Gauhati High Court
Assam Financial Corporation vs Dutta Barua And Company And Anr. on 23 November, 2006
Equivalent citations: AIR2007GAU41, AIR 2007 GAUHATI 41, 2007 (2) ALL LJ NOC 340, 2007 (2) ABR (NOC) 362 (GAU), 2007 (2) AKAR (NOC) 184 (GAU), (2006) 4 GAU LT 534, (2007) 3 BANKJ 436, (2007) 138 COMCAS 328
Author: Ranjan Gogoi
Bench: Ranjan Gogoi
JUDGMENT B.D. Agarwal, J.
1. The respondents/ Writ Petitioners had taken an Industrial loan of Rs. 11.75 lakhs from the appellant M/s. Assam Financial Corporation Ltd. (briefly 'AFC hereinafter) to modernize their printing press. The loan was sanctioned in the year 1979 against mortgage of landed property etc. The mortgage deed was executed on 28-5-79. The respondents/writ petitioners failed to make repayment to of the loan as per the terms and conditions. When the arrear of installment and interest tax reached to the tune of nearly Rs. 52 lakhs, the appellant resorted to Section 29 of the said State Financial Corporation Act, 1951 ('SFC Act' in short) to realize the loan amount by issuing a notice on 28-6-1999. Prior to this action the AFC had issued a demand notice to the respondents on 5-11-96 reminding them that if the loan is not redeemed within 15 days recourse to Section 29 of the SFC Act would be taken. Immediately the AFC took over the possession of the mortgage property on 9-2-2000 and the borrower was requested to vacate the land within a month. It was followed by sale of the land by issuing a Public Notice in a local newspaper on 27-4-2000. Against this advertisement one Dr. Biraj Saikia submitted his tender. After negotiation this person agreed to pay Rs. 57 lakhs against the purchase of 14 kathas of vacant land.
2. Being aggrieved with the offer of AFC Dr. Biraj Saikia for sale of the land, the respondents challenged the appellants letter No. AFC/HO/Legal/L-458/1233 dated 26-6-2000, offering 14 Kathas of land to Dr. Biraj Saikia by filing a writ petition under Article 226 of the Constitution of India. This writ petition was numbered as WP (C) No. 3506/2000. The writ petition was allowed by the impugned judgment and order dated 17-2-2003. By this impugned order the learned Single Judge directed the AFC to initiate the process for sale by public auction de-novo by way of advertising the auction notice at least in 3 local dailies, so that the interest of the borrower to fetch reasonable price of the land through multiple tenders can be protected. Being aggrieved with this judgment and order the AFC has preferred this writ appeal.
3. We have heard Mr. A. Sarma, learned Sr. Counsel for the appellant. The respondents did not appear to defend the impugned judgment. We have also perused the impugned judgment and the records.
4. Sri Sarma, learned Sr. counsel for the appellant submitted that the impugned judgment is not tenable in the eye of law since the learned Single Judge has acted as an appellate authority, which is not permissible in law. Learned Counsel for the appellant also contended that before accepting the offer of Dr. Biraj Saikia adequate opportunity was given to the borrower to repay the loan and as such no mala fide intention on the part of the AFC can be imputed. Learned Counsel also submitted that only a part of the mortgage land was sold after due publication of notice in the newspaper and also with notice to the borrower and as such it cannot be said that the AFC did not act fairly. The last contention of the learned Sr. Counsel for the appellant was that the direction of de-novo process would be a futile exercise and it will not serve any purpose inasmuch as even if a little higher amount is offered against 14 Kathas of land now, the loan amount with interest has also increased by this time.
5. From the pleadings of the respondent made in the writ petition, we find that the borrower has set up a case basically on the basis of guidelines given in the case of Mahesh Chandra v. Regional Manager, U. P. Financial Corporation . According to the writ petitioners, before resorting to Section 29 of the SFC Act the AFC should have made an endeavour to put the industrial unit of the respondents viable. It was also the contention of the writ petitioners that the borrowers should have been allowed to participate in the sale process. It was also contended that wide publicity should have been given for the sale of the mortgage property to fetch a reasonable price for the same. According to the writ petitioners the sale was negotiated with Dr. Biraj Saikia without wide publicity of the auction. The writ petitioner also alleged that although the borrower had arranged a purchaser of the land at the price fixed by the AFC, but the AFC refused to give no objection to bring any offer from the 3rd party to purchase the land. According to the writ petitioners this action of the AFC violated the constitutional rights guaranteed under Article 14 and 300-A of the Constitution of India and accordingly prayed for setting aside the sale process of the mortgaged land.
