Case: M/s. Industrial Promotion and Investment Corporation of Orissa Limited Vs. M/s. Tuobro Furguson Steels Private Limited &amp; Others

A Foundry Unit situated at Ganeswarpur Industrial Estate, Balasore, by the side of NH-5, along with land, building, plant and machineries was taken over by the Corporation under Section 29 of the State Financial Corporation Act, 1951, as its original promoters namely, M/s Josna Casting Centre, defaulted in payment of its dues. The taken-over Unit was put to sale vide advertisement dated February 8, 1999 issued in Oriya and English newspapers inviting offers for purchase of the Unit. A copy of the sale advertisement is at Annexure P1 which gives a complete description of the Industrial Unit along with all the relevant details. It is significant to note that in the advertisement it was stipulated that the sale would be on `AS IS WHERE IS basis. Further, the intending purchasers were allowed inspection of the Unit-on-sale from February 16 to 27, 1999.3. In response to the advertisement the respondents made an offer (revised by letters dated April 12, 1999 and August 5, 1999) to purchase the Unit for a total consideration of Rs.40,00,000/- (Rupees Forty Lacs) with down payment of Rs.8,00,000/- (Rupees Eight Lacs). The offer made by the respondents was considered by the Advisory and Disposal Committee of the Corporation, and in acceptance of the offer, the Corporation issued the sale letter dated September 10, 1999. A copy of the sale letter is at Annexure P2. In the sale letter it was stated that possession of the Unit would be handed over to the respondents on payment of Rs.8,00,000/- (Rupees Eight Lacs) and the balance amount of Rs.32,00,000/- (Rupees Thirty Two Lacs) would be treated as fresh loan to respondent no.1 to be repaid within a period of 6 years in quarterly instalments after a moratorium of 18 months with interest at the rate of 18 per cent per annum from the date of handing over the physical possession of the Unit. The sale formalities were required to be completed within 30 days from the date of issue of the letter. It was further stipulated in the letter that the sale would lapse and the earnest money forfeited if the documents were not executed within the prescribed time. In clause 2 of the letter it was once again repeated that the sale was on "AS IS WHERE IS" basis and no further claim in that respect would be entertained by the Corporation. In clause 5 it was stated that the sale of fixed assets was free from liabilities other than the deferred payment of loan of Rs.32,00,000/- (Rupees Thirty Two Lacs) with interest as stated in the earlier paragraph of the letter. Clause 8 made it clear that the sale did not pre-suppose sanction of any additional loan in favour of the purchaser for operation of the Unit. In clause 9 of the letter it was stated that though the Corporation would recommend to all concerned to assist and help the buyer of the Unit (the respondents) but would not be in any manner responsible if any of the benefits were not granted to the Unit or if there was delay in grant of any of the benefits. It was expressly made clear that the denial of any benefits to the Unit by any financial organisation or any other body or delay in grant of any concession or benefit shall not be a ground for non-payment of the Corporations dues.4. In furtherance of the sale, respondents made payment of Rs.8,00,000/- (Rupees Eight Lacs) to the appellant and following the payment, possession of the Unit was made over to respondents on September 15, 1999. Before the delivery of possession, the Director and other technical persons of the respondent company verified/compared the assets with the inventory of assets item-wise and thereafter, took over possession of the assets on September 15, 1999 in presence of officers of the Corporation, OSFC and SBI and the security personnel. The handing over of possession of the Unit was witnessed by a `Memo of Delivery of Possession of Assets executed both on behalf of the appellant and the respondent company. A copy of "the Memo of Delivery of Possession of Assets" is annexed as Annexure P-3 to the appeal memo.5. After taking possession of the Unit, the respondents did not take any step to complete the documentation with IPICOL and Orissa State Financial Corporation as required in clause 7 of the sale letter. The appellant then wrote a number of letters (on October 12, 1999, January 4, 2000 and February 28, 2000) asking the respondents to execute the documents/loan agreement with the Corporation and with the Orissa State Financial Corporation. The respondents, however, went on temporising in the matter. Instead of executing the necessary documents, the respondents wrote to the appellant complaining about the high rate of interest and requesting to lower it down. The respondents also made the complaint that the machineries were in very bad shape and required to be replaced and unless the issue of the rate of interest was resolved, it would not be possible to start the operation of the factory. The respondents also complained about the difficulty in getting loans from the bank or other financial institutions and asked the appellant whether it would give its consent to creation of pari passu or second charge as security for the loan amount advanced by the financial institutions. It also complained about the electricity dues and sought the intervention of the appellant to resolve the difficulties being faced by it.6. On March 24, 2000, the appellant - Corporation once again wrote to respondents asking them to pay the over due interest of Rs.3,51,445/- as on March 31, 2000 and to execute the necessary documents.7. The respondents did not make any payment nor did they take any step to complete the documentation. Instead, by letter dated July 20, 2001, they asked the appellant to take back the Unit stating that from July 31, 2001, they would withdraw the security personnel engaged by them in the factory premises which was till that date under their control. On October 12, 2001, respondents informed the appellant that a theft had taken place in the factory premises which was at that time under their possession. On April 29, 2002, respondents once again wrote to the appellant that they would withdraw the security personnel if the assets were not taken over by the appellant within 15 days. Faced with the recalcitrant attitude of respondents, the appellant issued notice under Section 29 of the State Financial Corporation Act, 1951 to respondents and took over the assets of the Unit.8. On February 17, 2003, the respondents went to the High Court challenging the taking over of the assets by the appellant.9. On June 17, 2004, the appellant decided to sell the Unit along with its assets to Sun Agro Foods & Exports for a consideration of Rs.17,00,000/- (Rupees Seventeen Lacs) but could not hand over possession to the new buyer in view of the interim order passed by the High Court in the Writ Petition filed by the respondents. Finally, by the impugned order dated June 29, 2006, the High Court allowed the Writ Petition filed by the respondents and directed the Corporation to refund to the respondents Rs.8,00,000/ (Rupees Eight Lacs) along with interest at the prevailing bank rate that was received by it as part of the sale consideration.10. The order of the High Court is brief and does not even advert to all the relevant facts as stated above.

Reasoning:
We are unable to appreciate the order of the High Court and we see no basis on which such an order could have been passed. The case of the respondents, as noted by the High Court was untenable on its face. Even according to the respondents it was only after having taken possession of the Unit that they found that some vital parts of the machineries were missing and there were huge arrears of electricity dues and that the recommendation for the industrial policy resolution was not forthcoming. In those circumstances, the respondents realised that the Unit was not worth Rs.40,00,000/- (Rupees Fortyhearing counsel for the parties and on going through the materials on record, we find, for the reasons stated above, that the order of the High Court is completely unsustainable. We, accordingly, set aside the impugned order and dismiss the writ petition filed by the respondents.