC; and the respondent No.5 Shri Govind Puri has made a subsequent offer of Rs.2,01,000/- for purchase of the same assets. The said respondent No.5 Shri Govind Puri is the petitioner of the connected Writ Petition No.1841/1989. According to the petitioner M/s. Priya Plastics, it had availed of a loan of Rs.1,27,000/- for the purpose of its small scale industrial undertaking from the respondent RFC in the month of March, 1981 and an agreement was executed on 19.03.1981 (Annex.1). According to the petitioner, the industrial unit was ready for production in the month of 2 September, 1981 but on account of the factors like power-cut and rise in taxes, the factory established by the petitioner ran in losses and had to stop production after six months; the petitioner sought additional loan and availed the same to the tune of Rs.31,000/- in the month of October, 1981 and the unit re-started production but again on account of the same factors, closed down after a period of about 6-9 months. The petitioner has averred that it could not repay the loan installments and the respondent RFC pressed hard for repayment and refused any relief and after serving of notice, put their lock on the petitioners’ factory on 30.10.1985. A notice for auction was published in the newspaper dated 30.01.1986. The petitioner filed writ petition No.326/1986 before this Court challenging taking over of possession and for other reliefs regarding grant of concessional treatments and waver of penalty and for re-schedulement of payment etc. The said writ petition was dismissed on 27.02.1987. The petitioner has averred that its factory is in possession of the respondent RFC since 30.10.1985 and the petitioner was not aware about the proceedings taken by them after 27.01.1987. According to the petitioner, in the middle of the month of June, 1989 it was served with a copy of the writ petition filed by Shri Govind Puri (i.e. Writ Petition No.1841/1989); and from the said writ petition and the reply filed therein by the 3 respondent No.4, Shri R.D. Sharma, the petitioner came to know about the facts that the factory was put to auction for the first time on 13.07.1987 on standard terms and conditions (Annex.2); that at the said auction, respondent No.3 made the highest bid of Rs.1,08,000/- which he increased to Rs.1,15,000/- in negotiation on 18.07.1988(Annex.3); that after getting the firm offer of Rs.1,15,000/-, advertisement was published in the newspaper of 31.08.1988 (Annex.4) inviting fresh offers over and above the offer already received; that in response to the aforesaid notice negotiation took place and the respondent No.3 increased his bid to Rs.1,76,000/- and the respondent RFC informed him of approval of such bid on the terms and conditions as stated in the letter dated 27/28.9.1988(Annex.5). The petitioner has contended that the conditions that were put to the respondent No.3 who had increased the bid to Rs.1,76,000/- were substantially different from the one disclosed in the auction notice and that was a device to dissuade the intending purchaser from accepting the terms and conditions for favouring somebody else. The said bidder respondent No.3 by his letter dated 13.10.1988 objected to the change in terms and conditions and the RFC by its letter dated 02.11.1988 (Annex. 6) stated that RIICO dues would be paid by the purchaser and not by the RFC and the interest on 4 balance amount would be charged @ 12.5% per annum and not @ 13.5% per annum. The petitioner has further averred that some disputes regarding the terms and conditions persisted and the respondent No.3 was called for further negotiations on 19.04.1989 by the letter dated 06.04.1989 (Annex.7). It has been alleged that before the respondent No.3 was called for further negotiations, the RFC published another advertisement (Annex. 8) inviting tenders in respect of the petitioner’s assets, last date for submission of tender being 23.03.1989 and even in the face of an offer of Rs.1,76,000/-, the maximum proposal at hands was shown in this tender notice only at Rs.1,00,000/-. The petitioner has further averred that it appeared that the respondent No.4 submitted a tender for an amount of Rs.1,10,000/- and deposited Rs.11,000/- being 10% amount of his offer on 23.03.1989 and a copy of receipt produced by the respondent No.4 in writ petition No.1841/1989 has been submitted with this writ petition as Annexure 8/A. According to the petitioner, the respondent No.5 Shri Govind Puri also made an application to the RFC on 03.05.1989 (Annex.9) pointing out the market price of assets at Rs.2,80,000/- and offered Rs.2,01,000/- for the same; and the Deputy General Manager of RFC informed him by the letter dated 15.05.1989 (Annex.10) that he should contact the head office at Jaipur with 10% security amount. 