Karnataka High Court
Regional Oilseeds Growers ... vs The State Of Karnataka on 7 July, 2023
Author: R Devdas
Bench: R Devdas
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NC: 2023:KHC:23513
WP No. 28638 of 2016
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 7TH DAY OF JULY, 2023
BEFORE
THE HON'BLE MR JUSTICE R DEVDAS
WRIT PETITION NO. 28638 OF 2016 (CS-RES)
BETWEEN:
REGIONAL OILSEEDS GROWERS CO-OPERATIVE
SOCIETIES UNION LTD.,
PLOT NO.74/A, KELAGOTE INDUSTRIAL AREA,
CHITRADURGA-577 501
BY ITS MANAGING DIRECTOR
B.C. ANAND S/O L. CHAMEGOWDA,
AGED ABOUT 54 YEARS
...PETITIONER
(BY SRI. JAI PRAKASH REDDY .M, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA,
DEPARTMENT OF FINANCE,
REPRESENTED BY ITS SECRETARY,
M.S. BUILDING, BANGALORE 560 001.
Digitally signed by
RENUKAMBA K G 2. THE ADDITIONAL REGISTRAR OF
Location: High CO-OPERATIVE SOCIETIES (C&M),
Court of ALI ASKER ROAD, BANGALORE-560 001.
Karnataka
3. THE JOINT REGISTRAR OF
CO-OPERATIVE SOCIETIES,
CHAMARAJPET BANGALORE-560 004.
4. THE POLICE INSPECTOR,
TOWN POLICE STATION,
CHITRADURGA-577 001.
5. KARNATAKA STATE FINANCIAL CORPORATION,
NEAR BASAVESHWARA THEATER,
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NC: 2023:KHC:23513
WP No. 28638 of 2016
CHITRADURGA-577 501,
BY ITS MANAGER.
6. KARNATAKA INDUSTRIAL AREA
DEVELOPEMTN BOARD, ZONAL OFFICE,
PLOT NO.CA(1-B), KARUR INDUSTRIAL AREA
DAVANAGERE-577 005
BY ASSISTANT SECRETARY
7. H RAMACHANDRAIAH
S/O HANUMAPPA, AGE MAJOR
EX ZILLA PANCHAYTH MEMBER,
3RD MAIN ROAD MUNICIPAL COLONY,
CHITRADURGA-577 501.
...RESPONDENTS
(BY SMT. A.R. SHARADAMBA, AGA FOR R1 TO R4,
SRI. BIPIN HEGDE, ADVOCATE FOR R5,
SRI. P.V. CHANDRASHEKAR, ADVOCATE FOR R6,
SRI. D.S. RAMACHANDRA, ADVOCATE FOR R7)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF CONSTITUTION OF INDIA, PRAYING TO QUASH
THE ORDER DTD 2/4.5.2016 AT ANNEXURE-P ISSUED BY R-
3 AND DIRECT THE RESPONDENTS-1 TO 4 NOT TO DISTURB
THE POSSESSION OF THE PETITIONER IN INDUSTRIAL PLOT
NO.61 & 62 OF KELAGOTE KIADB INDUSTRIAL AREA,
BANGALORE ROAD, CHITRADURGA, EXCEPT UNDER DUE
PROCESS OF LAW.
THIS PETITION COMING ON FOR PRELIMINARY
HEARING THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioner-Regional Oilseeds Growers Co- operative Societies Union Ltd., ('Union' for short) is aggrieved by the impugned order dated 2/4.05.2016 at -3- NC: 2023:KHC:23513 WP No. 28638 of 2016 Annexure-P passed by the 3rd respondent-Joint Registrar of Co-operative Societies, Bengaluru.
