Karnataka High Court
M/S Vandothra Fashions Private Limited vs Karnataka State Financial Corporation on 14 December, 2012
Author: B.S.Patil
Bench: B.S.Patil
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 14TH DAY OF DECEMBER, 2012
BEFORE
THE HON'BLE MR.JUSTICE B.S.PATIL
W.P.No.40894/2011 (GM-KSFC)
BETWEEN:
M/s Vandothra Fashions Private Limited,
Having its registered office at
Sy.No.86, Block No.6,
Nagasandra Village,
Yeshwanthpur Hobli,
Bangalore - 560 073,
Business office at No.601,
Al-attar Towers, Sheikh Zayed Highway
P.B.No.7692, Dubai, UAE,
Rep. by Residential Director
Mr.P.M.Chandra Bose. ... PETITIONER
(By Sri Ajoy Kumar Patil, Adv.)
AND:
1. Karnataka State Financial Corporation
KSFC Bhavan,
No.1/1, Thimmaiah Road,
Near Cantonment Railway Station,
Bangalore - 560 052,
Rep. by its Managing Director.
2. Deputy General Manager (R)
Karnataka State Financial Corporation
KSFC Bhavan, No.1/1, Thimmaiah Road,
Near Cantonment Railway Station,
Bangalore-52. ... RESPONDENTS
(By Sri Gururaj Joshi, Adv.)
2
This writ petition is filed under Articles 226 & 227 of the
Constitution of India, praying to quash the impugned letter
dated 28.07.2011 issued by the 2nd respondent vide Annexure-
N and quash the impugned communication dated 15.10.2011
issued by the 2nd respondent vide Annexure-Q and etc.
This petition having been reserved for orders on
20.09.2012, coming for pronouncement this day, the Court
made the following:
ORDER
1. Petitioner is a Private Limited Company incorporated under the Companies Act, 1956. It intended to set up a garment unit in Bangalore. Petitioner-Company was a successful bidder in an auction sale conducted by the KSFC bringing its property for sale. It is alleged by the petitioner that due to inordinate delay on the part of KSFC in handing over possession of the schedule property, the petitioner could not commence production in time by obtaining power and other basic infrastructural facilities.
2. Petitioner-Company had availed a term loan of Rs.52,00,000/- from KSFC by mortgaging the schedule property for the purpose of its business. It claims to have repaid a sum of Rs.29,80,000/- and the balance amount that remained to be paid by the end of 2000 was only Rs.22,20,000/-. However, the respondent-KSFC, as alleged by 3 the petitioner, arbitrarily and without issuing any notice to the petitioner took over the possession of the schedule property in the year 2000 along with the entire unit including the imported and expensive garment machinery that had been installed by the petitioner in the schedule property.
3. While the petitioner was corresponding with the KSFC, One Time Settlement (OTS) scheme was offered. Pursuant to the same, the petitioner submitted its proposal to the KSFC on 09.03.2002. Annexure-C is the request made to the KSFC to settle the loan by waiving the interest and the compound interest and taking note of the repayment of Rs.29,80,000/- already made. This was rejected on 06.09.2003 vide Annexure- D informing the petitioner that they had already brought the property for sale and in response to the sale notification issued on 23.04.2003 KSFC had received a negotiated offer for the building and the land in a sum of Rs.50,00,000/- subject to certain terms. The petitioner was given an opportunity to bring a better offer than Rs.50,00,000/- for purchase of the land and building within ten days from the date of the letter making it clear that in the event of failure to bring a better offer, the Corporation would conclude the sale of the land and the 4 building of the unit for Rs.50,00,000/- in favour of the offeror. However, by another communication dated 26/27.03.2007, the petitioner was informed that the request made by it for OTS had been approved by the Executive Committee in its meeting held on 16.03.2007 subject to the condition that OTS amount payable was Rs.1,06,00,000/- including initial amount deposited in a sum of Rs.8,35,000/-.
4. It is urged by the petitioner that it sought for further reduction in the interest amount but the KSFC failed to respond to the same. Since no decision was communicated to the petitioner on its request for reduction of the interest component, petitioner waited for sometime and the Directors of the Petitioner personally informed the KSFC that they had accepted the OTS decision of the KSFC for Rs.1,06,00,000/- as per their letter dated 21.08.2007. The said letter dated 21.08.2007 was handed over personally to the officials of the KSFC. At that time petitioner learnt that by letter dated 19.07.2007, the KSFC had cancelled the OTS facility extended to the petitioner. Petitioner was also informed that a sale notification had been issued in various newspapers on 23.07.2007 and on the same day the information was faxed to 5 him. Petitioner was also informed that in view of the cancellation of OTS, the outstanding liability of the petitioner's loan account as on 10.06.2007 was Rs.2,30,34,020/-. He was asked to bring a better offer failing which his property would be brought for sale.