5 The petitioner has submitted that from the pleadings made in Writ Petition No.1841/1989 it appeared that before the respondent No.5 could act in pursuance of the letter dated 15.05.1989, the RFC had decided to accept the negotiated offer of respondent No.4 for Rs.1,65,000/-, though acceptance letter had not been communicated to the respondent No.4, and before it was so communicated, the respondent No.5 filed the said writ petition and obtain the interim order. The petitioner has contended that the market value of the assets is estimated by the prospective buyer to be over Rs.4 lacs and only 50% of the estimated value has been offered for the same and the RFC, notwithstanding having received the offers of Rs.1.76 lacs and above Rs.2 lacs, had decided to pass on the property to the respondent No.4 at a throw away price of Rs.1.65 lacs only without making efforts to realize full market value of the assets, and such action is detrimental to the petitioner’s interest. It has also been alleged that the respondents have acted in arbitrary manner in not accepting the highest bid even after negotiating with the highest bidder. The petitioner has further contended that even after modifying the terms of sale of passing on the liability of RIICO to the prospective purchaser, the RFC had not disclosed the liability of RIICO in response to the query made by the respondent No.5 and, to the petitioner’s knowledge 6 such outstanding of RIICO may not be more than Rs.5000/-. The cause to maintain this writ petition has been stated in paragraph 23 of the writ petition thus: ‘’23. Be that as it may, from the aforesaid facts, it is apparent that in the face of the higher offer for Rs.1,76,000/-, which apparently was pending consideration until April, 89, the tenders were invited by giving out that only the offer of Rs.one lac is in hand and thereafter even after receiving the offer for Rs.2 lacs, with the information that the estimated value of the property is over Rs.4 lacs, the respondents have in hot haste in contrast with the consideration of offers made by the respondent No.3, have decided to confer the larjess (largess) on respondent No.4, who out of the three respondents, had offered the least price for the assets of the petitioner which are being disposed of by the respondent Corporation to realize its dues outstanding against the petitioner.’’ While questioning the acceptance of the offer of respondent No.4 being arbitrary, illegal and unjust and while asserting that the corporation was in a position of a trustee and was under obligation to act in the best interest of the beneficiary i.e. the petitioner and to secure maximum price for the property, the petitioner has alleged that the corporation had received an offer of over Rs.2 lacs on 03.05.1989 much before issuance of the letter of acceptance to the respondent No.4; and in the circumstances, the respondent No.5 ought to have been given a chance to make deposit of 10% of his offer to show his bonafide and the RFC was also required to call 7 upon all the offerers for negotiation so as to extract best price or to hold a public auction with a minimum price of Rs.2,01,000/-. The action of RFC in allegedly discarding the offer of the respondent No.5 outright and dilly-dallying on the offer made by the respondent No.3 has been assailed as unjust, arbitrary and unreasonable to favour respondent No.4 at the cost of the petitioner. It has further been contended that the respondent ought to have given the opportunity to the petitioner to secure a buyer through private negotiations to realize maximum amount. It has also been contended that as per the standing terms and conditions, even the prospective buyer is not required to pay full price and with down payment of about 25%, remaining 75% consideration is converted into long term loan; and such amount of down payment even the petitioner was prepared to pay forthwith if the balance amount was converted into long term loan with relaxation of penal interest. The petitioner has prayed for the reliefs of issuance of writ, order or direction restraining the respondent Nos.1 and 2 from transferring the property in question to the respondent No.4 for Rs.1,65,000/- and to permit the respondent No.5 to deposit 10% of his offer and then for negotiating the price higher than that offered by respondent No.5; and in the alternative to consider the petitioner’s offer for immediate 8 payment of 25% of the highest bid received and to covert the balance amount due against it in long term loan. This writ petition was filed on 17.07.1989 whereas the other writ petition No.1841/1989 by the subsequent offerer Shri Govind Puri had already been filed on 29.05.1989. Before coming to the averments in writ petition No.1841/1989, the reply averments in this writ petition No.2359/1989 may be noticed. Reply averments in writ petition No.2359/1989 by the Respondent No.4. The respondent No.4 Shri R.D. Sharma, whose negotiated bid of Rs.1,66,000/- has been accepted by the RFC, submitted in his reply that the factory was rightly taken over by the RFC and the earlier writ petition filed by the petitioner failed. It has been maintained that the averments that the petitioner was not knowing about the proceedings taken after 27.01.1987 were not correct and filing of the present writ petition shows that the petitioner had every knowledge about the facts. It has been asserted that the other petitioner Shri Govind Puri and the present petitioner M/s. Priya Plastics were in collusion and the other writ petition was filed only at the instance of present petitioner. Regarding the change of terms and conditions about the offer of respondent No.3, it has been maintained that there 9 was no change in the terms and conditions and the auction notice published on 31.08.1988(Annex.4) clearly carried the terms and conditions that RIICO dues would be paid by the purchaser and the petitioner has failed to show as to in what manner the RFC has dissuaded the intending purchaser, respondent No.3? It has been pointed out that up to that point of time, the answering respondent was not in picture at all and the