Case: M/S. S.J.S. Business Enterprises(P)Ltd Vs. State Of Bihar

2. The appellant had been sanctioned a sum of Rs. 70 lakhs by the Bihar State Credit and Investment Corporation Ltd. (hereinafter referred to as BICICO) in April 1992 for financing the construction of a hotel. According to the appellant, BICICO only disbursed a sum of Rs. 44.56 lakhs in instalments as a result of which the appellant could not complete the project without a huge cost overrun. From time to time uptothe appellant repaid about Rs. 14.23 lakh to BICICO. However, the outstanding amount, due from the appellant according to BICICO as on March 2002, was Rs. 191.3 lakhs including interest. Proceedings were therefore commenced by BICICO under Section 29 of the State Financial Corporations Act, 1951 for sale of the hotel which had been mortgaged by the appellant to BICICO by way of security against the loan.3. The hotel was valued on 3rd July 2001 by BICICO through its valuer. According to this valuation, the property was worth Rs. 2.16 crore. After this, a publication was made on 31st January 2002 offering the hotel for sale on an "As is where is basis". Offers were required to be made by 28th February 2002. The respondent No. 6 offered to purchase the hotel for Rs. 41 lakhs. The offer was rejected to BICICO because the bid was too law.4. The property was againon 24th January 2002 by BICICO. By what, according to BICICO, was only anassessment", the value of the hotel was estimated at Rs. 1.58 crores. But when a third valuation was again made at the instance of BICICO in February 2002, the total value of the property including of the building and land was only Rs. 94.81 lakhs. On 26th March 2002, a second sale notice was published by BICICO in respect of the hotel on "As is where is basis". This notice has been impugned before us. Under this notice offers were to be given by way of a sealed cover by 29th March, 2002 i.e. within three days. Of these three days 28th March 2002 was Holi and 29th March was Good Friday.5. It appears from the records that on the same day the second sale notice was published, the respondent No. 6 made an offer to purchase the hotel for Rs. 95.50 lakhs and in fact paid Rs. 95.50 lakhs to BICICO. On 30th March 2002, which was a Saturday, the offer of the respondent No. 6 was negotiated and the consideration was finalised at Rs. 1 crore. The difference between Rs. 94.50 lakhs and Rs. 1 crore had already been paid to BICICO by the respondent No. 6 on 7th March, 2002. Therefore by the 26th March, 2002, before the last date for receiving offers was over and the tenders were opened, the Respondent No. 6 had deposited the entire consideration of Rs. 1 Crore. Nevertheless a letter accepting the respondent No. 6s offer was issued by BICICO on 31st March 2002 (which was a Sunday) asking the respondent No. 6 to pay the amount of Rs. 1 crore by 31st March 2002 failing which its offer would stand rejected. The respondent No. 6 apparently received the latter on the same day from BICICO and also replied on that day stating that the amount of Rs. 1 crore had already been paid. After this, a latter was written again on the same day by BICICO to the appellant and its two Directors asking them to match the offer of respondent No. 6 within 10 days from the date of the issue of the letter, failing which the sale would be concluded in favour of the respondent No.6.6. On 4th April 2002, a suit was filed by the appellant before the Court of thea, challenging the action of BICICO. An application for interim relief was made to restrain BICICO from selling the hotel. The prayer for interim injunction was refused by theon 8th April 2002 and notice was directed to be issued to BICICO. The next day, a writ petition was filed by the appellant for the same reliefs as had been prayed for in the suit. An interim order was passed by the learned Single Judge on 9th April 2002 after hearing counsel for the appellant as well as for BICICI by which a schedule of repayment by instalments was prescribed. Subject to payment of the first instalment of Rs. 10 lakhs possession of the hotel was to be handed over by BICICO to the appellant. An undertaking was also given by one of the Directors of the appellant to the Court to abide by the schedule so fixed. The appellant paid a sum of Rs. 10 lakhs in terms of the Courts order to BICICO but the possession of the hotel was not handed back to the appellant.7. It may be mentioned that during this period, BICICO announced a settlement policy under which concerns which had taken a loan less than 10 years earlier could settle their dues by paying double the original principal amount lent by the BICICO to such defaulters. The appellant applied for settlement of its outstanding dues. However, the prayer of the appellant for a one time settlement was rejected by BICICO under the settlement policy.8. When the writ petition came up for disposal, the learned Single Judge dismissed it holding that as the appellant had suppressed the fact that it had filed a suit prior to the initiation of writ proceedings its conduct verged on fraud and that the appellant had, disentitled itself from any relief in the extraordinary prerogative writ jurisdiction. It was also held that the BICICO had acted bona fide in taking action under Section 29 and