5. Petitioner filed W.P.No.17733/2007 making a grievance regarding non-consideration of OTS and also regarding the sale notification issued in respect of the property in question. Petitioner deposited a sum of Rs.50,00,000/- on 12.03.2008 pursuant to the interim order passed staying the sale notification. The said amount remained in deposit without any further development. The Corporation contended that OTS was an offer and the same had not been acted upon by the petitioner and it is in that background that the property had been brought for sale which was stalled by the petitioner. However, as the intending purchaser had thereafter withdrawn his offer, the property continued with the respondent. This Court, after recording the respective submissions and the exchange of correspondences between the petitioner and the respondent - Corporation, came to a conclusion as per the interim order dated 25.01.2010 that the petitioner had not been 6 placed on notice of the proposal for OTS and the said OTS proposal having spent itself out, it would not be proper to bring the property for sale by the Corporation, as the petitioner was ready for a reasonable settlement. The matter was adjourned. Subsequently, on 05.07.2011, the writ petition came to be disposed of without considering the merits with an observation that it was open for the Corporation to take steps to recover the amount in accordance with law. It was also observed that the amount deposited by the petitioner before this Court shall be disbursed in favour of the respondent - Corporation which shall be taken into consideration while settling the accounts.
6. Thereafter, on 28.07.2011, the Corporation addressed a letter to the petitioner intimating him about the proposed sale of the secured assets to recover the dues in a sum of Rs.5,00,14,524/- as on 10.07.2011 in respect of the loan account. Thirty days notice was given to the petitioner to make payment of the entire loan liability and close the loan account, failing which the Corporation would proceed with the sale of secured asset through e-auction. A detailed representation was addressed by the petitioner on 02.08.2011 bringing to the notice of the Corporation several factors including the deposit of 7 Rs.50,00,000/- before this Court which was lying without any interest and the interest that was being paid by the petitioner with a request to settle the loan under OTS offer dated 26.03.2007 by receiving a sum of Rs.1,06,00,000/-.
7. In the meanwhile, petitioner had preferred Writ Appeal No.15153/2011 challenging the order passed by the learned Single Judge. The Division Bench, after taking note of the deposit of Rs.50,00,000/- and that the said amount had been withdrawn by the Corporation, directed the Corporation to redeposit the amount of Rs.50,00,000/- along with interest, if any, that had accrued thereon, before this Court. It is necessary to refer to the observations made in paragraph 3 of the order by the Division Bench which reads as under:
"3. While permitting the appellant to take action, as it is advised, in respect of the aforementioned communication dated 27/28.07.2011, and reserving liberty to the appellant to raise all grounds including the grounds that had been raised in the writ petition and had not been decided, we direct the Corporation to deposit the sum of Rs.50 lakhs along with interest, if any, that has accrued thereon, in this Court. Deposit be made within two weeks from today.8
4. At this stage, learned Senior Counsel, on instructions, prays that the appeal may be dismissed as withdrawn with liberty. Ordered accordingly, with liberty granted as above. We further order that on deposit of the aforementioned sum by the Corporation, the Registry shall disburse the same to the appellant."
8. By yet another notice dated 15.10.2011, e-auction of the assets offered as security by the petitioner to the Corporation was proposed making it clear that e-auction will be open on 28.10.2011 and will close on 10.11.2011 and the petitioner was informed to bring any prospective bidder to participate in e- auction by complying with the terms and conditions of e- auction which were available in the website. It is at this stage that the petitioner has approached this Court challenging the impugned notices produced at Annexure-N dated 28.07.2011and Annexure-Q dated 15.10.2011 apart from seeking a writ of mandamus directing the respondents to accept the OTS proposal as approved by the Executive Committee at its meeting held on 16.03.2007 for a sum of Rs.1,06,00,000/- in terms of the communication dated 27.03.2007. The main ground of attack as per the contentions urged by Sri Ajoy Patil 9 is regarding the arbitrary, unfair and discriminating action of the Corporation in denying the OTS benefit to the petitioner.
