Karnataka High Court
Shreekanha Rock Private Limited vs Karantaka State Financial Corporation on 27 June, 2014
Author: D.H.Waghela
Bench: D.H.Waghela
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tIN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 27TH DAY OF JUNE 2014
PRESENT
THE HON'BLE MR.D.H.WAGHELA, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE H.G.RAMESH
W.A.No.4311/2013 (GM-KSFC)
BETWEEN
SHREEKANHA ROCK PRIVATE LIMITED
A REGISTERED PRIVATE LIMITED COMPANY
HAVING ITS REGISTERED OFFICE AT
#272, SHOBHA HIBISCUS,
OUTER RING ROAD, BELLANDUR,
BANGALORE 560 013
REPRESENTED BY ITS DIRECTOR
MR. VINOD KUMAR SOMANI
... APPELLANT
(BY SRI. PARAS JAIN, ADVOCATE)
AND
KARANTAKA STATE FINANCIAL CORPORATION
1/1, THIMMAIAH ROAD
OPP. TO BANGALORE CANTT. RLY. STATION
BANGALORE 560 052
REPRESENTED BY THE ASSISTANT GENERAL MANAGER
... RESPONDENT
(BY SRI.GURURAJ JOSHI, ADV FOR C/R)
THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA HIGH
COURT ACT PRAYING TO SET ASIDE THE ORDER PASSED IN THE
WRIT PETITION NO.1248/2012 DATED 19/6/2013.
THIS WRIT APPEAL COMING ON FOR PRELIMINARY HEARING
THIS DAY, CHIEF JUSTICE DELIVERED THE FOLLOWING:
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JUDGMENT
D.H.WAGHELA, C.J. (Oral) :
1. The appellant has called into question order dated 09.06.2013 of learned single Judge in WP No.1248/2012, whereby petition of the appellant is dismissed with the concluding observations as under;
" It is by now well settled that the highest bidder is not granted vested right unless the Authority confirms the auction sale in his favour. If the auction sale has not fetched the appropriate price, it is open for the Authorities concerned to cancel the auction proceedings. Ultimately, the auction of the property is made for the purpose of recovery of money and if the cancellation of auction proceedings is in the public interest, no interference need to be made."
2. The relevant facts, in brief, of the case of the appellant were that, pursuant to a public advertisement, the appellant had made their bid and participated in the e-auction and emerged as the highest bidder and thereupon deposited 25% of the bid amount in terms of the conditions of sale by auction. The original advertisement for e-auction was dated 17.03.2011 and it clearly stated: " Terms and Conditions of sale: The terms and conditions of the sale through e-auction are detailed on KSFC Website: www.ksfc.in." The interested -3- persons were expressly advised to visit the aforesaid website. A copy of the advertisement appearing on the website, relied upon by the appellant also clearly stated in condition No.7 as under:
" 7. The e-auction will commence on 31.03.2011 at 10.00 a.m and closes on 12.04.2011 at 10.30 a.m. After closure of e-auction, the successful bidder will be intimated through e-mail to pay 25% of the bid amount (including EMD) before closing hours of the same working day and the sale is subject to the approval of the competent authority. In case the successful bidder fails to pay the initial amount within the stipulated time, the EMD paid by him will be forfeited without further notice. In respect of unsuccessful bidder, the EMD amount will be refunded."
3. It was further clarified in condition No.8 that, after receipt of the initial amount of 25% as above, the confirmation of sale will be sent after obtaining the approval of the competent authority. Therefore, the respondent had specifically clarified to the appellant in writing by the communication at Annexure-D that their bid was subject to acceptance by the competent authority.
4. The grievance of the appellant arose from the letter dated 29.12.2011 of the respondent herein, stating inter alia -4- that the reserve price of Rs.172.00 lakhs fixed for the auction of properties was based on valuation done by technical officers of the Corporation and it was found that the valuation was determined without taking cognizance of prevalent KIADB rates and other relevant factors. The assets were also got valued by an external Institution namely, M/s.Technical Consultancy Services Organization of Karnataka (TECSOK) which valued them at Rs.249.50 lakhs, which was higher to the bid amount by Rs.77.50 lakhs. It was, therefore, found to be desirable to bring the assets for re-auction to attract the highest offer on the basis of revised valuation, by giving wide publicity. After verification of all the available records on file, detailed examination of relevant factors and the decision of Hon'ble High Court, the competent authority was satisfied that the sale in question be cancelled. Accordingly, the appellant was informed that sale of assets was being cancelled. The respondent decided to pay interest on the amount deposited by the appellant and that order/communication came to be challenged by the appellant in the original petition.
