Karnataka High Court
M/S Konyflex Gears(India) Pvt. Ltd. vs The Karnataka State Financial ... on 9 March, 2020
Bench: Aravind Kumar, Hemant Chandangoudar
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF MARCH, 2020
PRESENT
THE HON'BLE MR. JUSTICE ARAVIND KUMAR
AND
THE HON'BLE MR. JUSTICE HEMANT CHANDANGOUDAR
W.A. NO.417/2016
C/W
W.A. NO.418/2016, W.A.NO.420/2016 (GM-KSFC),
W.A. CROB. NO.1/2016 IN W.A. NO.420/2016,
W.A. CROB. NO.2/2017 IN W.A. NO.417/2016 AND
W.A. CROB. NO.3/2017 IN W.A. NO.418/2016
W.A. NO.417/2016:
BETWEEN:
M/S KONYFLEX GEARS (INDIA) PVT. LTD.
A COMPANY REGISTERED UNDER
THE COMPANIES ACT, HAVING ITS REGD.
OFFICE AT NO.884, KAMAKSHIPALLYA EXTN.,
MAGADI ROAD, BANGALORE - 560 079
REPRESENTED BY ITS MANAGING DIRECTOR
SHRI. RAJEEV S. HUNDEKAR.
...APPELLANT
(BY SRI. ASHOK B PATIL, ADVOCATE)
AND:
1. THE KARNATAKA STATE FINANCIAL
CORPORATION (ESTABLISHED
UNDER THE STATE FINANCIAL
CORPORATION ACT. 1951)
K.S.F.C. BHAVAN, NO.1/1
THIMMAIAH ROAD (NEAR CANTONMENT
2
RAILWAY STATION) BANGALORE - 560 052
REPRESENTED BY ITS
MANAGING DIRECTOR.
2. THE DEPUTY GENERAL MANAGER R-II
THE KARNATAKA STATE FINANCIAL
CORPORATION, K.S.F.C BHAVAN
NO.1/1, THIMMAIAH ROAD
(NEAR CANTONMENT RAILWAY
STATION) BANGALORE - 560 052.
...RESPONDENTS
(BY SRI. GURURAJ JOSHI, ADVOCATE FOR R-1;
R-2 IS SERVED AND UNREPRESENTED)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF
THE KARNATAKA HIGH COURT ACT PRAYING TO SET
ASIDE THE ORDER PASSED IN THE WRIT PETITION
1425/2009 DATED:12.01.2016.
W.A. NO.418/2016:
BETWEEN:
M/S PRECISION GEARS AND COMPONENTS
A REGISTERED PARTNERSHIP FIRM
HAVING ITS REGD. OFFICE AT NO.884
KAMAKSHIPALYA EXTN., MAGADI ROAD
BANGALORE - 560 079
REPRESENTED BY ITS MANAGING PARTNER
SMT. APARNA S HUNDEKAR.
...APPELLANT
(BY SRI. ASHOK B PATIL, ADVOCATE)
AND:
1. THE KARNATAKA STATE FINANCIAL
CORPORATION (ESTABLISHED UNDER
THE STATE FINANCIAL CORPORATION
ACT, 1951) K.S.F.C. BHAVAN, NO.1/1
THIMMAIAH ROAD, (NEAR CANTONMENT
3
RAILWAY STATION)
BANGALORE - 560 052
REPRESENTED BY ITS
MANAGING DIRECTOR.
2. THE DEPUTY GENERAL MANAGER R-II
THE KARNATAKA STATE FINANCIAL
CORPORATION, K.S.F.C BHAVAN
NO.1/1, THIMMAIAH ROAD
(NEAR CANTONMENT RAILWAY
STATION) BANGALORE - 560 052.
...RESPONDENTS
(BY SRI. GURURAJ JOSHI, ADVOCATE FOR R-1;
R-2 SERVED AND UNREPRESENTED)
THIS APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE
THE ORDER PASSED IN THE WRIT PETITION NO.1424/2009
DATED:12.01.2016.
W.A. NO.420/2016:
BETWEEN:
PREUSSE INDIA PVT. LTD.,
NO.884, KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
REPRESENTED BY ITS
MANAGING DIRECTOR
SRI. GUDRUN GOEDICKE
NOW COLONEL RAVINDRANATH M.B.
...APPELLANT
(BY SRI. K.B. MONESH KUMAR, ADVOCATE FOR
MS. VIJETHA R NAIK, ADVOCATE)
AND:
1. THE KARNATAKA STATE FINANCIAL
CORPORATION (ESTABLISHED UNDER
THE STATE FINANCIAL CORPORATION
4
ACT, 1951) K.S.F.C. BHAVAN, NO.1/1
THIMMAIAH ROAD, NEAR CANTONMENT
RAILWAY STATION, BANGALORE - 560 052
REPRESENTED BY ITS
DEPUTY GENERAL MANAGER (R-II).