9. Taking me through the rejoinder filed on 02.07.2012 along with certain documents, he contends that although the OTS proposal had been approved by the Executive Committee the same was cancelled without notice to the petitioner vide communication Annexure-F dated 19.07.2007. Thereafter, the property was brought for sale as per the sale notification issued in Deccan Herald dated 23.07.2007 and the petitioner was once again informed to settle the outstanding liability or to bring a better offer than what was received by the Corporation. It is also contended that the petitioner was ready and willing to settle the dues and had indeed shown its bonafides by making deposit of Rs.50,00,000/- before this Court. The action of the Corporation is attacked stating that it is arbitrary and discriminatory. It is also urged that many proposals for settlement through OTS of similarly placed persons had been accepted by waiving not only the interest, but also a part of the principal amount, whereas, in the case of the petitioner, huge sum is demanded and settlement offer made is refused. Another document in Annexure-AE is produced along with the 10 rejoinder showing the details of OTS benefit extended by the Corporation to many other units.
10. Learned counsel for the petitioner, by taking the Court through Annexure-AE submits that the information as contained in the said document clearly reveals that in many instances huge sum of Rs.200 lakhs has been waived by the Corporation during the relevant period, therefore, it was clear that in the case of the petitioner, the Corporation was acting in an arbitrary manner by refusing to extend the OTS benefit. He has placed reliance on the judgment in the case of S.J.S. BUSINESS ENTERPRISES (P) LTD. VS. STATE OF BIHAR & OTHERS - (2004) 7 SCC 166 to contend that the Corporation while exercising its powers under Section 29 of the State Financial Corporations Act, 1951 is required to act fairly and reasonably and that its action is amenable to review under Article 226 of the Constitution of India. Reference is also made to the case of HARYANA FINANCIAL CORPORATION & ANOTHER VS. JAGDAMBA OIL MILLS & ANOTHER (2002) 3 SCC 496, wherein it is observed that the Court may assist the borrower who has intention to repay, but was prevented by insurmountable difficulties in meeting the commitments. Emphasis is laid on the conduct of the petitioner in depositing the huge sum of money. 11
11. In the objections filed, the respondent has contended that the failure of the petitioner's unit to start the business could not be attributed to the respondent - Corporation. It has denied the fact that the plant and machinery was worth Rs.30,00,000/- and was sold for a paltry sum of Rs.17,00,000/-. It is further stated that the OTS proposal of the petitioner was approved by the respondent on 26.03.2007, subject to the terms and conditions enumerated in Annexure-E letter as per which the petitioner was bound to pay OTS amount of Rs.1,06,00,000/- within 45 days from the date of the letter without further delay and if the OTS amount was not paid within 45 days, then upon request in writing a further grace period of 45 days could have been allowed subject to payment of interest at 13.5% p.a. In any case, the payment ought to have been made within 90 days from the date of OTS communication and if the petitioner failed to make such payment within the stipulated or extended period, the OTS benefit stood cancelled automatically.
12. To the assertions made by the petitioner, placing reliance on the details of OTS amount and the settlement made during the period from 01.01.2003 to 31.12.2006 as reflected in 12 Annexure-S, the respondent has contended in its statement of objections that 'the list of units or the borrowers mentioned in Annexure-S stood on a different footing on different facts and circumstances and the same could not be termed as arbitrary approach towards the petitioner in commercial prudence.
13. Learned counsel for the respondent - Corporation, drawing the attention of the Court to paragraph 11 of the judgment in the case of ORIENTAL BANK OF COMMERCE VS. SUNDER LAL JAIN & ANOTHER (2008) 2 SCC 280 contends that before issuing the writ, the Court has to look at the larger public interest vis-à-vis the interest which the private litigants may have. He further takes support from this judgment to contend that extending the benefit of OTS was clearly within the discretion of the Corporation and even assuming that in some other cases such benefit has been extended by waiving the interest, the petitioner cannot maintain a writ petition alleging discrimination.
14. On careful consideration of the entire materials on record, particularly, the pleadings and the documents produced, it is clear from the facts on record that the petitioner opted for OTS as per the Scheme floated in this regard by the 13 respondent - Corporation. A sum of Rs.8,35,000/- was deposited by the petitioner with the Corporation as per the OTS scheme. As on the date the default was committed, petitioner claimed to have paid Rs.29,20,000/-. Annexure-F communication dated 19.07.2007 issued by the Corporation makes reference to the letters dated 12.05.2007, 04.06.2007 and 25.06.2007 addressed by the petitioner to the Corporation and also the continuous correspondences made. In the said correspondences, the petitioner has apparently requested for certain concession in the matter of interest. This was denied and in view of the non-compliance of the terms and conditions of OTS, the OTS facility was cancelled.