6. Sri Sarma, learned Sr. Counsel for the appellant submitted that the judgment of the Apex Court rendered in the case of Mahesh Chandra (supra) has since been overruled in the case of Haryana Financial Corporation and Anr. v. Jagadamba Oil Mills and Anr and as such the guidelines set-out in the case of Mahesh Chandra (supra) for realizing the loan amount by way of public auction/tender etc. need not be followed. Learned Counsel also cited the authority of Hon'ble Supreme Court rendered in the case of Karnataka State Investment and Advertisement Corporation Ltd. v. Cavalat India Ltd. and Ors. . In this judgment the apex Court has also disapproved the criteria for public auction of mortgage property given in the case of Mahesh Chandra.
7. In between the authority of Mahesh Chandra and Cavalat (supra), few other judgments of the apex Court have been rendered wherein the powers of State Financial Corporation and the procedure to be adopted by them for realizing the loan amount were examined. In the case of U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. the Hon'ble Supreme Court observed as follows (Para 10):
The fairness required of the corporation cannot be carried to the extent of disabling it from recovering what is due to it. While not insisting upon the borrower to honour the commitments undertaken by him, the corporation alone cannot be shackled hand and foot in the name of fairness. Fairness is not a one way street, more particularly in matters like the present one.
8. In the same vein, in the case of U.P. Financial Corporation v. Naini Oxygen and Acetylene Gas Ltd. the Apex Court came down heavily in the mater of interference with the procedure adopted by the financial corporation to realize the loan amount by way of public auction of the mortgage property by the Courts. Their Lordships have observed that the Financial Corporation being independent autonomous statutory bodies, having its own constitution and rules to abide by and functions and obligations to discharge the financial corporations are free to act according to its own right. Dealing with the power of Courts in such matters the apex Court issued the following dictum:
Unless its action is mala fide, even a wrong decision taken by it is not upon to challenge. It is not by the Courts or third party to substitute its decision, however, more prudent, commercial or business like it may be for the decision of the Corporation. Hence, whatever the wisdom (or lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable.
9. After cataloging the opinions given by the apex Court in a catena of decisions, the Hon'ble Supreme Court in the case of Cavalat India Ltd. (supra) has summarized the legal principles to be followed for sale of mortgaged property by Financial Corporations as well as the limitations under which Courts can interfere in such process, in the following terms:
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 Court's 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.
(iii) In commercial matters, the Courts should not risk their judgments for the judgments of the bodies to which that task is assigned.
(iv) Unless the action of the Financial Corporation is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the Courts or a third party to substitute its decision, however, more prudent, commercial or businesslike it may be, for the decision of the Financial Corporation. Hence, whatever the wisdom (or the lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable.
(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 realize 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.
(viii) Fairness cannot be a one-way street. The fairness required of the Financial Corporations cannot be carried to the extent of disabling them from recovering what is due to them. While not insisting upon the borrower to honour the commitments undertaken by him, the Financial Corporation alone cannot be shackled hand and foot in the name of fairness.
(ix) Reasonableness is to be tested against the dominant consideration to secure the best price.
10. Coming to the facts and merit of the present case, there is no dispute regarding taking of loan by the respondents from the appellant and non-repayment of the same. The learned single Judge has also observed in para 6 of his judgment that there appears to be no infringement of the statutory provisions. The learned single Judge also admitted that the Corporation has unshackled powers to realize the outstanding loan amount by selling the mortgaged property through public auction. Learned Judge also rejected the contention of the writ petitioners that every endeavour should be made to make the unit viable and vibrating is not the mandate as on today. Despite this finding the learned single Judge was persuaded to hold that the AFC did not act fairly in accepting the single offer of Dr. Biraj Saikia that too by way of negotiation. For taking the aforesaid view, the fact of advertisement of the sale notice in a single vernacular daily appears to be the single dominant factor. Accordingly, the learned single Judge held that the process initiated by the Corporation is not acceptable and, therefore, a direction has been issued to publish the auction notice de novo in a particular manner.
