Case: M/S Micro Hotel P.Ltd Vs. M/S Hotel Torrento Limited

OSFC, 2nd respondent herein, disbursed a term loan of Rs.51,27,200/- and loan in lieu of subsidy of Rs.23.30 lakhs to 1st respondent for establishing a hotel project at Janugarji, Balasore in the State of Odisha. The project was jointly financed by OSFC and IPICOL, for which 1st respondent had entered into a loan agreement and mortgaged the title deeds and extended a registered lease deed dated 8.2.1988. Lease was valid for a period of 25 years with a renewable clause. There was default in repayment of the loan amount, which led OSFC issuing a demand notice to 1st respondent on 7.2.1991, followed by a recall notice dated 30.11.1991. The respondent was also served with a show cause notice dated 16.12.1994 followed by recall notices dated 4.1.1995 and 13.3.1996.5. 1st respondent then filed a Writ Application No. 2513 of 1996 on 20.3.1996 before the High Court of Orissa to quash the recall notice dated 13.3.1996 and for rehabilitation. The High Court disposed of that writ application with a direction to respondents 2 and 5 (OSFC & IPICOL) to consider the request of 1st respondent for rehabilitation package. On 9.3.2006, an OTS scheme was introduced by OSFC and 1st respondent applied for settlement of its loan account under that scheme. On 18.3.2006, the benefit of the scheme was extended to 1st respondent by OSFC and agreed in principle to settle the term loan account on payment of Rs.1,16,21,200/- on or before 18.4.2006, subject to certain terms and conditions which were asThe settlement amount shall either be paid in one lump sum on or before Dt. 18.04.06 (within 30 days of this settlement order) with 3% discount on the settlement amount.ORInstallments as per the sequence mentioned below:a) Up front payment of Rs.23,61,400.00 (Rupees twenty three lakh sixty one thousand four hundred only) (i.e.25% of settlement amount less initial deposit) shall be paid along with the acceptance letter (format enclosed herewith) on or before Dt. 16.04.06, within 30 days.b) The balance settlement amount of Rs.87,15,900.00 (75%) shall be paid on or before Dt. 15.06.06.2. Any other expenses chargeable/incurred/debited in the loan accounts towards misc. expenses on L/A with effect from Dt. 11.07.05 (date of application) till the final settlement of loan accounts shall be paid by you along with the settlement amount.3. It may be noted that (NDC) can only be issued in your favour after liquidation of all the loans availed.4. You shall have to submit the consent/decree/permission/withdrawal order (wherever applicable) before issue of No Due Certificate (NDC).In case of failure on payment of the aforesaid amount within the stipulated dates, the one time settlement of dues considered in your favour including relief and concession thereon shall be withdrawn without further reference to you.IPICOL also approved the request for OTS at Rs.45 lacs with waiver of Rs.1,88,21,099 subject to certain terms and conditions, which were asThe OTS amount is Rs.45 lacs (Rupees forty-five lacs only) and the resultant sacrifice(s) by way of waiver is Rs.1,88,21,099 (Rupees one crore twelve lakhs seventeen thousand five hundred twenty nine only on account of funded interest and Rs.76,03,570/- (Rupees seventy six lakhs three thousand five hundred seventy only) on account of overdue interest.(b) The OTS amount shall be paid within a period of 1 year from the date of this letter as per the schedule given below:Rs.6,75,000 towards 25% of upfront payment (including initial payment made by you) within 30 days and balance 75% amounting to Rs.33,75,000/- within a period of 1 year in 4 quarterly installments, carrying simple interest @ 14% p.a. on reducing balance.(c) The above OTS is subject to cancellation, if it is found that you have provided incorrect details and information or suppression of any material facts for getting the sanction of OTS. The decision of IPICOL is final in this regard.(d) In case of non payment, IPICOL shall have the right of requital.We notice that despite of waiver of Rs.2,26,85,800 and Rs.1,88,21,099 by OSFC and IPICOL respectively, 1st respondent did not comply with the terms and conditions of the OTS scheme, consequently, OSFC and IPICOL informed 1st respondent that they had withdrawn OTS offer.8. We find, on 31.3.2007, yet another OTS scheme of 2007 was launched by OSFC and, again, an offer was made to 1st respondent to avail of the benefit of that scheme. OSFC, on 4.10.2007, requested 1st respondent to pay the settlement amount of Rs.1,16,21,200 with delayed payment of interest within 10 days. 1st respondent did not comply with that request as well, consequently, OSFC, on 28.12.2007, withdrew the offer and advised 1st respondent to pay the entire dues as per the agreement, failing which 1st respondent was informed that recovery proceedings would be initiated for realization of the dues. Later, OSFC sent a demand notice dated 22.8.2008 stating that the total loan outstanding as on 31.12.2007 was Rs.4,52,94,691 and 1st respondent was called upon to pay the amount, failing which it was informed that recovery proceedings would be initiated.9. 