ORDER
K.P. Sivasubramaniam, J.
1. The petitioner seeks for the issue of a writ of declaration declaring that the alleged sale dated 15.2.1996 said to have been executed by the first respondent in favour of the fourth respondent in purported exercise of their power under Section 29 of the State Financial Corporations Act and as intimated by the third respondent in letter dated 14.3.1996 was unconstitutional and void.
2. The petitioner contends that his wife R. Kasthuri started a unit for manufacturing of biscuits and allied food products and she established a unit with a building and machinery worth about 5.73 lakhs. She had approached the first respondent for financial assistance and by letter dated 5.8.1989 the first respondent had sanctioned a term loan for Rs. 4.50 lakhs after hypothecating plant and machinery. The petitioner, her husband stood as a guarantor and offered the land measuring 7.95 cents in T.S. No. 402/2 and the building. The petitioner further contends that even though moratorium was granted for a period of one year without adhering to the same, the respondents started demanding payment of the amount even before the expiry of the one year. This resulted in subsequent issuing of foreclosure notice dated 10.12.1991. The petitioner claims to have deposited a sum of Rs. 20, 000/- as demanded by the first respondent during January, 1994. It is further claimed that the borrower paid a sum of Rs. 1, 00, 000/- in April, 1994 under three pay orders and subsequently in between May, 1994 and March, 1995 remitted a sum of Rs. 1, 35, 000/-. The liability was reduced to Rs. 3.61 lakhs from Rs. 4.5 lakhs. As directed by the respondents, the borrower also called on the Branch Manager and discussed the matter with him and the Branch Manager permitted the borrower to settle the dues by making periodical payments.
3. However, the third respondent issued a notice on 19.4.1995 to the petitioner invoking power under Section 29 of the State Financial Corporations Act, 1951, hereinafter called “the Act”, . It was stated in the said notice that a tender-cum-public auction was proposed to be held on 27.4.1995. Immediately the petitioner approached the third respondent and informed him that the notice dated 19.4.1995 was without jurisdiction and he also requested for the grant of time to enable the borrower to settle the dues. But at the instigation of some third parties according to the petitioner, the respondents had issued notice on 3.8.1995 mentioning the upset price at Rs. 16.92 lakhs. The petitioner again approached the third respondent and informed him that he had no jurisdiction to proceed against him by bringing for sale the property given as collateral security. The petitioner further states that he was served with a letter dated 1.2.1996 from the third respondent stating that they had received only an offer of Rs. 8.50 lakhs on outright sale and that an opportunity was given to the petitioner to retain the asset and that the petitioner should pay 10 per cent of the bid amount within 10 days and the balance of 90 per cent within 30 days, failing which further action would be taken with reference to the sale already conducted. The petitioner contends that in the letter dated 1.2.1996, the name of the person who had offered a sum of Rs. 8.5 lakhs was not disclosed. It is further submitted that the letter was served on the petitioner only on 5.2.1996 and the period of 10 days time would expire only on 15.2.1996. However, on the very next day, he approached the Officer concerned. As the petitioner was not in a position to raise money at the relevant point of time, he made a representation dated 14.2.1996 objecting to the sale and also requested for further time to have private negotiations. As the respondents refused to receive his representation dated 14.2.1996 the petitioner sent the same by Registered Post with Acknowledgement due. The petitioner contends that as the sale was not in the proper exercise of the power under Section 29 of the Act and as the sale was conducted with mala fide intention to favour the fourth respondent he had filed the writ petition.
4. In the counter filed by respondents 1, 2 and 3 after referring to the loan transaction which was sanctioned in favour of the wife of the petitioner, respondents contend that they did not make any demand for the payment of the principal amount within a period of moratorium of one year. The Corporation also had given credit to the payment made by the borrower. The borrower had repaid only Rs. 28, 156.65 prior to the foreclosure. As the dues were mounting the accounts were foreclosed and notice was issued on 10.12.1991. It is further stated that the borrower had sold the machinery hypothecated to the Corporation and had remitted a sum of Rs. 80, 000/- on 25.5.1994, Rs. 5, 000/- on 6.6.1994 and Rs. 2, 000/- on 24.8.1994. That being so, on 21.4.1994 the borrower had addressed a letter to the first respondent claiming to have enclosed three pay orders for Rs. 1, 00, 000/- representing the sale proceeds of the machinery, but the said letter was not enclosed with the pay orders. The borrower had so far paid only Rs. 1, 68, 656.65 and the claim that the borrower had paid a sum of Rs. 1, 35, 000/- was incorrect and denied.
5. Therefore, the Corporation left with no other option than to proceed with the collateral security, after completing the formalities and also after informing about the auction of the sale of the property offered as collateral security vide notice dated 19.4.1995 and auction was conducted. However, as the offer received was not consistent with the norms of the Corporation, the offer was rejected. The property was again brought for auction in as is where is condition. Another auction was conducted on 8.8.1995 about which also the petitioner was also informed on 3.8.1995. The offerer had bid at Rs. 8.50 lakhs on outright payment basis. The petitioner was informed about the same so as to enable him to save his property by paying the amount. As the petitioner did not comply with the offer, the sale deed was registered in favour of the successful offerer on 15.2.1996.
6. In the counter filed by the fourth respondent/purchaser after stating the particulars relating to the advertisement relating to the sale of the property, he has contended that after the auction was conducted he was directed by the first respondent to increase the bid amount from Rs. 6, 50, 000/- to Rs. 8, 50, 000/- on outright sale basis. Subsequently on 14.2.1996 he was informed by the second respondent that his offer at Rs. 8, 50, 000/- was found acceptable and was subject to the condition he pays the balance of Rs. 7, 89, 500/- within 30 days. He had also remitted the balance amount and document of sale was registered on 15.2.1996. The other contentions raised by the petitioner were also denied by the fourth respondent.