2. MESH TRANS GEARS PVT. LTD.,
(A COMPANY REGISTERED UNDER
COMPANIES ACT), NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
REPT. BY ITS MANAGING DIRECTOR
SRI. RAJEEV S. HUNDEKAR.
3. PRECISION GEARS & COMPONENTS
(A REGISTERED PARTNERSHIP FIRM)
NO.884, KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
SRI. SIDDARAMAPPA G HUNDEKAR
MANAGING PARTNER.
4. KONYFLEX GEARS (INDIA ) PVT. LIMITED
(A COMPANY REGISTERED UNDER
THE COMPANIES ACT) NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
SRI. RAJEEV S. HUNDEKAR
MANAGING DIRECTOR.
5. PRATEEK CNC SYSTEMS PVT. LIMITED
(A COMPANY REGISTERED UNDER
THE COMPANIES ACT) NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
SRI. SUNIL SURPUR
MANAGING DIRECTOR.
...RESPONDENTS
(BY SRI. GURURAJ JOSHI, ADVOCATE FOR R-1;
SRI. ASHOK B PATIL, ADVOCATE FOR R-2)
5
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF
THE KARNATAKA HIGH COURT ACT PRAYING TO SET
ASIDE THE ORDER PASSED IN THE WRIT PETITION
NO.12860/2008 DATED:12.01.2016.
W.A. CROB. NO.1/2016
IN W.A. NO.420/2016:
BETWEEN:
THE KARNATAKA STATE FINANCIAL
CORPORATION, HAVING ITS HEAD
OFFICE AT: KSFC BHAVAN, 1/1
THIMMAIAH ROAD, BANGALORE
REP. BY ITS ASSISTANT GENERAL
MANAGER (RECOVERY)
PIN CODE: 560 052.
...CROSS OBJECTOR
(BY SRI. GURURAJ JOSHI, ADVOCATE)
AND:
1. M/S PREUSSE INDIA PVT. LTD.,
NO.884 KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
REPRESENTED BY ITS
MANAGING DIRECTOR
SRI. GUDRUN GOEDICKE.
2. M/S. MESH TRANS GEARS PVT. LTD.,
(A COMPANY REGISTERED UNDER
COMPANIES ACT) NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
REPT. BY ITS MANAGING DIRECTOR
SRI. RAJEEV S. HUNDEKAR.
3. PRECISION GEARS AND COMPONENTS
(A REGISTERED PARTNERSHIP FIRM)
# NO.884, KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
6
SRI. SIDDARAMAPPA G HUNDEKAR
MANAGING PARTNER.
4. KONYFLEX GEARS (INDIA ) PVT. LTD,
(A COMPANY REGISTERED UNDER
THE COMPANIES ACT) NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
MANAGING PARTNER
SRI. RAJEEV S. HUNDEKAR
5. PRATEEK CNC SYSTEMS PVT. LMT,
(A COMPANY REGISTERED UNDER
THE COMPANIES ACT) NO.884
KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD
BANGALORE - 560 079
MANAGING DIRECTOR
SRI. SUNIL SURPUR.
...RESPONDENTS
(BY SRI. K.B. MONESH KUMAR, ADVOCATE FOR
SRI. RAVI B NAIK, ADVOCATE FOR R-1;
SRI. ASHOK B PATIL, ADVOCATE FOR R-2 TO R-5)
THIS W.A. CROB IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT, R/W ORDER-XL1-RULE-22
OF CIVIL PROCEDURE CODE PRAYING TO ALLOW THE
CROSS-APPEAL/OBJECTION OF THE RESPONDENT NO.1
IN W.A. 420/2016 & SET ASIDE THE JUDGMENT
DATED:12.01.2016 PASSED IN WRIT PETITION 12860/2008
PASSED BY THE LEARNED SINGLE JUDGE OF THIS
HON'BLE COURT, WHICH IS IMPUGNED HEREIN AS
ANNEXURE-A.
W.A. CROB. NO.2/2017
IN W.A. NO.417/2016:
BETWEEN:
1. THE KARNATAKA STATE FINANCIAL
CORPORATION, HAVING ITS HEAD
OFFICE AT: K.S.F.C. BHAVAN, 1/1
7
THIMMAIAH ROAD, BANGALORE - 560 052
REP BY ITS: MANAGING DIRECTOR.
PIN CODE: 560 052.