1st respondent then, on 10.09.2008, filed a Writ Petition No. 13376 of 2008 before the Orissa High Court to quash the demand notice dated 22.08.2008 and for a direction to consider its claim under the OTS scheme. On 31.10.2008, OSFC had, however, issued a notice recalling the entire amount along with interest and informed 1st respondent that in case of failure to make payment, further action would be taken under Section 29 of the State Financial Corporation Act (SFC Act). Writ Petition came up for hearing before the Orissa High Court on 4.12.2008, and the Court directed OSFC to maintain status-quo and on 7.4.2010, the Court passed an ad-interim order directing 1st respondent to inform as to whether they were willing to deposit the amount or Rs.1 Crore for consideration of their claim under OTS. On 26.11.2008, IPICOL also made a request to OSFC to initiate proceedings under Section 29 of SFC Act and to take over the assets of the unit.10. Writ Petition No. 13376 of 2008 came up for final hearing on 21.4.2010, and the Court enquired whether 1st respondent was willing to pay Rs.1 Crore, as suggested by the Court on 4.12.2008. The Court was informed that a petition had been filed on 21.4.2010 along with a bank draft of Rs.17,50,000 drawn in favour of the Registrar, Orissa High Court. 1st respondent had also made a request to the Court for time up to 26.2.1010 so as to pay the amount of Rs.1 Crore. The Court ordered the return of the draft to the 1st respondent since the amount was due to both OSFC and IPICOL. The Court was informed by OSFC that 1st respondent had not availed of the earlier proposal for OTS and no new OTS scheme was available, still the Court passed the followinglearned counsel for the Corporations submits that the earlier proposal for one-time settlement had been considered by both the Corporations and the matter had been settled. But the petitioner did not pay the amount for which it had to be cancelled and, at present there is no scheme for one-time settlement.Be that as it may, the Petitioner having defaulted in payment of huge amount we dispose of the writ petition directing that the petitioner may deposit a sum of Rs.50,00,000/- (Rupees fifty lakhs) each before each of the two Corporations by 20.6.2010 and applications shall be filed before both the Corporation for settlement of the dues. If any such application is filed the same shall be considered on its own merit by both the Corporations either separately or jointly provided there is any scheme available for such settlement by the Corporations.In the event, the Petitioner fails to deposit the aforesaid amount by 20.6.2010, both the Corporations shall be at liberty to take such action as permissible under law under the State Financial Corporationadded)11. 1st respondent did not comply with even the above mentioned order. OSFC then issued a registered notice dated 8.7.2010 to 1st respondent pointing that since it had failed to comply with the above mentioned order of the Court, OSFC would be at liability to initiate proceeding under the SFC Act. The 1st respondent was, therefore, asked to liquidate the entire outstanding amount as on 30.6.2010, failing which 1st respondent was informed that OSFC would be initiating action under Section 29 of SFC Act. Later, OSFC issued a seizure order dated 2.8.2010 of the property and that order was executed on 15.9.2010 and the possession of the unit was taken overbasis.12. OSFC, during seizure, got prepared a valuation report dated 17.09.2010 from its panel valuer. Based upon that valuation report, off- set price of the unit was fixed at Rs.1,75,45,000. Later, the sale notice was published in the Daily newspapers, Samaj and the New Indian Express on 18.9.2010. On 21.9.2010, again, OSFC issued a notice to 1st respondent to clear the outstanding dues with up to date interest of Rs.6,18,62,238/- collected up to 30.6.2010 before Default-cum-Disposal Advisory Committee (DDAC) on 29.9.2010 so also to get the assets released. 