imputations made upon RFC were not correct. The answering respondent has pointed out that the respondent No.3 did not deposit 25% of the bid amount and ultimately his security was forfeited on 31.01.1989 and “that is how he went out of the scene”. The answering respondent has questioned the procedure adopted by RFC in inviting the respondent No.3 for negotiations and it has been averred that calling respondent No.3 for negotiations in relation to the auction proceedings held on 23.03.1989 was “uncalled for and against rules” because his matter had already been decided on 31.01.1989 and it was against the rules to have called a person for negotiation on 19.04.1989 who had not participated in the auction held on 23.03.1989. It has been contended that the respondent No.3 having already resiled, his offer of Rs.1,76,000/- could not be treated to be in existence. So far the respondent No.5 is concerned, it has been maintained that he was not a participant in the auction held on 23.03.1989 and 10 his offer could not have been considered on a simple letter. It has further been submitted that the valuation of property to the tune of Rs.4 lacs after the completion of auction proceedings was a hoax and an offer given after the answering respondent’s negotiated bid of Rs.1,66,000/- was recommended for sanction cannot affect his case. The answering respondent has submitted that the proceedings have to be terminated somewhere and has raised the anxiety that even after Shri Govind Puri a new offerer may come up and then how would it be possible to “end such endless offers”? According to answering respondent such practice would fail the system of auctions. The answering respondent has maintained that no provision or law requires that after asserting the highest price in open auction the preference over the highest bidder should be given to the person whose property is being sold on the same terms and conditions and, the proposition as put forward by the petitioner would simply be putting the bidders to be used as instruments to arrive at higher price and that would be a gross misuse of the process. The proposition of the petitioner being handing over the assets on payment of 25% of the amount with grant of fresh loan has been refuted being not bonafide and the petitioner having already defaulted and failed in his earlier writ petition being not entitled to agitate the matter over again. 11 Reply averments in Writ Petition No.2359/1989 by the respondent RFC. The respondent Nos.1 and 2 in their reply to the writ petition have asserted that it was incorrect to say that the petitioner was not aware of the proceedings after 27.01.1987. It has been maintained that the petitioner was always keeping a watch over the happenings with regard to the auction of his factory, and all the auctions were made after public advertisements and it cannot be said that the petitioner was not aware of the facts. It has been pointed out that the terms and conditions put to the respondent No.3 for his offer of Rs.1,76,000/- were not to dissuade him but were for the benefit of the petitioner himself. Regarding the offer of respondent No.5, it has been asserted that the same was not a valid offer and he came only after finalization of the deal by the respondent and even after the letter addressed to him, he did not contact the Head Office with 10% security amount and merely continued with letters and the RFC was not required to take any action on the offer of respondent No.5. The offer of respondent No.4 was considered to be a genuine offer and the same was accepted. In response to Para 23 of the writ petition as quoted hereinabove, the respondent RFC has stated in its reply thus: 12 ‘’23. That contents of para 23 are again misleading. Before the last advertisement for auction was issued, respondent No.3 was communicated about that, but he was not serious about his offer and the security is liable to be forfeited. Therefore, when last auction notice was given, at that time respondent No.3 had already been communicated about the fate of his offer. Further after the offer of respondent No.4 was considered proper, the respondent No.3 was again intimated and at that stage he made an application to the Answering Respondents that he is not interested in the auction and he wants it only on the terms last stated by them and he wants to withdraw his money. Therefore, there is no substance in the grounds raised by the petitioner in this regard.’’ Pleadings in Writ Petition No.1841/1989 and the course of proceedings therein: As already noticed above, Writ Petition No.1841/1989 by Shri Govind Puri was filed on 29.05.1989, prior to the filing of the writ petition by the borrower M/s. Priya Plastics. The said petitioner Shri Govind Puri has averred in the writ petition about the assets of M/s. Priya Plastics and has alleged that when he came to know that the aforesaid factory of M/s. Priya Plastics was being offered for sale by RFC, he made an application to the RFC on 03.05.1989 giving out the estimated costs of the land, factory building, plant and machinery and raw material and looking to the condition of RFC that the purchaser has to bear the outstanding dues of various Departments, he made an offer of Rs.2,01,000/- of his own for 13 the purchase of the said industrial concern; and he was informed by the Dy. Manager of RFC by his letter dated 15.05.1989 for contacting Head Office at Jaipur with 10% security. According to this petitioner