2. The petitioner-Union had participated in a Public Auction conducted by the 5th respondent- Karnataka State Financial Corporation, Chitradurga ('KSFC' for short) putting up for auction, the Industrial Site in question, which belonged to the borrower-7th respondent. It should be clarified that the 7th respondent had in his favour a lease-cum-sale agreement at the hands of 6th respondent-Karnataka Industrial Area Development Board, Davangere ('KIADB' for short) and as permitted by the Regulations of the KIADB, the 7th respondent had mortgaged the lease hold rights derived under the lease-cum-sale agreement in favour of the 5th respondent-KSFC. When the 7th respondent failed to repay the loan taken from the KSFC, the KSFC proceeded to auction the secured assets of the borrower. The petitioner-Union participated in the auction held on 31.07.2007. The -4- NC: 2023:KHC:23513 WP No. 28638 of 2016 petitioner-Union quoted Rs.5,25,000/- for the property in question, which was accepted by the KSFC. On payment of the bid amount and after fulfillment of all the conditions, the KSFC requested the KIADB to transfer the lease-hold rights in favour of the auction purchaser i.e., the petitioner/Union. The KIADB informed the KSFC regarding the arrears payable by the allottee, which was to be paid by the auction purchaser and after the petitioner-Union paid the arrears to the KIADB, the KIADB proceeded to transfer the lease hold rights in favour of the petitioner-Union under Lease Hold Rights agreement dated 19.02.2009. Immediately after the transfer of lease hold rights, an agreement was executed by the KIADB on 19.02.2009. In fact, it is pointed-out from Annexure-B, which is a delivery note/possession certificate issued by the KSFC on 31.07.2007, that the petitioner-Union was put in possession on 31.07.2007 itself. Thereafter, a sale deed was executed by the KIADB in favour of the petitioner- Union on 28.08.2022.
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3. Nevertheless, it appears that the 7th respondent-Sri. H. Ramachandraiah approached the Hon'ble Governor complaining that the KSFC has treated him in violation of the Laws and Regulations governing the recovery of loans and the Laws governing auction of the properties belonging to a person coming from the Scheduled Caste category. It was alleged that, although the KSFC was required to give the benefit of reduced interest in favour of the persons belonging to the Scheduled Castes and Scheduled Tribes category, the KSFC has levied interest at the rate of 21% and more. It was contended that the 7th respondent had only borrowed a sum of Rs.16,00,000/- and odd from the KSFC and whereas what was demanded by the KSFC in the year 2004 was more than Rs.01 Crore. It was contended that, by that time, the 7th respondent had already paid more than Rs.08.00 Lakhs. The 7th respondent had sought for the benefit of OTS Scheme and offered to pay a further sum of Rs.5,00,000/- to the KSFC. However, the request made by the 7th -6- NC: 2023:KHC:23513 WP No. 28638 of 2016 respondent was not acceded to and the KSFC proceeded to put all the secured assets of not only industrial site in question, but also 08 other residential sites belonging to the 7th respondent. It was contended that, although the market value of the property in question was more than Rs.1,60,00,000/-, it was sold for a paltry sum of Rs.5,25,000/-. It was contended that the machineries in the Industrial Unit was sold for a sum of Rs.1,45,000/- and all the other residential sites numbering 08 were sold for a sum of Rs.20,95,555/-. In all the KSFC recovered a sum of Rs.35,76,818/-. It was contended that, when the 7th respondent offered to pay Rs.5,00,000/-, the KSFC did not accept it and on the other hand, it sold the properties in question for a sum of Rs.5,25,000/- in favour of the petitioner-Union.
4. The Hon'ble Governor directed the State Government to look into the matter. The State Government in turn directed the officers of the Civil Rights Enforcement Cell to look into the matter and -7- NC: 2023:KHC:23513 WP No. 28638 of 2016 submit a report to the Government. At the same time, the 7th respondent again made a request to the Government and for the second time, the State Government directed the 3rd respondent-Joint Registrar Of Co-Operative Societies (herein after referred to JRCS) to look into the matter, since the said petitioner Co-operative Society was governed by the provisions of Karnataka Co-operative Societies Act. Consequent to the directions issued to the 3rd respondent-JRCS, the 3rd respondent-JRCS passed the impugned order dated 2/4.05.2016 at Annexure-P, directing the petitioner- Union to hand over the property in question to the 7th respondent.