5. Learned counsel Mr. Paras Jain vehemently argued with all the force at his command that the impugned action of the -5- respondent was ex facie arbitrary and could not be defended on the basis of any extraneous material or subsequent events taking place after acceptance of the bid amount by the respondent. He heavily relied upon the observations of the Apex Court in Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and others {(2008) 9 SCC 299} to submit that in the facts of that case also, several bids were received and the highest bid was accepted. The bidder was directed to deposit 25% of the purchase price within 30 days and was asked to deposit the balance amount within the next three months. After compliance with such conditions by the bidders, the sale could not be set aside unless some fraud or collusion was proved. Ultimately, the Apex Court was pleased to set aside the judgment of the High Court and sale in favour of the appellant was upheld. He repeatedly submitted that the judgment applied to the facts of the present case on all fours. It was, however seen from the text of that very judgment that the sale was confirmed in that case, and thereafter, the disputes were raised. It was in that context the Apex Court had observed :
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" 29. In the present case we are satisfied that there is no fraud in the auction sale. It may be mentioned that auctions are of two types - (1) where the auction is not subject to subsequent confirmation, and (2) where the auction is subject to subsequent confirmation by some authority after the auction is held."
" 30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. ......"
(underlining supplied) In the other judgment of the Apex Court in Kalu Ram Ahuja and another v. Delhi Development Authority and another {(2008) 10 SCC 696}, the observations relied upon for the appellant read as under;
" 5. Undisputedly, DDA had taken a conscious decision to auction the plot. It is neither the pleaded case of the respondents nor has any material been produced before this Court to show that the said decision was taken by the competent authority under some misapprehension. It is also not in dispute that the appellants participated in the auction held on 21.06.1988, and gave the highest bid, which, as mentioned above, was rejected by the Vice-Chairman, DDA.-7-
The communication dated 7-7-1988 does not make a mention of the reason which may have prompted the Vice-Chairman to reject the bid given by the appellants. No other record has been produced before the Court to show that the decision of the Vice-Chairman was based on rational and tangible reasons and was in public interest. Therefore, there is no escape from the conclusion that the decision of the authority concerned was wholly arbitrary. The learned Single Judge without properly appreciating the nature of the appellants' challenge to the rejection of their bid, dismissed the writ petition. The Division Bench also committed the same error by dismissing the appeal. Therefore, the impugned orders are legally unsustainable."
6. Learned counsel Mr.Paras Jain also relied upon the observations of the Apex Court in Mohinder Singh Gill v. Chief Election Commissioner {(1978) 1 SCC 405} as quoted in East Coast Railway and another v. Mahadev Appa Rao and others {(2010) 7 SCC 678}.
7. Per contra, learned counsel Mr.Gururaj Joshi appearing for the respondent submitted that the auction sale was cancelled for bona fide reasons and in public interest, in so far as the minimum upset price required to be fixed was found to be below the appropriate level and experts' opinion were obtained in that regard before proceeding to re-auction the -8- properties. He relied upon the specific observations recently made by the Apex Court in Kerala Financial Corporation v. Vincent Paul and another (AIR 2011 SC 1388) specifically in the context of Section 29 of the State Financial Corporations Act, even as in the facts of that case, a decree of specific performance was already made and upheld by the High Court, the Apex Court inter alia observed:
" 12. We have already concluded that the decree for specific performance granted by the High Court cannot be sustained. We also observed in the earlier part of our judgment that though the KFC has initiated proceedings under Section 29 of the Act, admittedly, the State has not framed Rules or guidelines in the form of executive instructions for sale of properties owned by them. Till such formation of Rules or guidelines or orders as mentioned above, we direct the KFC to adhere the following directions for sale of properties owned by it:
(i) .........
(ii) .........
(iii) .........
(iv) A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders.
(v) ... ... ...
(vi) The essential ingredients of sale are correct valuation report and fixing the reserve price. In case proper valuation has -9- not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them.
(vii) ... ... ...
(viii) ... ... ...
13 . In view of our discussion and conclusion, we are satisfied that KFC has not strictly followed the above procedure in bringing the property for sale. Accordingly, we set aside the judgment and order passed by the High Court granting decree for specific performance in favour of Vincent Paul and all other sale transactions either in the form of tender or auction in respect of the property in question. We direct the KFC to first issue the advertisement calling for tenders by way of public auction by following the directions mentioned above. Before resorting to such recourse, if the KFC has accepted any deposit from any of the parties by way of tender or bid, the same shall be returned within a period of 30 days to the respective parties with simple interest @ 9% p.a. from the date of such deposit till it is repaid to the parties concerned."
8. In view the above specific guidelines and judicial dicta, the two factors which weighed against the appellant were the fact that the auction sale was not confirmed and the cancellation of auction was in public interest and hence, would not entitle the appellant to any relief in exercise of extraordinary jurisdiction of this Court and learned single Judge was justified in dismissing the petition.
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9. Accordingly, the appeal is dismissed in limine along with I.A made therein, with no order as to cost.
Sd/-
CHIEF JUSTICE Sd/-
JUDGE mv