he received the letter on 20.05.1989 and he sent two separate registered letters to the General Manager and the Managing Director of RFC requesting them to inform the date on which he should present himself with 10% of the security and also requested to disclose as to which other liabilities he shall have to bear and requested for approval of his offer. Grievance has been raised in this writ petition that though the petitioner did not receive any response to his letters, he was informed by the Jodhpur Office of RFC that they had received letter dated 19.05.1989 that the assets of M/s. Priya Plastics have been approved to be transferred in favour of Shri R.D.Sharma for a sum of Rs.1.66 lacs only. The petitioner has submitted that he was surprised to learn about the proposal of transfer to the said Shri R.D.Sharma at much lower price and in the face of his own offer of Rs.2.01 lacs. The said petitioner has thereafter narrated about his having learnt the facts of previous auctions, negotiations and the bids of Shri Rani Dan Soni, as already noticed hereinabove. It has been maintained in the writ petition that the action of the RFC having public element in it has to conform to 14 the requirements of reasonableness and the RFC cannot act in the manner that would benefit a private party at the costs of public funds. In substance, it has been asserted that the RFC had with it two offers for the property in question of Rs.1.76 lacs (from Shri Rani Dan Soni) and of Rs.2.01 lacs (from the petitioner Shri Govind Puri) and the RFC was not reasonable in taking the decision in the benefit of respondent no.4 for transferring the assets at much lower price. It has been prayed in the writ petition that the transfer of assets of M/s. Priya Plastics in favour of Shri R.D.Sharma as disclosed in the letter dated 19.05.1989 be quashed and the respondents be directed to consider his proposal for purchase of the assets on its own merits and in the alternative for directions to the respondents to hold a public auction for disposal of the assets of M/s. Priya Plastics with a minimum offer of Rs.2.01 lacs as made by the petitioner. In this writ petition No.1841/1989 on 01.06.1989 while show cause notices were issued, by way of interim order, the RFC was restrained from transferring and delivering possession of the assets of M/s. Priya Plastics to Shri R.D.Sharma or to any other person. It may also be pointed out that before filing of the aforesaid writ petition No.2359/1989 the borrower M/s. Priya Plastics, in its capacity as respondent No.5 in writ petition No.1841/1989, had moved 15 an application with the submissions that the RFC was not entitled to dispose of the Unit at a price of Rs.1.66 lacs and in case the Unit is permitted to be disposed of, it should not be sold to respondent no.4 but be sold to the petitioner on the amount offered by him; or the RFC be directed to restore the possession to the borrower who was prepared to repay the loan if penal interest be waived and it was submitted that the answering respondent reserves his right to file fresh writ petition in case this Court was not inclined to accept his prayer. The aforesaid Shri R.D. Sharma, whose negotiated bid of Rs.1.66 lacs had been considered and approved by the RFC by the letter dated 19.05.1989 has refuted the submissions made in this Writ Petition No.1841/1989 and has submitted that the said petitioner had no right to maintain the writ petition and the same had been filed with concealment of material facts. It has been pointed out that the unit in question was put to auction thrice and the first and third auction notices were not filed with the writ petition but the second auction notice and conditions of the first auction notice were filed. The answering respondent has submitted a copy of the third auction notice and has pointed out that the petitioner was not a party to the auction proceedings and there could arise no question of consideration of his case and the private offer 16 made by him having no connection with auction proceedings, ought to have been rejected and the office of the RFC at Jodhpur had no jurisdiction to suggest that the petitioner may deposit 10% amount and that the Jodhpur office of RFC was acting in collusion with the petitioner and others. It has been submitted that the petitioner has no legal right to be considered and there being no infringement of any of his legal rights, the writ petition was liable to be rejected. Giving out the details of three auction proceedings, the answering respondent has submitted that in negotiations he had increased the offer to Rs.1.66 lacs and his bid had already been finalized and that he was an unemployed Post-Graduate and the stay order was causing irreparable loss to him. The respondent RFC in its reply has asserted that the petitioner has no locus standi to maintain the petition, and giving out the details of auction notices, it has been submitted that at the time when the petitioner submitted his so-called offer, the matter had already been finalized at the office of the respondent No.2 and the higher offer of Shri R.D. Sharma was accepted who raised his bid to Rs.1.66 lacs on 19.04.1989. The bid-sheets prepared for the bids on 23.03.1989 and 19.04.1989 have been produced with the reply. Regarding the case of the petitioner, it has been pointed out that the letter sent by him did promise a higher amount but was not 17 accompanied by the requisite 10% of the amount