11. We agree with the views of the learned single Judge that publication of auction sale notice in more than one newspaper would have been ideal for the AFC. However, at the same time, we cannot gloss-over other aspects of the case vis-a-vis the limited powers of the Courts to interfere in the sale process as laid down by the Apex Court in recent judgments. What we have noticed is that the AFC first reminded the borrower about their failure to repay the loan in the year 1996 vide notice dated 5-11-1996. Thereafter, a long period was over and the final process under Section 29 of the Act was resorted to vide notice dated 23-6-1999. Even from this date one full year was taken to finalize the sale process. Hence, by no stretch of imagination it can be said that the AFC sold out the property in a clandestine manner. Besides this, the writ petitioners themselves have admitted in the writ petition that the local daily "Agradoot" is a widely circulated news paper in Guwahati and in the nearby districts. It is needless to say that Guwahati is the commercial city of the entire north eastern region. Hence, publication of auction notice in one local daily of Guwahati cannot be termed as limited circulation of the intended auction sale of the property. It is also worth mentioning here that the tender notice was published in the news paper on 27-4-2000 and the date of receipt of tenders was fixed on 30-5-2000. In this way sufficient time was also given to the prospective bidders. Co-incidently the writ petitioners were also permanent residents of Guwahati, and as such, the tender notice could have not escaped their notice.
12. We also gather from the record that initially Dr. Biraj Saikia had offered a sum of Rs. 30 lakhs one thousand against 10 Kathas of land. However, the said purchaser was persuaded to pay a sum of Rs. 57 lakhs since that was the amount due to the AFC by the borrower. In the bargain the AFC agreed to give 14 Kathas of land. We hasten to add here that the respondents had mortgaged 6 Bighas of land and the appellant was however free to realize its loan amount by selling the entire land. However, they treaded cautiously and agreed to sell less then 3 Bighas of land. All these precautionary steps taken by the AFC cannot be ignored by us in determining the bona fide of the transaction.
13. One more pertinent question was raised in the the writ petition that the AFC did not allow the petitioners to purchase the land by a 3rd party by issuing no-objection. The record no doubt shows that the Life Insurance Corporation of India and two more persons had shown sore interest to purchase the land in piecemeal. However, no concrete offer was given by the LIC, and the other persons. Hence we have no hesitation to say that the borrowers were not prevented from selling their land at a higher price to redeem their loan.
14. The writ petitioners have also approached this Court with an allegation of mala fide on the part of the AFC, by way of keeping them in dark about the auction of landed property. However, the record speaks otherwise. We find that earlier also the respondents had instituted Writ Petition (C) No. 3180 in the year 1999. Vide order dated 28-5-99 the borrowers were directed to deposit 50 per cent of the dues, which was nearly 52 lakhs as on that date, on or before 18-7-1999. However, this interim order was not complied with and ultimately the said writ petition was dismissed. Not only this, the respondents were apprised of the proposed auction under Section 29 of the SFC Act in advance and also finally the offer of Dr. Biraj Saikia was communicated to them vide letter dated 25-6-2000. However, the respondents failed to seize the opportunity to avoid the consequence of sale of one part of the landed property.
15. Alter surveying the entire facts and circumstances of the case, we are of the opinion that the direction of the learned single Judge for de-novo process of sale of land is unwarranted in the light of the legal principles laid down by the Apex Court. We are of the view that Courts should act cautiously while examining the process of realization of arrear dues of financial corporations, as ills not an appellate authority of such statutory bodies. The Courts can interfere in the process only if there is violation of the statutory provisions or established canons of the principles of fairness. In the present case, we do not see any such breach of the settled legal principles. Hence, with due respect, we set aside the impugned Judgment and order passed by the learned single Judge. The appeal is allowed. The AFC is allowed to formalise the sale with Dr. Biraj Saikia.
16. The writ appeal stands allowed. However, we do not propose to award any cost.