Andhra HC (Pre-Telangana)
Dr. J. Ramachander Rao vs A.P. State Financial Corporation, Rep. ... on 8 October, 1993
Equivalent citations: 1993(3)ALT385
ORDER Ramakrishnam Raju, J.
1. This writ petition is filed seeking for a writ of mandamus, or a direction to the first respondent-Andhra Pradesh State Financial Corporation, to confirm the auction bid of the highest bidder viz., the fourth respondent herein, in respect of the sale of the Unit-The Delta Oils and Fats Limited, Prathipadu -hereinafter called as the 'Company', held on February 28,1993, or discharge the personal guarantee of the second respondent in respect of loans due to the first and third respondents.
2. Messrs Delta Oils and Fats Limited has been promoted as a joint venture with the second respondent-Corporation for manufacture of edible-grade-rice-bran-oil under solvent extraction process by installing solvent extraction plant at Prathipadu, West Godavari District. The Unit was established in the year 1981 as a joint venture with the second respondent by contributing 50% to the shareholding of the company under an agreement executed by the petitioner who is a co-promoter. The Managing Director of the second respondent was the Chairman and the petitioner was chosen as the Managing Director. The petitioner's wife and brother are also directors among others. The Company availed term loan of Rs. 28.5 lakhs, Rs. 10.00 lakhs as bridge loan from the second respondent and the Company has been availing working capital from the third respondent. However, the bridge loan of Rs. 10.00 lakhs received from the third respondent was repaid in full, together with interest. For the debt due to the respondent Nos.l and 3, the petitioner, his wife and brother-Mr. Bhaskara Rao, have stood as personal guarantors besides the company. It is the case of the petitioner that although from the year 1983 to 1989, the company carried on its business successfully and declared dividend also, later due to unfair competation in the market, scarcity of raw-material, severe power cut and uneconomical production capacity, overheads of the company, the company sustained heavy losses. In the extraordinary general body meeting of the Company held on August 12, 1991, it was resolved that the second respondent should take over the management and accordingly, the District manager, Civil Supplies' Corporation, West Godavari District by name Mrs. Sudha Rani was chosen as Managing Director.
3. In a bid to revive the company, the General Body decided to lease out the Unit. When auction was notified in the press, the prospective bidder offered a lease sum of Rs. 19.00 lakhs per year, for a period of three years. Though the Company could have easily secured a sum of Rs. 57.00 lakhs as a lease amount, the second respondent dilly dallied the issue and ultimately dropped the idea of leasing out the Unit. The petitioner, along with his wife and brother, resigned from the directorship and wanted to withdraw the personal guarantee given by them to the financial institutions and informed the respondents by a letter dated June 20, 1991. However, the respondent Nos. 1 and 3 did not take any action. When the second respondent was toying with the idea of causing disinvestment of the 12,000/- shares, held by it in the Company, the petitioner offered to buy at Rs. 102/- per share, while the book value was only Rs. 40/-. The second respondent did not consider the same and the petitioner had withdrawn the offer in view of lethargic attitude adopted by the second respondent.
4. The first respondent has seized the Unit under Section 29 of State Finance Corporation Act, on January 20, 1993 and proposed to auction the Unit on January 29, 1993 for recovery of huge dues. It was postponed from time to time, and finally public auction was held on February 28, 1993. In the said auction six bidders including a reputed company in the branch of solvent Oil-Industries viz., M/s. Foods Fats, Fertilisers participated in the auction. To start with, the bid was fixed at Rs. 23.00 lakhs and it went upto Rs. 54.00 lakhs, i.e., the highest offer made by the fourth respondent. Although the first respondent was satisfied with the bid amount and was inclined to confirm the auction in favour of the fourth respondent, the second respondent appears to have put in spokes and saw to it that the first respondent shelved the matter. The petitioner made a representation to the first respondent to confirm the auction in favour of the highest bidder, or discharge the liability of the three promoters-directors i.e., himself, his wife and brother from the personal guarantees. Had the highest bid been confirmed, there would have been a balance of Rs. 48.50 lakhs which would have been just adequate to meet the debt of the third respondent. Though the debt due to the third respondent is Rs. 67.00 lakhs, interest is likely to be waived as per the guidelines issued by the Reserve Bank of India, in case of sick industries which sustained losses for a period of two years. Even otherwise, the petitioner and others would have been able to discharge the balance amount and due to inaction on the part of the second respondent, the finalisation of the auction has been kept in abeyance for 110 valid reason. Due to delaying tactics adopted by the second respondent, the Company is being put to huge loss and is incurring further loss of Rs. 3,000/- every day by way of interest. If the respondent Nos. l and 2 do not finalise the auction proposal, there is every possibility of the machinery getting rusted, resulting in further wastage and collosal loss to the Company. Therefore, the petitioner is constrained to approach this Court by way of this writ petition.