2. THE KARNATAKA STATE FINANCIAL
CORPORATION, HAVING ITS HEAD
OFFICE AT: K.S.F.C. BHAVAN, 1/1
TIMMAIAH ROAD, BANGALORE - 560 052
REP BY ITS: DEPUTY GENERAL
MANAGER, (RECOVERY)
PIN CODE 560 052.
...CROSS OBJECTORS
(BY SRI. GURURAJ JOSHI, ADVOCATE)
AND:
KONYFLEX GEARS (INDIA) PVT. LTD.,
(A COMPANY REGISTERED UNDER
COMPANIES ACT), NO.884, KAMAKSHIPALYA
EXTENSION MAGADI MAIN ROAD
BANGALORE - 79
REPT. BY ITS MANAGING PARTNER.
...RESPONDENT
(BY SRI. ASHOK B PATIL, ADVOCATE)
THIS W.A. CROB IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT, R/W ORDER XLI-RULE-22
OF CIVIL PROCEDURE CODE PRAYING TO SET ASIDE THE
JUDGMENT DATED:12.01.2016 PASSED IN WRIT PETITION
NO.1425/2009 (GM-KSFC) WITH CONNECTED MATTERS
PASSED BY THE LERNED SINGLE JUDGE OF THIS
HON'BLE COURT.
W.A. CROB. NO.3/2017
IN W.A. NO.418/2016:
BETWEEN:
1. THE KARNATAKA STATE FINANCIAL
CORPORATION, HAVING ITS HEAD
OFFICE AT: K.S.F.C. BHAVAN, 1/1
8
THIMMAIAH ROAD, BANGALORE
REP BY ITS: MANAGING DIRECTOR
PIN CODE: 560 052.
2. THE KARNATAKA STATE FINANCIAL
CORPORATION, HAVING ITS HEAD
OFFICE AT: K.S.F.C. BHAVAN, 1/1
TIMMAIAH ROAD, BANGALORE
REP BY ITS: DEPUTY GENERAL
MANAGER, (RECOVERY)
PIN CODE 560 052
(CROSS OBJECTOR 1 IS REP. BY
CROSS OBJECTOR 2)
...CROSS OBJECTORS
(BY SRI. GURURAJ JOSHI, ADVOCATE)
AND:
PRECISION GEARS AND COMPONENTS
(A REGISTERED PARTNERSHIP FIRM)
# NO.884, KAMAKSHIPALYA EXTENSION
MAGADI MAIN ROAD, BANGALORE - 79
REP. BY ITS MANAGING PARTNER
SRI. SIDDARAMAPPA G HUNDEKAR
MANAGIN PARTNER.
...RESPONDENT
(BY SRI. ASHOK B PATIL, ADVOCATE)
THIS W.A. CROB IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT, R/W ORDER XLI-RULE-22
OF CIVIL PROCEDURE CODE PRAYING TO ALLOW THE
CROSS-OBJECTION OF THE RESPONDENT NO.1 & 2 IN W.A
418/2016 & SET ASIDE THE JUDGMENT
DATED:12.01.2016 PASSED IN WRIT PETITION
NO.1424/2009 (GM-KSFC) WITH CONNECTED MATTERS
PASSED BY THE LEARNED SINGLE JUDGE OF THIS
HON'BLE COURT.
THESE WRIT APPEALS AND CROSS OBJECTIONS
COMING ON FOR PRELIMINARY HEARING THIS DAY,
ARAVIND KUMAR J, DELIVERED THE FOLLOWING :
9
JUDGMENT
These intra-Court appeals as well as cross objections arise out of order dated 12.01.2016 passed in W.P.No.12860/2008 c/w W.P.Nos.1424/2009 & 1425/2009.
2. For the purpose of convenience and immediate reference, writ petition numbers and corresponding writ appeals as well as cross objections are tabulated herein below:
W.P.No. W.A.No. Cross objections No. 12860/2008 420/2016 1/2016 1424/2009 418/2016 3/2017 1425/2009 417/2016 2/2017
3. Parties are referred to as per their rank in the writ petitions.
4. I have heard the arguments of Sriyuths Ashok B Patil and Monesh Kumar, learned Advocates appearing for writ petitioners-appellants and Sri Gururaj 10 Joshi, learned Advocate appearing for cross objector - respondent No.1. Perused the records.