5. Learned counsel for the petitioner-Union submits that, neither the Government nor the 3rd respondent-JRCS has the power to direct the petitioner- Union to hand over the property in question, which was purchased by the petitioner-Union in a public auction in terms of the provisions of the State Financial -8- NC: 2023:KHC:23513 WP No. 28638 of 2016 Corporations Act, 1951 (herein after referred to SFC Act). It is submitted that, if the 7th respondent was aggrieved, he should have questioned the action of the respondent-KSFC in putting the property for auction and the action of the respondent-KIADB in transferring the lease hold rights of the 7th respondent in favour of the petitioner-Union. At any rate, it is submitted that there is no provision of law, which could be cited by the State Government or the 3rd respondent-JRCS which would enable the State and its authorities to direct the petitioner-Union to hand over the property in question in favour of the 7th respondent. It is contended that no cause of action arose for the 7th respondent to have invoked the jurisdiction of the State Government or the 3rd respondent-JRCS to question the action of the 5th respondent-KSFC in auctioning the property of the 7th respondent. That being the position, it is submitted that the impugned order passed by the 3rd respondent-JRCS at Annexure-P is required to be set aside. -9-
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6. Per contra, learned counsel for the 7th respondent submits that the 7th respondent did not request the State Government to direct the 3rd respondent JRCS to take action. On the other hand, the power is available with the State Government under the provisions of the SFC Act, 1951 in the form of Section
39. Learned counsel submits that, Section 39 of the SFC Act more particularly sub-Section (2B) of Section 39 empowers the State Government to issue directions or advise the KSFC and sub-section (3) of Section 39 enables the State Government to take further action, if the directions issued to the State Government are not followed by the 5th respondent-KSFC. Even otherwise, it is submitted that, this Court should take note of various judgments of the Hon'ble Supreme Court including the decision in Mahesh Chandra Vs. The Regional Manager, U.P. Financial Corporation and others (AIR 1993 SC 935), wherein it was held that, the State Financial Corporation is a trustee of the Debtor or the person claiming title through him. It saddles the
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NC: 2023:KHC:23513 WP No. 28638 of 2016 Corporation or the officer concerned with in-built duties, responsibilities and obligations towards the debtor in dealing with the property and entails him to act as a prudent and reasonable man standing in the shoes of the owner.
7. Learned counsel submits that the Apex Court has held that the officers of the State Financial Corporations are duty bound to act fairly and reasonably while dealing with the secured assets of the borrowers. The guidelines were issued by the Hon'ble Supreme Court in the said case, which makes it clear that if a Unit Holder is willing to offer the sale price as the tenderer, then he should be offered the same facility and unit should be transferred back to him. It was also directed that under such circumstances, the arrears remaining thereafter should be re-scheduled to be recovered in installments with interest. The directions by the Apex Court are required to be followed while the secured assets are put for auction. The learned counsel
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NC: 2023:KHC:23513 WP No. 28638 of 2016 submits that, the 7th respondent had offered to pay Rs.5,00,000/- way back in the year 2004, but the KSFC declined to accept the said sum. On the contrary, the KSFC proceeded to auction the property and accepted Rs.5,25,000/- at the hands of the petitioner-Union. This shows that, the intention of the officers of the KSFC was clearly against the 7th respondent. It is contended that, even at the time of valuation made for the property during the year 1992-93 when the property was offered as a collateral security at the time of availing facility from the KSFC, the valuation of the property was more than Rs.5,00,000/-. That being the position, the action on the part of the officers of the KSFC in accepting a sum of Rs.5,25,000/- at the hands of the petitioner- Union was clearly coloured with malafide intentions only to knock off the valuable property from the 7th Respondent. Learned counsel would further submit that the officers of the Civil Rights Enforcement Cell have also submitted a report to the State Government, which clearly shows that, all was not well with the action on
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NC: 2023:KHC:23513 WP No. 28638 of 2016 the part of the 5th respondent-KSFC. The 3rd respondent-JRCS having noticed all these aspects has proceeded to pass the impugned order, which is clearly based on the principles of equitable justice. The technicalities sought to be contended at the hands of the petitioner-Union should not be accepted.