5. In the counter-affidavit filed by the first respondent, it is seen that the fourth respondent has offered Rs. 54.00 lakhs which is highest bid. However, before acceptance, the first respondent Corporation received a communication dated February 20,1993 from the General Administration (PEO) Department, Government of Andhra Pradesh, requesting this respondent only to finalise the sale after consultation with the second respondent and the Government. The second respondent had also addressed a letter dated April 13,1993 stating that the Government had revoked the permission accorded earlier to disinvest the shares of the second respondent in M/s. Delta Oils and Fats Limited and issued G.O.Ms. No.46 dated April 6, 1993. There is now a possibility of reviving the Unit through a third party. In view of this attitude, the sale could not be confirmed.
6. The second respondent in its counter has stated that between 1-5-1991 and 25-5-1991, the petitioner with a view to cause wrongful loss to the Bank and the Company had dishonestly sold the stocks and misappropriated the sale proceeds without discharging the debt due to the Bank. The records of the Company were fabricated, false evidence is created, false statements and information were given about the stocks, and thus, misappropriated the said money and thereby showed the loss of more than Rs. 97.00 lakhs to the Company. It is further seen that no details as to why the second respondent does not want to confirm the sale are forthcoming except stating that when the matter was pending with the Government and being examined by Public Enterprises Management Board, a letter was addressed to the first respondent not to sell the Factory. It says that the debt due to the first respondent can always be discharged by negotiation and there is no necessity to sell the Factory. Except stating that the Civil Supplies Corporation can also negotiate with the first respondent and it is always open to it to make suitable arrangements for the debt, nothing has been done in this regard and no material is placed on record before the Court that any steps are taken in this direction.
7. Of course, the fourth respondent in his counter-affidavit came forward that he is always willing to purchase M/s. Delta Oils and Fertilizers Limited for Rs. 54.00 lakhs and even now he is ready to pay the bid amount and take over the assets of the Unit as per his offer.
8. The third respondent who is the State Bank of India stated that it has instituted O.S.No.105 of 1992 on the file of the Subordinate Judge's Court, Tadepalligudem for recovery of a sum of Rs. 68.00 lakhs and the same is pending. It is also stated that there are no guidelines issued by the Reserve Bank of India to waive the interest in case of sick industries, like the one in question. It is also stated that the third respondent Bank is not a proper or necessary party since no relief is claimed against it. The third respondent has also filed an application in the suit seeking attachment of properties belonging to the petitioner, his wife and others and in that the petitioner, his wife and others gave an undertaking not to alienate the properties sought to be attached, pending the suit.
9. Although it is contended by the second respondent that the petitioner has shown false information, prepared false statements and misappropriated huge money, I am not now concerned with the said issue in this writ petition. I have to only confine in this writ petition to the issue, whether the auction held on February 28, 1993 in favour of the fourth respondent, the highest bidder, should be confirmed or not. No doubt, the fourth respondent himself has not filed any writ petition seeking for a direction that the auction knocked down in his favour should be confirmed, but in the counter-affidavit, he stated that he would still abide by the offer made by him and he is prepared to deposit Rs. 54.00 lakhs towards land, building, machinery and other assets. Therefore, I am to examine whether the petitioner or the fourth respondent, is entitled to any relief.
10. It is the admitted case that the petitioner and the second respondent are the co-promoters. The Company is a joint venture with the second respondent-Corporation contributing 50% to the shareholding of the Company, while the petitioner, his wife and brother etc., contributed the remaining 50%. The Managing Director of the second respondent, was the Chairman of the Company, while the petitioner was the Managing Director. The petitioner's wife and brother are also directors. As the Company was not faring well, by a resolution of the General Body dated August 12, 1991, the second respondent took over the management and the District Manager, Civil Supplies Corporation, West Godavari District was chosen as the Managing Director. On the next day itself, the petitioner wrote a letter to the first respondent that he wants to withdraw all guarantees given to the Corporation. To the same effect another letter was addressed by the petitioner to the second respondent-Corporation on August 14, 1991. However, the said request was rejected by both the first and second respondents. Be that as it may.