5. Petitioners in W.P.Nos.1424/2009 and 1425/2009 had borrowed certain loans from the Karnataka State Financial Corporation (for short 'KSFC'). Petitioner in W.P.No.12860/2008 which is the parent company of M/s.Preusse Powertrain Innovations GmbH (German company and referred to as 'PPL' for the sake of brevity) is a company incorporated under the Companies Act. Said company is said to have had business transaction with petitioners in W.P.Nos. 1424/2009 and 1425/2009 as well as respondent No.2 i.e, M/s.Mesh Trans Gears Private Limited. Said parent company along with petitioner is said to have supplied machineries to respondents-2 to 5 on deferred payment. Respondents-2 to 5 are said to have defaulted in payment of loan borrowed from KSFC which resulted in the said loan account being declared as Non Performing Asset (NPA), on account of which, they had approached KSFC for settling the entire dispute which resulted in an 11 effort being made by PPL to settle the claim of respondents-2 to 5 herein and in this direction, a communication dated 14.02.2001 was forwarded to KSFC stating thereunder it intends to set up a project in India and at Bangalore and proposing to invest in these companies (respondents-2 to 5) which had defaulted in repayment of loan to KSFC. PPL proposed said investment can be utilized to discharge liabilities of respondents-2 to 5 owing to KSFC. KSFC by its reply dated 17.02.2001 adverting to the communication of PPL dated 14.02.2001 informed that total outstanding liabilities from the entire group was to the tune of Rs.854.76 lakhs and in order to take up the proposal for consideration of One Time Settlement (OTS), it is necessary that amount of 5% of total liability is to be paid to KSFC by the group and quantifying the said amount as Rs.42.21 lakhs, KSFC called upon PPL to make arrangements for said payment through 5 companies after which the proposal for OTS would be taken up. However, PPL was unable to accept the 12 proposition in its entirety and called upon KSFC to inform the loan balance of four companies only by its communication dated 28.02.2001 and this was followed by communication dated 09.05.2001 by KSFC intimating thereunder that until and unless 5% of the total amount due to KSFC is deposited by way of down payment, further processing of OTS proposal was not possible. Hence, KSFC called upon PPL to deposit 5% down payment for consideration of OTS proposal. Accordingly, said amount came to be deposited by PPL and this fact was intimated to KSFC by PPL on 23.10.2002. It is thereafter PPL by communication dated 18.08.2003 intimated its willingness to settle the entire amount due for the value of the land and building and plant and machinery belonging to four companies for a total consideration of Rs.179 lakhs.
6. It would be apt and appropriate at this juncture itself to extract willingness offered by PPL for such proposal and it reads:
13
"Infact, we have stepped forward to invest & takeover Mesh Trans Gears & its group units only because of the team of skilled people & the technical skills available there & also the establishment of their network as against the asset in terms of machineries or equipment, while that also seems to be disintegrating as per our consultant's recent report due to non support from their present bankers. Even the machines there in Mesh Trans additionally need lot of investment to bring them up for quality production."
This was followed by another communication dated 17.09.2003 and 22.10.2003 by PPL intimating KSFC not to take any coercive steps to advertise sale of machineries of M/s.Mesh Trans Gears Private Limited as it would gain publicity and it would adversely affect its business prospects in the market. In fact, PPL had admitted that it would purchase only machines/assets by bidding against advertisement proposed by the KSFC and if circumstances were to arise, effort made by it for settlement and payment would stand withdrawn on the ground that it was quoted on higher side and due to other factors, it would withdraw the said offer and called upon KSFC to repay the amount deposited by it already. Yet again, on 04.02.2004 PPL has intimated KSFC that 14 having not heard anything pursuant to initial deposit and on its failure to intimate outcome of OTS consideration, PPL called upon KSFC to remit back the amount deposited with interest.
7. In fact, KSFC by its communication dated 09.03.2004 has intimated PPL reasons for delay in OTS proposal being taken up by the Screening Committee which was well within the know how of the Director of M/s.Mesh Trans Gears Private Limited and if the amount of initial deposit is refunded, OTS would come to a stand still and it cannot be taken up for being processed. It is thereafter proposal for OTS was taken up by the Screening Committee during May, 2004 which was also attended by the Director of M/s.Mesh Trans Gears Private Ltd. and representative of PPL who is none other than Director of Preusse India Private Limited - Indian company and by communication dated 04.05.2004 PPL was intimated by KSFC that offer of Rs.179 lakhs made by PPL for purchase of assets of all the group units was increased to Rs.220 lakhs, out of 15 which Rs.215 lakhs was to be paid by PPL and balance amount had to be paid by the promoters and a reply was forwarded by PPL on 17.05.2004 to KSFC pleading thereunder that Mr.S.G.Hundekar of Mesh Trans Gears Private Limited has sought more time and he had refused to sign necessary agreements. When this was the factual scenario, an intimation came to be forwarded by KSFC to M/s.Mesh Trans Gears Private Limited on 16.06.2004 whereunder OTS proposal was made accepted for a total amount of Rs.235 lakhs to be paid within four months namely, 25% of OTS amount to be paid within 30 days from the date of receipt of such communication, which included initial payment of Rs.56,13,682/- already made by PPL and balance 75% was to be paid within three months from the date of expiry of 30 days as aforesaid. It was specifically made clear that acceptance has to be signed by the PPL (Indian company) within 10 days from the date of receipt of said communication as otherwise, OTS would stand cancelled. This was duly acknowledged by PPL (Indian 16 company) vide communication dated 22.06.2004 stating thereunder that promoters of the group are not interested in the proposal and on account of their internal problems, they have not agreed to sign the contract. Hence, PPL (Indian company) failed to accept the OTS or in other words, OTS though offered by KSFC, was not taken to its logical end. However, the fact remains that there are certain remittances by PPL (German company) at different intervals and in all, a sum of Rs.68,83,682/- was remitted apart from Rs.42.21 lakhs (5% initial deposit). We note at this juncture itself that OTS proposal dated 16.06.2004 was not taken to its logical end or in other words, it did not fructify.