selling the hotel. While dismissing the writ petition, The learned Single Judge directed BICICO to consider the appellants application for one time settlement in accordance with law. BICICO was directed to hand over the possession of the hotel to respondent no. 6 and the appellant was directed to pay Rs. 10,000/by way of costs to the respondent no. 6.9. The Division Bench dismissed the appeal preferred by the appellant after rejecting the explanation given by the appellant that the two proceedings had been initiated independently by the two Directors of the appellant each without the others knowledge. The Division Bench held that the Court would not interfere with the Single Judges order because of the material suppression of facts by the appellant.10. When the special leave petition was initially entertained by this Court, we directed the issuance of notice subject to the appellants depositing a sum of Rs. 1 crore by way of bank draft/draft with the Registry of this Court. We also recorded that the appellant was willing to recompense the respondent No. 6 to the extent of any loss incurred by way of interest on the amount paid by it. The demand draft of Rs. 1 crore was deposited with the Registry of this Court by the appellant and the amount has since been invested in a nationalised bank in a short term fixed deposit.11. Affidavits have been filed by BICICO and the respondent no. 6 in which they have claimed that possession of the hotel was handed over by BICICO to the respondent No. 6 on 27th May 2003. However, it is not clear whether any resolution of the Board or any other formal agreement or conveyance deed in respect of the hotel has been executed by BICICO in favour of the respondent No. 6 till today.12. The principal basis on which the Single Judge and the only ground on which the Division Bench of the High Court refused relief to the appellant was because they found that the appellant was guilty of suppression of a material fact viz., the filing of the suit prior to approaching the Court under Article 226.

Court's reasoning:
15. In this case, admittedly the appellant has withdrawn the suit two weeks after the suit had been filed. In other words the appellant elected to pursue its remedies only under Article 226. The pleadings were also complete before the High Court. No. doubt, the interim order which was passed by the High Court was obtained when the suit was pending. But by the time the writ petition was heard the suit had already been withdrawn a year earlier. Although the appellant could not, on the High Courts reasoning, take advantage of the interim order, it was not correct in rejecting the writ petition itself when the suit had admittedly been withdrawn, especially when the matter was ripe for hearing and all the facts necessary for determining the writ petition on merits were before the Court, and when the Court was not of the view that the writ petition was otherwise not maintainable.16. As the issue of suppression was the only ground on which the High Court has rejected the appellants plea for relief, we would ordinarily have set aside the order of the High Court in view of our finding and remanded back to the High Court for decision of the matter on merits. But the matter has been argued on merits before us and we are in a position to dispose of the matter which we accordingly proceed tois unlikely that this would have been done unless the respondent No. 6 knew (i) the valuation made and (ii) that its offer would be accepted. Indeed a portion of the respondent No. 6s offer had already been paid on 7th March 2002 i.e. prior to the sale notice itself. According to the Respondent No. 6 this was pursuant to the earlier infructuous sale notice, a payment which, again for some undisclosed reasons, had not been returned by BICICO to the respondent No. 6.21. No satisfactory explanation is forthcoming from the authorities to explain these deviations from the norm. The concatenation of inexplicable and unexplained circumstances is sufficient for us to hold that the sale was unfair and consequently invalid.The respondent No. 6 has pleaded that it has been deprived of Rs. 1 crore, had been kept out of the possession for 14 months and has, after taking possession, made substantial investments in the property. As far as the first factor is concerned, the appellant has offered to pay interest on the amount of Rs. 1 crore to the respondent Rs. 6. On the second, we have not been told whether any formal agreement has been concluded between BICICO and the respondent No. 6 or whether any conveyance has been executed or any other formalities completed by BICICO to transfer the title in the hotel in favour of the respondent no. 6. It appears to have handed over possession to the Respondent No. 6 only upon the direction of the High Court. As far as the third ground is concerned, the appellant was fully aware that the appellant was fighting tooth and nail to redeem its property and that the sale was the subject matter of scrutiny by Court. If it has chosen to make renovation or investment in the hotel, it has done so despite the knowledge of the precarious nature of its possession. The investments, if any, were a calculated risk taken by the respondent No. 6 itself the consequence of which cannot be foisted on the appellant.