11. The loan due to the first respondent was about Rs. 5.50 lakhs and the first respondent had seized the Unit under Section 29 of the State Finance Corporation Act on January 20, 1993. The Unit was put up for public auction on February 28, 1993, in which the fourth respondent became the highest bidder for Rs. 54.00 lakhs. It is the case of the petitioner that a reputed Company like M/s. Food Fats, Fertilizers, Tadepalligudem, which had wide experience insolvent oil industries had also participated in the said auction. However, the auction in favour of the fourth respondent was not confirmed by the first respondent. It is the case of the first respondent that it received a communication dated February 20, 1993 from the General Administration (PEO), Department, Government of Andhra Pradesh, requesting this respondent to finalise the sale only in consultation with the second respondent and the Government. The second respondent had also by its letter dated April 13, 1993 informed the first respondent that the Government had revoked the permission earlier accorded to disinvest the shares of the second respondent in the company on April 6, 1993 and there is now a possibility of reviving the Unit through a third party. It is unimaginable how a joint debtor like the second respondent should be consulted before finalising the bid and stopped the sale. Even the Government had revoked its permission accorded earlier to disinvest the shares held by the second respondent-Corporation. The petitioner had offered to buy at Rs. 102/- per share while the book value is only Rs. 40/-. Had this offer been accepted, the second respondent would have been extricated from trouble. It is not denied in the counter-affidavit of the second respondent about the offer made by the petitioner. In fact, the Managing Director of the second respondent-Corporation addressed a letter to the first respondent on September 16, 1992 that the Corporation is trying to dispose of its shares in order to realise its investment and extricate itself from its entanglement with the joint venture. This clearly shows that the second respondent-Corporation is in for trouble. Whatever be the reason, the shares were not sold to the petitioner or others and recover the investment made by the second respondent. Further, the General Body of the Company decided to lease out the Unit in August, 1991. When the auction was notified in the press, the prospective bidder offered the lease amount at Rs. 19.00 lakhs per year for a period of three years and the Company would have easily got a sum of Rs. 57.00 lakhs as the lease amount; here again, the second respondent stood in the way and dropped the idea of leasing out the Unit. There is no denial of it in the counter-affidavit of the second respondent. It is also contended by the petitioner that on account of this lethargic attitude of the second respondent, the Company is sustaining a loss to the tune of Rs. 3,000/-per day by way of interest. About this also there is no denial by the second respondent. Although it is stated by the first respondent that there is a possibility of now reviving the Unit through a third party, no progress is shown to have been made in this direction. So also, excepting stating that the second respondent could also negotiate with the first respondent and make suitable arrangements for debt, nothing has been done in this direction. The net result is, interest is mounting up and in whose interest? It is common knowledge that the huge machinery if left uncared for with no maintenance, it gets rusted and ultimately, it will have to be sold as a scrap. Instances are galore on account of tardy action of the Officials, the machinery is likely to become useless or junk and who will be responsible for the said loss? The second respondent is a public Corporation and any loss to it is a loss to the public. The Officers who are steering the administration of the Corporation must act in vigilance and avoid of all avoidable losses. They must be alert and cannot afford to be tardy. If they do not act swiftly and timely, the machinery will loose its value and it fetches lesser rate on re-sale and thereby, the Corporation would suffer huge losses. The officers who are responsible for such loss on account of their inaction will be accountable. The public authorities will have to answer every day's delay which results in heavy losses due to their inaction. The petitioner complains that since himself and his family members being the Directors, have furnished huge guarantees and ultimately, they will have to bear the brunt of it. Therefore, it is no gain saying that the situation calls for urgent action.
12. Mr. N. Subba Reddy, the learned Counsel for the second respondent-Corporation, submits that the fourth respondent is no other than a close relation of the petitioner, and therefore, collusion between the petitioner and the fourth respondent, cannot be ruled out. The fourth respondent had participated in open auction, conducted by the first respondent and competed among the participants, including M/s. Food Fats, Fertilizers, Tadepalligudem a leading Company in solvent oil industries. Therefore, the bid offered by the fourth respondent which is admittedly is the highest bid, cannot be refused on that ground when he participated and competed among others in open auction.
13. Under Section 29 of the State Finance Corporation Act, the first respondent has got ample power to take over the industry and transfer by way of lease or sale for recovery of their dues. Consulting one of the debtors does not arise in stopping the sale already held on account of the objection raised by one of the debtors, which is also unwarranted.
14. Having regard to the right of the first respondent, I do not agree with the learned Counsel for the petitioner that the sale held on February 28, 1993 should be confirmed in favour of the fourth respondent inasmuch as the fourth respondent is prepared to abide by his offer, but at the same time, the respondent Nos. 1 and 2 must be fair to all concerned in their action and dealings. The first respondent cannot seize the property and cling on to it for long. It must take further steps within a reasonable period. Having regard to the facts and circumstances of the case although the relief claimed in the writ petition cannot be. granted, but in the interest of all the concerned a direction must be issued to the first respondent.
15. In the aforesaid circumstances, the first respondent is directed to take a decision whether the auction held on February 28, 1993 should be confirmed or not, within one month from the date of receipt of a copy of this order and in the event the first respondent decides not to confirm the sale, it must take steps to hold fresh auction within a period of two months thereafter. I feel that these directions will amply safeguard the interest of all the parties. If the second respondent desires to negotiate with the first respondent to make suitable arrangement for the debt, it is open to it to take suitable action in this direction within the said period.
16. For the above reasons, the writ petition is accordingly, disposed of with the above observations. No costs.