8. It is the contention of Sri Ashok B Patil, learned Advocate appearing for appellants in W.A.Nos.417/2016 & 418/2016 that KSFC had not acted in consonance with Section 24 of the State Financial Corporations Act, 1951 (for short 'Act') namely, it had not processed OTS and KSFC had also not refunded the amount paid by the German company and 17 when clear offer made by the petitioners to the effect that OTS has to be accepted for two companies, there was no impediment for the closing of account of two companies and KSFC could not have acted contrary to the contract made by PPL and same is contrary to the mandate of Section 24 of the Act.
In support of his submission, he has relied upon the judgment of Hon'ble Apex Court in the case of MAHESH CHANDRA vs REGIONAL MANAGER, U.P.FINANCIAL CORPORATION AND ANOTHER reported in (1993)2 SCC 279 whereunder Hon'ble Apex Court had considered the scope and ambit of Section 24 of SFC Act and had held to the following effect:
"6. Corporations deal with public money for public benefit. The approach has to be public oriented, helpful to the loanee, without loss to the Corporation. Section 24 of the Act itself required the Board "to discharge its function on business principles, due regardbeing had to the interest of industry, commerce and general public". "Business" is a word of wide import. It has no definite meaning. Its perceptions differ from private to public sector or from institutional financing to commercial banking. The financial corporations under the Act were visualized not as profit-earning concerns but an 18 extended arm of a welfare State to harness business potential of the country to benefit the common man."
9. Sri Gururaj Joshi, learned Advocate appearing for first respondent is right in contending that said judgment has been explicitly over ruled by the larger Bench of Hon'ble Apex Court in the case of HARYANA FINANCIAL CORPORATION AND ANOTHER vs JAGDAMBA OIL MILLS AND ANOTHER reported in (2002)3 SCC 496, whereunder it has been held that guidelines issued in MAHESH CHANDRA's case, placed restrictions on powers of Financial Corporations under Section 29 of the Act. It is further held:
"10. The obligation to act fairly on the part of the administrative authorities was evolved to ensure the rule of law and to prevent failure of justice. This doctrine is complementary to the principles of natural justice which the quasi-judicial authorities are bound to observe. It is true that the distinction between a quasi-judicial and the administrative action has become thin, as pointed out by this Court as far back as 1970 in A.K. Kraipak v. Union of India [(1969) 2 SCC 262] . Even so the extent of judicial scrutiny/judicial review in the case of administrative action cannot be larger than in the case of quasi-judicial action. If the High Court cannot sit as an 19 Appellate Authority over the decisions and orders of quasi-judicial authorities, it follows equally that it cannot do so in the case of administrative authorities. In the matter of administrative action, it is well known, more than one choice is available to the administrative authorities; they have a certain amount of discretion available to them. They have "a right to choose between more than one possible course of action on which there is room for reasonable people to hold differing opinions as to which is to be preferred" (as per Lord Diplock in Secy.
of State for Education and Science v.Metropolitan Borough Council of Tameside [1977 AC 1014 : (1976) 3 All ER 665 : (1976) 3 WLR 641] , All ER at p.
695f). The court cannot substitute its judgment for the judgment of administrative authorities in such cases. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the court intervene. To quote the classic passage from the judgment of Lord Greene, M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. [(1947) 2 All ER 680 : (1948) 1 KB 223 (CA)] : (All ER pp.
682H-683A) "It is true the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the word 'unreasonable' in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with the discretion must, 20 so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting 'unreasonably'. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority."
