Gujarat High Court
Shramjivi vs Gujarat on 13 May, 2010
Author: S.J.Mukhopadhaya
Bench: S.J. Mukhopadhaya
Gujarat High Court Case Information System
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LPA/1399/2009 9/ 9 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
LETTERS
PATENT APPEAL No. 1399 of 2009
In
SPECIAL
CIVIL APPLICATION No. 7020 of 1992
with
CIVIL
APPLICATION No.7348 of 2009
For
Approval and Signature:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
HONOURABLE
MR.JUSTICE ANANT S. DAVE
=============================================
SHRAMJIVI
PAPER MILLS (P) LTD - Appellant(s)
Versus
GUJARAT
STATE FINANCIAL CORPN. - Respondent(s)
=============================================
Appearance :
MR
NV SOLANKI for Appellant(s) : 1,
MR RAJESH DAVE for Respondent(s)
: 1
=============================================
CORAM
:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
and
HONOURABLE
MR.JUSTICE ANANT S. DAVE
Date
: 13/05/2010
CAV
ORDER
(Per : HONOURABLE MR.JUSTICE ANANT S. DAVE)
1. The appellant has filed this appeal under clause 15 of the Letters Patent against the judgment and order dated 31.07.2007 passed by the learned Single Judge in Special Civil Application No.7020 of 1992.
2. Short facts of the case for determining the issue involved in this appeal are as under:
2.1 The appellant-Shramjivi Papers Mills, a company registered under the Companies Act, 1956 is situated at GIDC Estate, Ankleshwar, State of Gujarat. On 28.12.1977 the respondent-Corporation had sanctioned financial assistance to the appellant company to the tune of Rs.16,43,000/- with interest @8% p.a.. As per the agreement executed on 31.03.1978, machineries and plant came to be hypothecated with the Corporation and an equitable mortgage in respect of the land was created in favour of the Corporation. However, in fact Rs.12,15,600/-
of loan was availed by the company and ultimately failed to repay it. Therefore, the respondent-corporation exercised powers under Section 29 of the State Financial Corporation Act (for short, "the Act"), which came to be challenged by filing Special Civil Application No.5310 of 1982 before this Court. Initially, the respondent-corporation was restrained from recovering the dues of the company, but ultimately, the said petition came to be dismissed in the year 1986 and at that time outstanding due was Rs.16,73,952/-. Pursuant to the publication of public notice for sale of the unit in exercise of powers under Section 29 of the Act, two offers were received viz. from M/s.Glamour Dying & Manufacturing Mills Pvt. Ltd. (for short, "M/s.Glamour") for a sum of Rs.35 lakhs and from M/s.Lakshmi Paper and Board Mills-respondent No.2 herein for a sum of Rs.25,25,000/-. At that time as per the valuation report dated 16.04.1987, the assets of the company was valued at Rs.26,20,000/-. However, the respondent No.2 instituted Regular Civil Suit No.41 of 1987 in the Civil Court against the corporation and initially injunction was granted against the corporation for sale of the unit, and therefore, M/s.Glamour withdrew its offer and suit was also withdrawn. Finally, offer of the respondent No.2 was accepted by the corporation on 15.06.1987. The whole amount was paid up as per the agreement by respondent No.2 in the year 1994 and the sale deed came to be executed in favour of the respondent No.2.
2.2. That various contentions were raised before the learned Single Judge, including arbitrary exercise of power under Section 29 of the Act by the respondent-Corporation. It is also submitted that charging of penal interest @16% instead of agreed rate of 8% was illegal and exorbitant and accounts were manipulated by the corporation. It is further submitted that the amount received from the respondent No.2 by the Corporation was more than the outstanding dues of the petitioner, and therefore, the balance amount could have been returned to the petitioner. In support of the above argument, the provisions of Section 29(4) of the Act were relied on, which according to learned advocate for the appellant, envisage that the sale proceeds in excess of the dues of the Corporation shall be paid to the person entitled thereto. After considering the reply filed by the Corporation and various decision of the Apex Court, the learned Single Judge rejected the petition. Hence, this appeal.
3. Mr.N.V. Solanki, learned advocate for the appellant reiterated the above submissions and contentions before us and argued that the learned Single Judge failed to consider the contentions of the appellant both on law and on facts and failed to notice violation of provisions of Section 29 of the Act. According to learned advocate for the appellant, no procedure was followed by the Corporation under Section 29 of the Act and the Corporation being a trustee of the property mortgaged with it by the original loanee, sincere and diligent attempts ought to have been made while holding public auction and handing over the assets of the unit to respondent No.2 at a price of Rs.25.25 lakhs as against the price of Rs.35 lakhs offered by M/s.Glamour, which is nothing but an oblique motive on the part of the officers of the Corporation to favour a bidder, who had offered lower price than the highest bidder. Learned advocate emphasized the term "realize" as comprised in Section 29(1) of the Act and submitted that no realization of the property has taken place within the meaning of Section 29(1) of the Act as interpreted by the Apex Court in various decisions. Lastly, it was contended that the learned Single Judge ought to have issued directions to hand over residue amount viz. difference amount received from respondent No.2, and therefore, the appeal deserves to be allowed and the impugned order passed by the learned Single Judge to be quashed and set aside.