1st respondent was informed of the sale notice published in the daily newspapers requesting to clear up the dues before the DDAC meeting scheduled to be held on 29.9.2010. 1st respondent was also informed that in the event of non- payment of dues, it could still match or better the highest bid price. 1st respondent, however, did not take any steps to clear the outstanding dues, but preferred a Review Petition No. 99 of 2010 for reviewing the order passed by the Orissa High Court on 21.4.2010 in Writ Petition No. 13376 of 2008. The Court rejected the review petition on 22.9.2010. The Court, after noticing that 1st respondent had not deposited any amount in pursuance to its order dated 21.4.2010, held asfrom the above, from the conduct of the petitioner, we find that the petitioner did not pay any amount when the account was settled under the scheme earlier and waited for another demand notice. Even in the writ petition though the petitioner was directed to deposit Rs.50,00,000/- (Rupees fifty lakhs) each with the two Corporations, the same was not complied with. In course of hearing of this review petition, the petitioner has offered only Rs.40,00,000/- (Rupees forty lakhs) to be deposited with the two Corporations against the outstanding dues of more than seven crore. We are, therefore, of the view that the petitioner has no intention to clear the dues of the two Corporations which had financed for establishing a hotel. In the meantime possession of the said hotel has been taken by OSFC under section 29 of the State Financial Corporation Act and the same has been advertised for sale. The sale notice, a copy whereof was produced before us shows that the loanee can appear before the DDAC on the date fixed i.e. 29th of September, 2010 for the purpose of getting release the seizedadded)13. 1st respondent then submitted a proposal to DDAC, which was considered by DDAC on 29.9.2010 and the order was communicated to the 1st respondent.14. DDAC, in pursuance to the auction notification in the newspapers, received altogether 9 bids and, after negotiations with the auctioneers, the offer of the appellant was found to be the highest at Rs.774 lacs, which was accordingly accepted OSFC delivered the possession of the land, building and machinery/furniture and fixtures to the appellant vide possession letter dated 11.10.2010.15. 1st respondent, as already stated, then approached the Orissa High Court and filed the present writ petition No. 17711 of 2010 to quash the cancellation of the OTS dated 28.12.2007, sale letter dated 1.10.2010 and also for other consequential reliefs, which were granted by the Division Bench of the Orissa High Court, the operative portion of which reads asthe reasons stated supra the writ petition is allowed. Rule issued. The letters dated 28.12.2007 and 1.10.2010 (Annexure-5 & Annexure-8 series) cancelling the proposal for OTS and rejecting the representation dated 29.9.2010, the public sale notice dated 19.9.2010 (Annexure-6), the sale letter dated 1.10.2010 (Annexure- 8 series), the sale agreement dated 11.10.2010 (Annexure-A/5) and the alleged delivery of possession are hereby quashed. The Orissa State Financial Corporation and IPICOL are directed to place fresh demand with the petitioner, within four weeks from the date of receipt of this order, with regard to the amount of OTS offered in the communications dated 18.3.2006 and 3.4.2006 of the OSFC and IPICOL along with interest at the rate of 9% on the said amount from that date till the date of payment or at the rate of interest, stipulated under the OTS Scheme, 2007 in case of similarly placed persons. The petitioner is directed to make payment within six weeks thereof. Thereafter the possession of the property shall be delivered to the petitioner within a reasonable time. If the petitioner fails to deposit the amount, as directed, the OSFC and IPICOL are at liberty to proceed in the matter in accordance with

Court's reasoning:
27. We have found that the procedure laid down under Section 29 of SFC Act has been followed by the Corporations. The independent valuer submitted his report on 17.09.2010 and the off-set price of the unit was fixed after getting it valued by an independent valuer. It was based upon the valuation report that the off-set price of the unit was fixed at Rs.1,77,45,000/- on 17.09.2010. Sale notice was published in the News Papers on 18.09.2010 and the auction was conducted on 29.09.2010. In our view, the High Court has committed an error in holding that off-set price of property was not valued before the conduct of auction and that there was no due publication of auction. Sale notice, it is seen, was published in thea vernacular paper and also in thea widely circulated English newspaper on 18.09.2010 and the Corporation had received nine offers and after protracting negotiations with all the bidders, the offer of the appellant was accepted being the highest. The Corporation before putting the appellant in possession again issued a notice dated 21.9.2010 to 1st respondent enquiring whether he would match the offer. 