17. The aforesaid guidelines issued in Mahesh Chandra case [(1993) 2 SCC 279] place unnecessary restrictions on the exercise of power by Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit- holder to be associated or consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra case [(1993) 2 SCC 279] will only lead to further delay in realization of the dues by the Corporation by sale of assets. It is always expected that the Corporation will try and realize the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible".
(emphasis laid by us) Elaborating his submission by relying upon paragraph 10 of JAGDAMBA OIL MILLS's case referred to supra, 21 Mr.Patil has contended that KSFC has not acted in fairness and it has not considered OTS proposal as submitted by petitioner and/or by PPL (Germany) and thereby it has violated mandate of section 24. Said argument, though at first blush looks attractive, same cannot be accepted for reasons more than one.
Firstly, petitioners herein have no locus to contend that OTS proposal or one time settlement proposal is a proposal given by the secured creditor. Considering the facts obtained in each case, secured creditor would be well within its domain to contend or claim the manner, mode and method in which OTS has to be accepted should be in accordance with extant scheme. Until and unless such OTS is governed by the scheme and proposal is submitted by the debtor accordingly, it cannot be gain said that in the absence of such guildelines prescribed under any scheme or the extant rules, no debtor would be entitled to contend that OTS is to be accepted in the manner in which offer is made by it.
22
10. In this background, if we look into OTS proposal dated 16.06.2004 accepted by KSFC, which was submitted by the debtor and not PPL, we would also hasten to add that said proposal was the one which was offered by KSFC-secured creditor to the debtor M/s.Mesh Trans Private Limited., for ensuring that there was settlement with regard to all the issues pertaining to group companies. In fact, writ petitioner in W.P.No.12860/2008 was not the borrower and there was no privity of contract between said petitioner and KSFC. However, on account of PPL (Germany), petitioner in W.P.No.12860/2008 is said to have had transaction with respondents-2 to 5 (in W.P.No.12860/2008) and having come forward to invest in these companies, it had offered to settle the outstanding dues of said companies and on account of its origin being traced to Germany and there being no Indian company, it had established an Indian company exclusively for the purposes of achieving the object of OTS. Yet, fact remains there was no privity of contract between PPL (India) and KSFC. 23
11. It would also be apt and appropriate to note at this juncture that Directors of Indian company as well German company are one and the same. Person who coordinated with KSFC and who had participated in all the meetings held as well as correspondence that ensued between KSFC, Indian and German company - of PPL, the common factor was the Director by name Mrs.Goedicke. She has not only affixed her signatures to all the correspondences on behalf of the German company but also on behalf of Indian company, as is evident from various correspondences available on record.
12. The voluminous records available would disclose that saga of OTS proposal did not end in 2004. It moved at a snail's pace namely, inch by inch and step by step over the years and ultimately, culminated in one more OTS being offered by KSFC on 20.07.2009 whereunder the borrowers were intimated to the effect that for revalidation of OTS proposal, a sum of 24 Rs.3,50,76,702/- if paid, it would be accepted and called upon the four borrowing companies to pay the amounts as indicated herein below:
Sl.No. Name of the company Amount
1 Mesh Trans Gears Private 1,01,19,279/-
Limited
2 Prateek CNC Systems 28,01,716/-
3 M.s,Konyflex Gears 1,03,64,586/-
Private Limited
4 Precision Gears and -
components
This OTS was also not taken to its logical end.
13. However, during the interregnum, notices came to be issued to the petitioners under section 29 of SFC Act which resulted in filing of the subject writ petitions. Learned Single Judge by order under challenge, has found that KSFC has adopted a rigid stand and staid view of the manner in which foreign investor had drawn into transaction to its misfortune and detriment to the entire project. It was further observed by the learned Single Judge that PPL (Germany) intended to withdraw from OTS transaction at 25 the earliest point of time and KSFC has refused to let off PPL-Germany from the hook and had perforced it to make further deposits of money and thereby driving it to a point of no return. It is in this background, learned Single Judge has held that impugned notices are to be quashed and KSFC has been directed to re-negotiate the terms of settlement as proposed by the petitioners which was the original intention of a parent company and has also directed KSFC to adopt a reasonable and pragmatic approach rather than proceeding with one track agenda of recovering the amounts due.
14. Hon'ble Apex Court in the case of PUNJAB FINANCIAL CORPORATION vs, SURYA AUTO INDUSTRIES reported in AIR 2010 SC 266 has held that primary function of State Financial Corporation established under Section 3 of SFC Act is to promote small and medium industries in the State and it is not obliged to revive and resurrect every sick industrial unit dehors the financial implications if such exercise is undertaken. It has been further held : 26
"21. The proposition of law which can be culled out from the decisions noted above is that even though the primary function of a corporation established under Section 3 of the Act is to promote small and medium industries in the State, but it is not obliged to revive and resurrect every sick industrial unit dehors the financial implications of such exercise. The corporation is not supposed to give loans and refrain from taking action for recovery thereof. Being an instrumentality of the State, the corporation is expected to act fairly and reasonably qua its borrowers/debtors, but it is not expected to flounder public money for promoting private interests".