4. Mr.Rajesh Dave, learned advocates for the respondent-Corporation supported the reasoning of learned Single Judge and submitted that no case is made out to interfere with the above reasoning based on just and proper appreciation of material on record in exercise of jurisdiction under Article 226 of the Constitution of India. Learned advocate for the respondent-Corporation further submits that while exercising powers under Section 29 of the Act, procedure, as envisaged, was followed and assets were taken over after publishing public advertisement followed by auction in accordance with law.
5. Having heard learned advocate for the parties and considering the facts and circumstances of the case, and provisions of statute and law laid down by the Apex Court, we are of the opinion that there is no substance in the arguments canvassed by learned advocate for the appellant inasmuch as from the perusal of the record with annexures it is born out that the respondent-Corporation has exercised powers under section 29 of the Act with due diligence and after issuing public advertisement and considering the fact that offer withdrawn by M/s.Glamour in the Civil Suit No.41 of 1987 before the Civil Court, the Executive Committee of the Corporation rightly decided to accept the offer made by the respondent No.2 being the next highest bidder in its meeting held on 15.09.1987. No grievance is made by M/s.Glamour, and therefore, contention of the learned counsel for the appellant that the corporation has not followed the procedure laid down under Section 29 of the Act, needs to be examined. Section 29 of the Act reads as under:
"29.
Rights of Financial Corporation in case of default. (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) Where any action has been taken against an industrial concern] under the provisions of sub-section (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.
(5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and sued in the name of the owner concern.
6. The above provisions, particularly subsections (1) of Section 29, empower the financial corporation to take over management or possession or both of the industrial concerned, which is under liability of financial corporation and makes any default in repayment of loan or advance or any installment thereof or fails to comply with the terms of agreement with the financial Corporation. Subsection (4) of Section 29 provides for recovery of dues by financial corporation from the sale proceeds of the industrial concern and for disbursement of residual amount. If the above provisions are perused in the backdrop of the facts of this case, indisputably the appellant company defaulted in repayment of the loan and amount of interest as agreed and offer for re-schedulement made by the company was not acceptable to the corporation and pursuant to the advertisement two offers were received out of which the second highest bidder was given letter of possession and sale deed was executed in view of withdrawal of offer of the highest bidder, the action of the respondent-Corporation cannot be branded as arbitrary or malafide. The analysis of facts and reasoning given by learned Single Judge in the order dated 31.07.2007, are as under:
"It is not in dispute that the Company did make default in repayment of the loan amount and interest, as agreed. The offer for re-schedulement made by the Company was not acceptable to the Corporation. In the circumstances, the action of the Corporation in taking over possession of the assets of the Company was within its power and cannot be questioned. The action of the Corporation in accepting the offer of the respondent no.2 without calling for the offers afresh or without calling upon the offerer Messrs. Glamour to renew its offer cannot be said to be justiciable. Nevertheless, I am unable to infer that such lapse was committed deliberately, with an ulterior design to favour the respondent no.2. Such lapse at the worst can be said to be an irregularity which would not vitiate the sale made to the respondent no.2. In absence of any other material on record, allegation of mala fide and collusion cannot be accepted on mere surmise or conjecture. Besides, the Company did not make any offer in response to the public notice for sale of the unit.
Undoubtedly, if the Corporation has incurred any loss in its transaction with the respondent no.2, the said loss cannot be recovered from the Company. Thus, on and from the date the possession of the petitioner's Unit was taken over by the Corporation i.e., 21st October, 1987, no further liability can be saddled upon the petitioner Company. If any such amount is reflected in the accounts of the Corporation, the same calls for reconsideration. Further, in the accounts produced by the Corporation, it appears that the Corporation has added certain statutory liabilities in account of the Company as against its outstanding sales-tax dues and dues to the Gujarat Industrial Development Corporation, and dues of the Government subsidy. Mr. Dave has admitted that the Corporation was required to pay over the said dues to the concerned authorities but the Corporation has failed to do so. I am of the opinion that unless the Corporation pays the aforesaid dues of the Company, as it is obliged to do under Section 29 [4] of the Act, such amounts cannot be recovered from the petitioner-Company.
In view of the above discussion, I am of the opinion that the petitioner-Company cannot be granted relief of setting aside the sale made in favour of the respondent no.2 nor the Corporation be directed to pay excess amount to the petitioner outright. However, the Corporation is under obligation to account for the sale proceeds received by it. It is, therefore, directed that the respondent no.1-Gujarat State Financial Corporation shall, within two months from today, submit the accounts of the sale proceeds received by it in respect of the assets of the Company. If there is any dispute in respect of the accounts, or any amount is recoverable by the petitioner-Company, the petitioner-Company shall be at liberty to seek recovery of such amount and may resort to legal remedy, if required".
We are in complete agreement with the aforesaid reasoning given by the learned Single Judge, which call for no interference by this Court.
7. As regards the question whether the appellant is entitled to receive residual amount or not, the statement of accounts furnished by learned advocate for the respondent-Corporation reveals that total outstanding dues of the appellant company comes to Rs.25.25 lakhs after considering the dues of the principal amount other charges, interest, penalty and also interest on subsequent payment, and therefore, even the direction of the learned Single Judge for furnishing accounts of the sale proceeds received by it also remained complied with. In case, if any dispute pertaining to settlement of accounts still persists, it will be open for the appellant to resort to legal remedy in accordance with law.
In view of the above, this Appeal stands dismissed. Consequently, Civil Application for stay also stands dismissed. No costs.
[S.J.MUKHOPADHAYA, C.J.] [ANANT S. DAVE, J.] *pvv Top