1st Respondent did not avail of that opportunity as well. It is under such circumstances that sale letter dated 1.10.2010 was issued to the appellant with a copy to all the Directors/Promoters/Guarantors of 1st respondent company. The appellant paid the balance consideration of Rs.5,65,20,000 on 11.10.2010 and the Sale Memo was extended on that date and the property was also delivered.28. We find no illegality in the procedure adopted by the Corporation, since 1st respondent had failed to comply with the directions issued by the co-ordinate Bench of the Orissa High Court in writ petition No. 13376 of 2008, which gave liberty to the Corporations to proceed in accordance with Section 29 of SFC Act. We are of the view that the Division Bench of the High Court had overlooked those vital facts as well as the binding judgment of a co-ordinate Bench in writ petition No. 13376 of 2008 and had wrongly reopened a lis and issued wrong and illegal directions.We are of the view that the principles laid down by this Court in the above judgments apply to the case on hand, if the facts are properly appreciated. The Division Bench, in the impugned judgment, took the view that the Corporations had not followed the guidelines laid down by this Court in Kerala Financial Corporation v. Vincent Paul and Another, (2011) 4 SCC 171 . In our view, this is factually incorrect. This Court, in the above judgment, indicated that the authority concerned should serve to the borrower a notice of 30 days for sale of immovable assets. In this case, Corporation had issued the recall notice dated 08.07.2010 with a request to pay the entire outstanding dues within 30 days otherwise, failing which, it was stated that action under section 29 of SFC Act would be initiated against the 1st respondent. Seizure order was issued by the Corporation and the entire assets of the unit were taken over under Section 29 of the Act on 15.09.2010 which was after the expiry of 30 days from the date of notice dated 08.07.2010. Therefore the guidelines laid down in the above referred judgment have also been complied with. Even otherwise, the guidelines issued by this Court in Vincent Paul case would operate only prospectively and that too depends upon the facts and circumstances of each case.We are of the view that the principles laid down by this Court in the above judgments apply to the case on hand, if the facts are properly appreciated. The Division Bench, in the impugned judgment, took the view that the Corporations had not followed the guidelines laid down by this Court in Kerala Financial Corporation v. Vincent Paul and Another, (2011) 4 SCC 171 . In our view, this is factually incorrect. This Court, in the above judgment, indicated that the authority concerned should serve to the borrower a notice of 30 days for sale of immovable assets. In this case, Corporation had issued the recall notice dated 08.07.2010 with a request to pay the entire outstanding dues within 30 days otherwise, failing which, it was stated that action under section 29 of SFC Act would be initiated against the 1st respondent. Seizure order was issued by the Corporation and the entire assets of the unit were taken over under Section 29 of the Act on 15.09.2010 which was after the expiry of 30 days from the date of notice dated 08.07.2010. Therefore the guidelines laid down in the above referred judgment have also been complied with. Even otherwise, the guidelines issued by this Court in Vincent Paul case would operate only prospectively and that too depends upon the facts and circumstances of each case.We express our strong disapproval of the manner in which the Division Bench of the High Court has virtually sat in judgment over the judgment of anotherBench. We are of the view that the Division Bench of the High Court overlooked some vital facts which have considerable bearing on the outcome of this dispute, consequently, reopened a lis which has attained finality, due toof the various directions issued by theBench of the High Court. Failure to comply with the various directions issued by theBench in Writ Petition No. 13376 of 2008 and the order passed in Review Petition No. 99 of 2010 was completely overlooked by the Division Bench.