15. The main ground of attack by the learned counsel for the petitioner is based on Annexure-S - the document containing the details of the benefit of OTS extended to various loanees between the period 01.01.2003 to 31.12.2006. It is urged that several similarly placed loanees had been extended the benefit of OTS and the extreme action of cancelling the benefit of the scheme was not taken against them. It is also urged that not only the interest, but a portion of principal amount was waived in case of many of such third parties. Petitioner asserts that 14 these documents have been obtained by applying under the Right to Information Act. In the rejoinder statement filed by the petitioner, at Annexure-AE reference is made to one company by name Vee Yes Ars Metal (P) Ltd., in which case, the amount of loan sanctioned was Rs.103.10 lakhs and the principal due at the time of sanction of OTS was Rs.63.26 lakhs and the interest due was Rs.227.11 lakhs, the OTS amount sanctioned was Rs.55 lakhs and the total waiver was in terms of Rs.234.93 lakhs. Several such examples are referred to by the learned counsel for the petitioner to contend that in the instant case, even though the petitioner had paid substantial amount at the time when they committed default by discharging nearly Rs.29.20 lakhs and had deposited before this Court a sum of Rs.50 lakhs showing their bonafides, the Corporation has taken a very rigid and extremely hard stand denying the benefit of settlement of dues in terms of the Scheme, which is highly discriminatory.
16. In the statement of objections filed, the Corporation has not met these assertions, except stating in paragraph 24 of the said statement that Annexure-S stands on different footing and on different facts and circumstances. No acceptable explanation 15 is offered by the Corporation as to how the case considered for waiver of such huge amounts in terms of interest accrued was different from the case of the petitioner. It cannot be said that the petitioner has displayed any conduct which disentitles them for any benefit under the Scheme. In fact, the petitioner had been corresponding with the Corporation repeatedly expressing their intention to settle the dues. When the petitioner had submitted a representation to waive off a portion of the interest, the Corporation ought to have considered the same and replied the petitioner. Instead, the Corporation has straightaway rejected the benefit of the scheme by adopting a pedantic approach stating that the amount had not been paid within the stipulated period and therefore the benefit of the scheme was unavailable. If in similar circumstances waiver of interest had been granted in favour of third parties on their request made, even in the case of OTS claims, the petitioner, perhaps thinking that he may also be entitled for similar treatment made representations requesting that a portion of the interest could be waived in respect of their case. If the request did not merit consideration, the Corporation ought to have rejected the request and called upon the petitioner to make payment by giving them some reasonable time. Such a course of action is 16 not adopted. It is because of this, viewed in the context of extending similar benefit to others that the petitioner is rightly attributing discriminatory and arbitrary treatment.
17. The Corporation in this case is not able to justify its action by explaining to the satisfaction of the Court that in the cases covered under Annexure-S or Annexure-AE pertaining to other loanees, no such benefit had been extended as was sought by the petitioner. On the other hand, the action of the Corporation is sought to be justified stating that it has discretion to extend the benefit keeping in mind its financial interest. As the Corporation is a Government undertaking and a statutory authority, it is required to exercise its discretion fairly, reasonably and judiciously. It cannot prefer certain categories of persons for extending the benefit by waiving interest even in the matter of OTS benefit, while rejecting the same in case of others. Hence, I am of the considered view that the impugned action of the respondent-Corporation is unsustainable.
18. The Corporation is required to reconsider the matter keeping in mind the treatment given to other similarly placed persons and extend the same benefit to the petitioner. The 17 judgment relied upon by the learned counsel for the petitioner no doubt clearly spells out that a borrower who has intention to repay the amount and has made certain payments has to be encouraged, if he comes forward to make payment of the remaining amount. It is also held in the case of SJS Business Enterprises referred to supra that the power vested in an authority has to be exercised fairly and reasonably and the public authority will have to discharge their duties in accordance with law. Hence, viewed from this angle as well, the action of the respondent- Corporation does not conform to the well established principles guiding the exercise of such powers.
19. Therefore, this writ petition is allowed in part. The impugned communications vide Annexures-N & Q are set aside. A direction is issued to the Corporation to consider the OTS proposal as approved by the Executive Committee keeping in mind the treatment given to similarly placed persons, particularly in Annexures-S and AE.
Sd/-
JUDGE VP/PKS