22. The relationship between the corporation and borrower is that of creditor and debtor. The corporation is expected to recover the loans already given so that it can give fresh loans/financial assistance to others. The proceedings initiated by the corporation and action taken for recovery of the outstanding dues cannot be nullified by the courts except when such action is found to be in violation of any statutory provision resulting in prejudice to the borrower or where such proceeding/action is shown to be wholly arbitrary, unreasonable and unfair. The court cannot sit as an appellate authority over the action of the corporation and substitute its decision for the one taken by the corporation".
15. Subsequent to passing of the order by learned Single Judge, certain other disputes seems to 27 have arisen between parties which is not in dispute. KSFC along with petitioners had held a meeting on 18.03.2016 to resolve the issues which also did not yield any fruitful result on account of stand taken by representative of PPL contending that order passed by the learned Single Judge is already under challenge in the appeals and even subsequent meeting convened on 14.07.2016 under the Chairmanship of Additional Chief Secretary, Industry and Commerce, Government of Karnataka did not progress though an offer was made by KSFC in the said meeting.
16. Material on record would disclose that at the request of the promoters, OTS was offered by KSFC for Rs.235 lakhs for closure of the loan accounts of four (4) companies. However, on account of certain deficiencies and bickerings amongst directors of PPL on the one hand and respondents-2 to 5 on the other, OTS proposal did not take shape or in other words, proposal offered by KSFC to the four companies which was sought to be settled by PPL (Indian company) through its parent 28 company i.e., PPL (Germany), amounts as offered by KSFC under OTS dated 16.06.2004 was not paid. In fact, by communication dated 22.06.2004, PPL and promoters for group companies have given their consent for OTS option to settle all the amounts as a whole and agreed to pay sum of Rs.205 lakhs by PPL and the promoters had agreed to pay a sum of Rs.30 lakhs. Yet, this amount also was not forthcoming. Agreements entered into between PPL and the promoters dated 23.07.2004 would also disclose they have agreed for OTS of all the group companies with a condition that PPL would make payment of Rs.205 lakhs and balance of Rs.30 lakhs would be paid by the promoters and asset of all the units would stand transferred to PPL by the promoters. In fact, KSFC is not a party to said agreement. Though an attempt has been made to contend that offer made by PPL had to be restricted to two companies, this was not accepted by KSFC and at no point of time, communication has emanated from KSFC admitting this fact. Further, KSFC has not agreed or 29 consented for sale of assets of these four (4) companies as individual units. PPL (Indian company) by its communication dated 04.10.2004 has consented for shifting of the machineries by KSFC or by M/s.Mesh Trans Gears Pvt.Ltd., and same would clearly indicate that it was well within the know how of PPL namely, entire machineries having been shifted. In fact, PPL has not objected to this, but on the other hand, has consented for shifting of the machinery. These facts would clearly indicate that OTS offered by KSFC has not been accepted to by the petitioner - company by complying with the conditions stipulated under the above said two OTS proposals.
17. Sri Ashok B Patil and Sri Monesh Kumar, learned Advocates appearing for appellants though would be justified in contending that amounts paid by PPL (German company) which has been received by KSFC, it was solemn duty of KSFC to refund the amount to PPL when OTS scheme was accepted, we would have definitely examined said prayer, but for the short coming 30 of the fact that PPL (German) is not before this Court. Petitioner in W.P.No.12860/2008 being a separate and distinct entity as Indian company, it cannot shed its tears for another company though it might be its counter part. Hence, in exercise of extraordinary power vested under Articles 226 of the Constitution of India, we would not be in a position to mould the relief to a company who is not before this Court. Only succor which can be extended is to reserve liberty to the said company to proceed against KSFC for recovering the amount if any due to it and said to have been paid to KSFC in furtherance of its offer to settle dues of four debtors, as investor by making payment for OTS on their behalf. In such circumstances, with all just exceptions including limitation that may be raised by KSFC, liberty is reserved to PPL (Germany) to seek for refund of the said amount from KSFC in the manner known to law.