8. Learned counsel for the 5th respondent-KSFC had furnished the original records on the asking of this Court. Learned counsel submits that the original records would show that the 7th respondent had consented for the value offered by the petitioner-Union and after the 7th respondent accepted the same, the 5th respondent-KSFC proceeded to receive the bid amount at the hands of the petitioner-Union. Learned counsel would further submit that the auction was conducted in the year 2007 and the 7th respondent moved the State Government only in the year 2013 after a lapse of nearly 07 years. Learned counsel would reiterate the submissions made by the learned counsel for the
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NC: 2023:KHC:23513 WP No. 28638 of 2016 petitioner/Union that, the 3rd respondent-JRCS had no power to have interfered in this matter and to have passed the impugned order. All actions taken by the 5th respondent-KSFC arise out of the powers conferred on the KSFC under the SFC Act, 1951. The remedy for a person aggrieved by the KSFC is only available under the provisions contained in the SFC Act, 1951 and not under the provisions of the Karnataka Co-operative Societies Act. Learned counsel would further submit that the judgment cited by the learned counsel for the 7th respondent in the case of Mahesh Chandra (Supra) has been watered down by a subsequent judgment of the Larger Bench in the case of Haryana Financial Corporation and Another Vs. Jagadamba Oil Mills and Another [(2003) 3 SCC 496]. Learned counsel submits that the Larger Bench of the Hon'ble Supreme Court has clearly held that the view taken in Mahesh Chandra's case would give a premium to a dishonest borrower. On the other hand, the view expressed in the case of U.P. Financial Corporation Vs. Gem Cap
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NC: 2023:KHC:23513 WP No. 28638 of 2016 (India) Pvt. Ltd. and Others reported in (1993) 2 SCC 299 was held to be more inline with the Legislative Intent. Learned counsel would further submit that, at any rate, the impugned order passed by the 3rd respondent-JRCS cannot be sustained.
9. Having heard the learned counsel for the petitioner, the contesting respondent No.7, learned counsel for the 5th respondent-KSFC, learned counsel for the 6th respondent-KIADB and the learned AGA and on perusing the petition papers, this Court finds that, on the face of it, it is clear that the 3rd respondent-JRCS could not have passed the impugned order invoking the provisions contained in the Karnataka Co-operative Societies Act, to direct the petitioner-Union to hand- over the property in question to the 7th respondent. No such cause of action arose for the 3rd respondent-JRCS, even if direction was given by the State Government to look into the matter and pass necessary orders. As rightly contended by the learned counsels for the
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NC: 2023:KHC:23513 WP No. 28638 of 2016 petitioner as well as the 5th respondent-KSFC, the Law governing the sale of property which was offered as a collateral security at the hands of the 7th respondent is as contained in the provisions of the SFC Act, 1951.
10. However, it is little disturbing to note that although the 7th respondent had an opportunity to move this Court invoking the writ jurisdiction, he did not do so at the relevant point of time, i.e., in 2007 when the property was brought for auction. On going through the material available on record including the original records that were produced by the learned counsel for the 5th respondent-KSFC, this Court finds that many of the contentions raised at the hands of 7th respondent are justified. The 7th respondent indeed offered to pay a sum of Rs.5,00,000/- under the OTS Scheme. However, the offer made by the 7th respondent was not accepted by the 5th respondent-KSFC. On the other hand, the 5th respondent-KSFC went ahead, accepting a sum of Rs.5,25,000/- at the hands of the petitioner-
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NC: 2023:KHC:23513 WP No. 28638 of 2016 Union. Several directions have been given by the Hon'ble Supreme Court including the case cited by the learned counsel for the 5th respondent-KSFC in Haryana Financial Corporation's case (supra) upholding the view taken in the case of GEM CAP (supra), where it has been held that the approximate market value of the property should be shown in the Auction Notice. There are many other contentions raised at the hands of the 7th respondent, which would merit consideration. Unfortunately the 7th respondent did not move the right Forum challenging the action of the 5th respondent- KSFC. But, the impugned order passed by the 3rd respondent-JRCS cannot be permitted to interfere in the matter between the 5th respondent-KSFC and the 7th respondent.
11. During the course of arguments, learned counsel for the 7th respondent submitted that, the 7th respondent may be permitted to avail of any other remedy that would be available for him in accordance
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NC: 2023:KHC:23513 WP No. 28638 of 2016 with law. Consequently, this Court proceeds to dispose of this writ petition, while setting aside the impugned order at Annexure-P passed by the 3rd respondent- JRCS, at the same time, granting opportunity to the 7th respondent to avail of any other remedy that may be available to him, in accordance with law.
Ordered accordingly.
Sd/-
JUDGE KGR* List No.: 1 Sl No.: 6