Patna High Court
Smt. Sita Devi vs The Bihar State Financial Corporation ... on 28 March, 2003
Equivalent citations: AIR2003PAT92, I(2005)BC6, 2003(2)BLJR965, AIR 2003 PATNA 92, (2003) 3 PAT LJR 296, 2003 (2) BLJR 965, 2003 BLJR 2 1255, 2003 BLJR 2 965, (2003) 3 BLJ 49, (2003) 2 PAT LJR 453, (2005) 1 BANKCAS 6
Author: Aftab Alam
Bench: Aftab Alam
JUDGMENT Aftab Alam, J.
1. The Indian Contract Act is indeed an old Act of 1872. But that does not mean that its provisions have become otiose or are un-enforceable. The Bihar State Financial Corporation does not seem to realise this simple truth and that lies at the root of this litigation.
2. The petitioner was informed that her deceased husband had defaulted in the repayment of the Corporation's loan with regard to the unit held by him, namely, M/s. Sahu Mills, Vidyapati Nagar, Samastipur; that the Corporation had, therefore, decided to recover its loans by selling the unit in favour of M/s. Alliance Agro Industries (P) Limited from whom it had received the best offer in response to the auction sale notice published under Section 29 of the State Finance Corporation Act, 1951. The Corporation further informed the petitioner that before the sale of the unit was finalised in favour of M/s. Alliance Agro Industries, it would be open to her to retain the unit by clearing in full the balance outstanding. The Corporation stated a certain sum as its dues as on 31-12-1999 and required her to make an initial cash down payment of a sum equal to 30% of the outstanding dues and to repay the balance in the manner specified in the Corporation's communication. The petitioner accepted the offer and paid 30% of the amount intimated to her as the balance outstanding. Later on, she was told by the Corporation that the balance outstanding was in fact a much higher sum and still later the amount of the outstanding dues was further revised to a still higher figure. Faced with the repeated upward revisions of the amount of outstanding dues, the petitioner gave up the idea to retain the unit and requested for refund of the deposit made by her in response to the first offer made by the Corporation. The Corporation denies the petitioner the refund of the amount deposited by her and takes the stand that being the widowed wife of the defaulting loanee, the petitioner was in any event bound to repay the loan and hence, any money paid by her under any circumstances was not refundable and must go towards the repayment of the loan.
3. The stand taken by the Corporation plainly appears to this Court to be contrary to the provisions of the Contract Act. But in order to properly appreciate the case, it would be necessary to take note of some basic facts which may be stated in brief as follows.
4. The unit in question viz., M/s. Sahu Mills, Samastipur was set up by one Asharfilal Sahu (the original promoter) by taking loan of Rs. 90,000/- from the Corporation in the year, 1971. The loan was repayable with interest @ 7.5%. He defaulted in repayment of the loan and the unit was put up for auction sale under Section 29 of the Act. In response to the sale advertisement, Dhirendra Pd. Singh, the deceased husband of the petitioner submitted his tender offering to purchase the assets of the unit for a consideration equal to the total outstanding dues, amounting to Rs. 1,25,866.75 at that time. The Corporation accepted his tender and he was issued sale order on 24-10-1983 and the possession of the unit was handed over to him on 24-1-1984. Later, he executed an agreement, dated 25-3-1987 in which he agreed to pay interest on the unpaid balance@ 16.5% with rebate of 2% per annum for timely payments. He, however, like the original promoter defaulted in making payment of the instalments and as a result the dues of the Corporation kept on increasing with the accumulation of interest. Dhirendra Pd. Singh later died in the year, 1997.
5. The Corporation, in order to recover its dues, once again put up the unit for auction sale under Section 29 of the Act and this time the best offer was received from M/s. Alliance Agro Industries (P). Limited A tentative decision was, therefore, taken to sell the unit in favour of M/s. Alliance Agro Industries and an order was issued by the Managing Director of the Corporation under his Memo No. Z-11/611/ 99-2000, dated 5-2-2000. Paras 1 and 2 of this order, in so far as relevant for the present are reproduced below:
"1. The consideration amount for the sale will be the total balance outstanding (BOS) as on date of handing over the assets or execution of legal document; whichever is earlier and the initial cash down payment shall be 30% of the same.
"2. The purchaser shall make an initial cash down payment of Rs. 1,06,125.32 (including earnest money of Rs. 20,000/-) to BSFC which is an amount equivalent to 30% the total BOS as on 31-12-1999 amounting to Rs. 3,35,751.06 by Demand Draft after 21 days (but not exceeding 30 days) from the date of issue of this order, failing which the tender money will be liable to be forfeited."
6. A copy of this order was sent to the petitioner by registered post with the following endorsement:
"If she so wishes she may retain the unit on matching terms and conditions as contained in the sale order, and if she agrees to pay and submit suitable repayment plan and, accordingly if they make the payment within 21 (twenty one) days from the date of issue of the sale order, and if their payment and plan is found acceptable by the Corporation in terms of the sale order."
7. The petitioner accepted the option given to her and deposited three bank drafts of Rs. 106,125.32 (including, the earnest money of Rs. 20,000/-) on 26-2-2000. The draft amounts were credited to the Corporation's account on 28-2-2000. She then wrote a letter requesting the Corporation to revertify the balance outstanding and to give her a copy of the ledger extract to verify her account. It is stated on behalf of the Corporation that in the light of the payment made by the petitioner, it was decided to take 28-2-2000 as the cut-off date for calculation of balance outstanding which would be the consideration amount for the sale. The petitioner was then issued the communication, dated 14-6-2000 from the Branch Manager, Samastipur branch of the Corporation by which she was intimated that the balance outstanding as on 29-2-2000 was Rs. 5,58,321.59. On the same day she made a further deposit of Rs. 35,000/- as required by the Corporation. But when she protested against this upward revision in the amount of the outstanding dues, she received from the Corporation a revised order, dated 6-12-2000. !n the revised order, it was stated that the balance outstanding as on 28-2-2000 was Rs. 8,18,072.59 and, therefore, the initial cash down payment must also be an amount equivalent to 30% of this sum. The petitioner was required to make the payment of the balance amount within 21 days from the date of issuance of that order. At this stage the petitioner declined the offer and requested the Corporation to refund the amount of Rs. 1,41,125.32 deposited by her.
