Madras High Court
M/S.Raja And Raja Industries vs The Branch Manager on 7 December, 2011
Author: K.Chandru
Bench: K.Chandru
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 07/12/2011 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU Writ Petition (MD)No.431 of 2008 M/s.Raja and Raja Industries, rep.by its Managing Partner, J.Raja Mohamed, 2/296, Nattanmai House, Bodinaickanur, Theni District. ... Petitioner Vs. 1.The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., (TIIC), Bungalow Medu, Theni, Theni District. 2.M.Kathiresan ... Respondents Prayer Writ Petition is filed under Article 226 of the Constitution of India praying for the issuance of a Writ of Certiorari, calling for the records relating to the auction notice issued by the 1st respondent in his proceedings advertisement No.MDU/RO/2007-2008/19, dated 15.12.2007 published in Dinathanthi daily, Madurai on 15.12.2007 insofar as the public auction of the properties of the petitioner's concerned and quash the same as illegal. !For Petitioner ... Mr.M.Ajmal Khan ^For 1st Respondent ... Mr.Suresh for M/s.Iyer and Dolia :ORDER
The petitioner is running an industry by name M/s.Raja & Raja Industries and claimed to be the Managing Partner. In this writ petition, he has challenged an advertisement issued by the first respondent Tamil Nadu Industrial Investment Corporation Ltd., (for short "TIIC), dated 15.12.2007 in respect of the public auction of his property which has listed as Sl.No.17 in the said advertisement. The auction that is to be conducted is in respect of a landed property in Pudur, West Street, Bodinaickanur in S.No.176/3 to the extent of 4485 sq.ft and 4320 sq.ft and a building and factory including bore-well, compound wall as well as the machinery that is found in the factory.
2.It is the case of the respondent TIIC that the petitioner borrowed a sum of Rs.9 lakhs as term loan and Rs.1.5 lakhs as soft loan on 20.10.1997 for the purpose of setting up of small scale industry for manufacturing neem oil cake for using under natural fertiliser. Ever since he borrowed, the petitioner has not repaid the loan. Subsequently, proceedings were initiated and he had moved this Court by filing several writ petitions and writ appeals. Even when one time settlement has been arrived, he has furnished a cheque which was dishonoured and therefore, the respondent brought the property for auction as the first respondent is empowered under Section 29 of the State Financial Corporations Act to bring such property for sale which has shown as the security towards the loan.
3.By virtue of the petitioner moving this Court, he has also obtained stay of confirmation and therefore, the property could not be sold. But however, the only grievance of the petitioner was that the first respondent has not fixed the upset price in respect of the properties for auction and undervaluing the property which is more than worth of Rs.60 lakhs, the first respondent has committed unfair in selling the property and therefore, they must be mandated to fix the upset price before they are bringing their properties for auction.
5.The contention of the petitioner was that the property was more than worth of Rs.60 lakhs was stoutly denied and it is claimed in the counter affidavit that they will even fetch Rs.23 lakhs. However, what is interesting, is in paragraph 13, the respondent TIIC for not fixing the upset price in the advertisement had averred as follows;
"....Financial Corporation Act no where it is prescribed that upset price should be fixed before the auction sale of the property and it is not mandatory to fix upset price before conducting the auction sale. It is most respectfully submitted that once upset price is fixed there is every possibility of the purchasers to form syndicate and the property will not fetch more than the upset price. If the upset price is not known there is every possibility that the property may fetch more than the market value. Hence, the allegation in this regard is false and baseless. The averment that the market value of the property which is the subject matter of the sale in public auction is worth about Rs.60.00 lakhs is false and misleading. The market value of the factory land and building is Rs.23.13 lakhs and the Machinery is Rs.2.75 lakhs only".
6.It is now admitted that subsequent to the filing of the writ petition, the auction has not taken place. In any event, the stand taken by the respondent TIIC, does not show that they have taken note of the authoritative pronouncement of the Supreme Court in the matter of bringing the property for public auction.