18. In so far as learned Single Judge quashing of the show cause notices issued by KSFC to respondents-2 to 5, we are of the considered view that order impugned 31 would not stand the test of law for the simple reason that against a show cause notice, no writ lies and it is always open to the investors to approach the said authority by filing a reply or objections to the said show cause notice and get the issue resolved and then approach jurisdictional forum after exhausting said alternate remedy. This proposition is supported by the authoritative principles laid down by Hon'ble Apex Court in SIEMENS LTD. Vs STATE OF MAHARASHTRA & OTHERS reported in (2006)12 SCC 33. However, only exception which can be carved out for exercise of jurisdiction under Article 226 even in case of show cause notice would be, where such notice is issued by an authority which lacks authority or said authority having no jurisdiction. In other words, unless any of these two conditions are fulfilled, writ court would not normally interfere to quash the show cause notice. It has been held by Apex Court in SIEMENS case referred to supra as under:
"9. Although ordinarily a writ court may not exercise its discretionary 32 jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of U.P. v. Brahm Datt Sharma, Special Director v. Mohd. Ghulam Ghouse and Union of India v. Kunisetty Satyanarayana, but the question herein has to be considered from a different angle viz. when a notice is issued with premeditation, a writ petition would be maintainable. In such an event, even if the court directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose. (See K.I. Shephard v. Union of India.) It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter-affidavit as also in its purported show-case notice."
19. It has also been held by Hon'ble Apex Court in the case of SPECIAL DIRECTOR AND ANOTHER vs MOHD.GHULAM GHOUSE AND ANOTHER reported in (2004)3 SCC 440 that writ petition challenging show cause notices should not be entertained in a routine matter. This proposition also finds support from yet another judgment of Hon'ble Apex Court in the case of EXECUTIVE ENGINEER, BIHAR STATE HOUSING BOARD vs RAMESH KUMAR SINGH & OTHERS 33 reported in (1996)1 SCC 327 vide paragraph 10 . For these reasons, we are of the considered view that learned Single Judge committed a serious error in interfering with the show cause notices issued by KSFC and quashing the same and as such, it is liable to be set aside by accepting the cross objections filed in these writ appeals.
20. It is no doubt true that in the instant case, KSFC at times have been acting contrary to the offers made by it by way of OTS. We say so because promoter of the debtors namely, PPL (Germany) had offered to settle the amounts due by debtors and in furtherance of it, has remitted in all a sum of Rs.95,51,729/- intermittently by way of foreign remittances in Euros as evident from the statement which is admitted by KSFC also. Yet, for the reason that remittance was not made in accordance with OTS proposal, KSFC has not taken said proposal to its logical end. Issue in question could have been resolved between KSFC and petitioners but for the hard stand taken by both the sides, which can be 34 classified as unjustified, for which refrain from any opinion being expressed. Be that as it may. Fact remains that KSFC on the one hand was offering its olive branch to the petitioners to settle the dues, but petitioners had leaned on the shoulders of PPL (Germany) through its PPL (Indian) company to submit its offer for clearing the debts and had also made some valiant attempt in this regard, but did not yield any fruitful results and obviously for the reasons there were internal bickerings between parent company, Indian company and respondents-2 and 5 which resulted in postponement or deferment of OTS proposal given by KSFC and thereby it had resulted in OTS offered by KSFC going down the drain. However, the fact remains, as already noticed above, at the cost of repetition that KSFC had received in all a sum of Rs.95,51,179/- towards debt due by the above said four (4) companies. In fact, we have been informed at the Bar that amount which was sanctioned to the petitioners by way of subsidy for the purchase of machineries under the 35 Incentive scheme has been appropriated by KSFC which is not seriously disputed.
21. It is in this background, both the parties should have exhibited real earnestness in resolving the dispute rather than litigating in courts. Exercise of the discretionary powers by the learned Single Judge as observed herein above was not called for, that too, in the matters of contracts where parties are bound by such contracts. As such, we are of the considered view that appeals filed by writ petitioners will have to fail and cross objections of KSFC will have to be allowed subject to observations made herein above.
For the myriad reasons aforestated, we proceed to pass the following:
JUDGMENT (1) Writ appeal Nos.417/2016, 418/2016 & 420/2016 are hereby dismissed.
(2) Cross Objection Nos.1/2016, 2/2017 & 3/2017 in W.A.Nos.417/2016, 418/2016 & 420/2016 are allowed and order dated 36 12.01.2016 passed in W.P.Nos.12860/2008 c/w 1424/2009 and 1425/2009 is set aside and writ petitions stand dismissed.
(3) Further, PPL (Germany) is at liberty to work out its right in accordance with law in appropriate forum as observed herein above. (4) Notwithstanding this order, parties are at liberty to work out their rights for settling the dispute amicably by whatever mode they decide or deem fit.
SD/-
JUDGE SD/-
JUDGE *sp