8. Here it is necessary to clarify that the upward revisioned of the outstanding dues are not due to the passage of tieme and it is not the case that the balance outstanding of Rs. 3,53,751.06 was on 31 -12-1999 and the revised balance outstanding of Rs. 8,18,0872.59 appertained to a later dated, 28-2-2000. Any increase in the balance outstanding due to passage of time would be marginal. Moreover, it is plainly admitted by the Corporation that the upward revision in the outstanding dues was on account of a mistake in calculation in its office.
9. In the revised order, dated 7-12-2000 it is explicitly and repeatedly stated that the figure of Rs. 3,53,751.06 was arrived at by calculating interest @ 7.5% that was applicable in the case of the original promoter Asharfilal Sahu but it was later realised that the husband of the petitioner on purchase of the unit had executed an agreement on 25-3-1986 in which it was stipulated that interest would apply @ 16.5%. On calculating interest at the higher rate of 16.5% from the date of his purchase of the unit (24-1-1,984), the balance outstanding swelled upto the higher figure of Rs. 8,18,072,59. This is the explanation offered by the Corporation for revising and enhancing the outstanding dues against the unit.
10. From the facts stated above, what clearly emerges can be summarised thus:
(i) In the initial order, dated 5-2-2000 the balance outstanding against the unit as on 31-12-1999 was shown as Rs. 3,53,751.06.
(ii) It, was represented to the petitioner that she could retain the unit for a consideration equal to the total balance outstanding for which a payment schedule was also specified in the order.
(iii) The petitioner accepted the offer and made payments as indicated in the order.
(iv) Later on, the Corporation unilaterafly revised the balance outstanding to a figure more than twice the original amount and, thus, caused a material change in the terms and conditions of its offer to the petitioner.
11. A question, therefore, arises; can the Corporation do so and can the Corporation insist that the petitioner must stick to the deal or the deposits made by her would be forfeited and adjusted against the dues with regard to the unit? To my mind the answer to this question is to be found in certain provisions of the Indian Contract Act, 1872. Section 18 (1) of the Act defines 'misrepresentation' as follows:
"18. (1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true,"
12. It is, thus, manifest that the amount of the balance outstanding shown in the initial order, dated 5-2-2000 amounted to misrepresentation even though the Corporation believed it to be true. The consequence of this is provided in Section 19 of the Act which is as follows :
"19. Voidability of agreements without free consent.--When consent to an agreement is caused by coercion, fraund or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused." "A party ................"
13. I have, therefore, no hesitation in holding that it was perfectly open to the petitioner to opt out of the deal and to ask for the refund of the money deposited by her and the Corporation has no legal way to forfeit the money and/or to adjust it towards the repayment of loan in respect of the unit.
14. Mr. J.P. Shukla, Senior Advocate appearing for the Corporation submitted that Dhirendra Pd. Singh, the deceased husband of the petitioner had executed, apart from the standard loan agreement, a deed of personal guarantee and he was, therefore, personally bound to repay the loan. He further submitted that after his demise his wife, the present petitioner stepped into his shoes and she was, therefore, equally obliged to repay the loan.
15. In my view, this does not provide sufficient legal basis for the Corporation to forfeit the deposits made by her. In the facts and circumstances noted above it is undeniable that the petitioner herself did not execute any deed of guarantee or any loan agreement. It is also not know who else besides the petitioner are the heirs and legal representatives of the deceased Dhirendra Pd. Singh. In these circumstances, it is not free from doubt that the Corporation can proceed solely against the petitioner for recovery of its dues. Further, even if it is assumed that the petitioner "stepped into the shows of her deceased husband" that would only mean that the Corporation can proceed against her for recovery of its dues under the provisions of law and the terms and conditions of the different agreements. But certainly, the Corporation cannot retain the amount deposited by her on a misrepresentation of facts.
16. Any justification of the forfeiture of the amount deposited by the petitioner would almost amount to allowing the Corporation to extort money from its loanees/ guarantors by any unlawful means and to retain it on the plea of recovery of its loan. A large number of loaness may act in derogation of the terms of the contract but that would not justify the Corporation to try to recovery its loans by taking recourse to unlawful means. Viewed thus from any angle, the action of the Corporation in refusing to refund the money deposited by the petitioner appears to this Court to be completely untenable.
17. In the light of the discussions made above, the Corporation is directed to refund to the petitioner the sum of Rs. 1,41,125.32 along with simple interest @ 5% from the date of deposit till the date of actual payment. The payment as directed must be made within one month from the date of receipt/production of a copy of this order.
18. It must, however, be clarified that it will be open to the Corporation to recover its loan by any lawful means, that is to say, either by putting up the mortgaged assets of the unit for sale under Section 29 of the Act and/or (if the agreements permit) by instituting a proceeding under the Public Demands Recovery Act or by any other legal means. Any proceedings(s) instituted by the Corporation for the recovery of its dues shall not be prejudiced by this decision.
19. In the result, this writ petition is allowed but with no order as to costs.