7.Further, the Supreme Court in Gajraj Jain v. State of Bihar reported in (2004) 7 SCC 151 had emphasized the need for getting valuation report on the property to be sold and also the need to give advance publicity over the value of the property. The Supreme Court also held that the assets shall not be bid for the dues of the corporation, but the aim is to fetch market price of the property. In this context, the following passage found in paragraph 14 of the said judgment may be usefully quoted, which reads as follows:
"14..... In the case of S.J.S. Business Enterprises (P) Ltd.1 it has been held that the financial corporation, in the matter of sale under Section 29, must act in accordance with the statute and must not act unreasonably. In this case, the Corporation fails on both the counts. It has neither complied with the provisions of sub-sections (1) and (4) of Section 29, nor has it acted fairly. The test of reasonableness has been laid down in the above judgment in which it is held that reasonableness is to be tested against the dominant consideration to secure the best price. Value or price is fixed by the market. In the case of a going concern, one has to value the assets shown in the balance sheet (Datta, S.: Valuation of Real Property, p. 198). In our view, if the object of Section 29 of the Act is to obtain the best possible price then the Corporation ought to have called for the valuation report. This has not been done.......... If publicity and maximum participation is to be attained then the bidders should know the details of the assets (or itemised value). In the absence of the proper mechanism the auction-sale becomes only a pretence. ........ Lastly, in this case, the price of the assets is pegged to the dues of the Corporation and Central Bank of India. The assets are agreed to be sold to Respondent 4 not for the market price but against repayment of dues of the Corporation plus a promise to discharge the liability of Central Bank of India. Therefore, the Corporation, Respondent 2, has not acted reasonably. It has not taken any steps to secure the best price. In fact it has failed to protect the interest of Central Bank of India, which is having the second charge on the assets transferred to Respondent 4 as well as the mortgagor which would be entitled to the balance of the sale proceeds, if any. It was contended that as the bids were withdrawn, the offer of Respondent 4 was accepted. Even assuming for the sake of argument, that there were no offers except the offer of Respondent 4, it shows that value of the assets was Rs 198.85 lakhs (i.e. Rs 28.85 lakhs + Rs 170 lakhs). No reason has been given why Respondent 2 did not insist on downright payment of Rs 198.85 lakhs."
8.Further, the Supreme court in Jammigumpula Sivaiah v. A.P. State Financial Corporation reported in (2004) 13 SCC 653 in paragraph 5 had observed as follows:
"5.It is, however, to be noted that even in Haryana Financial Corpn. case2, this Court has held that the Corporation must always try and realise the maximum price. It has been held that the assets must be sold by following a procedure which is transparent and acceptable, after due publicity."
9.Subsequently, the previous judgments of the Supreme Court in the matter of interpretation of Section 29 of the SFC Act came to be reviewed by the Supreme Court in Karnataka State Industrial Investment & Development Corporaton Ltd. v. Cavalet India Ltd., reported in (2005) 4 SCC 456 and following guidelines were laid down in paragraph 19, which reads as follows:
19.From the aforesaid, the legal principles that emerge are:
(i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate authority over the acts and deeds of the Financial Corporation and seek to correct them. The doctrine of fairness does not convert the writ courts into appellate authorities over administrative authorities.
(ii) In a matter between the Corporation and its debtor, a writ court has no say except in two situations:
(a) there is a statutory violation on the part of the Corporation, or
(b) where the Corporation acts unfairly i.e. unreasonably.
...........
(v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold and this could be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.
(vi) Public auction is not the only mode to secure the best price by inviting maximum public participation, tender and negotiation could also be adopted.
(vii) The Financial Corporation is always expected to try and realise the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or cause shown for the default, the same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action under Section 29 of the Act is called for. Thereafter, the modalities for disposal of the seized unit have to be worked out. .........
(ix) Reasonableness is to be tested against the dominant consideration to secure the best price.
10.In the very same judgment, in paragraphs 17 and 18, it was observed as follows:
"17...... The Court held that it was always expected that the Corporation would try and realise the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or cause shown for the default, the same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action under Section 29 of the Act is called for. Thereafter, the modalities for disposal of the seized unit have to be worked out. The Court approved the view expressed in Gem Cap2 and found it to be more in line with the legislative intent behind enacting the Act.
18.Recently in S.J.S. Business Enterprises (P) Ltd. v. State of Bihar7 while reiterating the aforestated legal position, it was held that reasonableness of the action of the Financial Corporation under Section 29 of the Act should be tested against the dominant consideration to secure the best price."
11.Therefore, when the respnodent TIIC goes for selling a property by public auction, the dominant consideration is to secure the best price and this could be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.
12.Therefore, though the petitioner does not deserve sympathy because of his persistent defiance including passing of dishonoured cheques but yet has allowed by the Supreme Court. Hence, there is no impediment for the respondent to bring the property for auction but before doing so, they are bound to indicate the upset price after making the property value by an appraiser. The counter affidavit does not take note of the legal precedents laid down by the Supreme Court in this regard. Under the said circumstances, the writ petition is allowed to the extent indicated above namely, that the respondent TIIC can bring the property for sale through public auction provided they also indicate the actual upset price in the advertisement that is required after valuing the said property in accordance with law. No costs. Consequently, connected miscellaneous petition is closed.
sms To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., (TIIC), Bungalow Medu, Theni, Theni District.