7. Learned counsel for the petitioner contends that even though the loan was sanctioned on 5.8.1989, there was no proper disbursement of the full amount and demand had been made even before the due date which resulted in the borrower facing problems and not being able to comply with the obligations under the loan transaction. It is further submitted that even though the foreclosure was ordered on 10.12.1991, subsequently also payments were made and received. It is further stated that the possession was still with the petitioner. As such the respondent was obliged to reschedule the payment and to allow the industry to survive. It is further contended that as a mortgagor he was entitled to redeem the mortgage under Section 60 of the Transfer of Property Act and that until confirmation of sale he was entitled to deposit the sale amount and the property was bound to be redeemed. The provisions of C.P.C. and Transfer of Property Act were applicable to the proceedings under the State Financial Corporation Act. It is further stated that the property offered as security by the guarantor cannot be brought to sale under Section 29 of the Act. The property was a very valuable property and has been knocked away at a very low price in collusion with the third party purchaser.
8. Learned counsel for the Corporation contends that from the beginning the action of the petitioner was not at all bona fide. The machineries were sold without prior permission or intimation to the Corporation. After 1994 there was no payment which forced the Corporation to proceed further with the sale. The first auction was conducted on 27.4.1995 and the second auction was conducted on 18.8.1995 with due notice to the borrower. Thereafter also the borrower was informed about the highest offer and was directed to pay the said amount. It was also not complied with and the borrower could not even pay 10 per cent of the bid amount. However, the petitioner asked for time by three months which the borrower knows very well that it was not possible for the Corporation to accept the offer as the third party’s interest had intervened.
9. Learned counsel for the third party purchaser/fourth respondent contends that the petitioner was informed about the sale and was aware of the sale proceedings. He had received the notice on 3.2.1996 itself and not on 5.2.1996 as claimed by the petitioner. There was absolutely no bona fides in the various contentions raised by the petitioner.
10. In reply, learned counsel for the petitioner relies on the judgment of the Supreme Court in STATE FINANCIAL CORPN. v. M/S .JAGADAMBA OIL MILLS in support of his contention that the purpose of lending by the Financial Corporation was to promote industrialisation.
11. Learned counsel for the petitioner also relies on the judgment of the Supreme Court in MAGANLAL v. M/S . JAISWAL INDUSTRIES, NEEMACH . Reliance is placed on the observation that the debtor can invoke provisions under Order 34, Rule 5 C.P.C. and redeem the mortgage.
12. Further reference is made to the judgment of the Supreme Court in NEW KENILWORTH HOTELS (P) LTD. v. ASHOKA INDUSTRIES LTD. . Learned counsel relies on the observation that Section 29 of the Act does not take away the mortgagor’s statutory right of redemption under Section 60 of the Transfer of Property Act and that until confirmation of the sale, the mortgagor has the right to deposit the entire sale amount and the Court was bound to direct the redemption of the mortgage.
13. I have considered the submissions of both sides. In a proceeding of this nature where the sale has been completed in favour of the third parties, the discretion of the Court becomes restricted unlike at the stage where the interest of any third party is not involved. Even in the judgment of the Supreme Court relied upon by learned counsel for the petitioner in , supra, the Supreme Court has held that interference by the Court was not permissible unless there was a statutory violation or Corporation acts unfairly and unreasonably. Consideration of the facts and circumstances relating to the writ petition shows that admittedly not only the borrower was in default, but the borrower had also sold the machinery hypothecated to the Corporation in a clandestine manner without the permission of the Corporation. Not being satisfied with the said conduct, addresses a letter to the first respondent on 21.4.1999 making it appear as though three pay orders were enclosed with the letter for a total sum of Rs. 1, 00, 000/- representing the sale proceeds. In fact no such pay orders were enclosed. This conduct betrays utter lack of bona fides on the part of the petitioner. It has not been denied by filing any reply affidavit. Even in the affidavit, the petitioner could not state the correct amount paid to the Corporation till the date of the filing of the writ petition. His claim that a total sum of Rs. 2.35 lakhs has been paid was denied by the respondents and not controverted by the petitioner by way of any reply affidavit. Therefore, the said statement that the borrower had paid a total sum of R.2.35 is found to be totally false and incorrect. According to the Corporation, as on 29.3.1995 only a total sum of Rs. 1, 68, 656.65 had been paid by the petitioner. Therefore, the overall conduct of the petitioner is not at all satisfactory, nor commends any sympathy.
14. The contention that under Section 29 of the Act, the property given as collateral security cannot be proceeded against, is again without any substance. Under section 29(1) of the Act, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. Therefore, I am unable to sustain the contention that Section 29 of the Act cannot be invoked in respect of the guarantor’s property.
15. There is also no substance in the objections that the property was being disposed at a very low price. Two auctions were conducted only after due advertisement and also notice to the petitioner. Nothing prevented the petitioner to secure a prospective buyer for a price which according to him would be reasonable. He was not prevented from doing so. The first auction dated 27.4.1995 was in fact cancelled as the bid amount was found to be low. The second auction was also conducted after due notice to the petitioner. The highest bid was also notified to the petitioner and opportunity was given to the petitioner to pay the amount within the stipulated period, if he wanted to save the property or if the bid amount was very low. However, the petitioner did not choose to comply with the same.
16. Therefore, the Corporation has done everything possible in a bona fide and open manner and it is the petitioner who has been indulging in not only deliberate evasion to pay the dues to the Corporation which is a public institution, but has also been indulging in series of actions which expose utter lack of bona fides which include selling away hypothecated property without any permission from the Corporation, sending a false letter as though it was enclosed with pay orders for a sum of Rs. 1, 00, 000/- and not properly responding to the notice calling on the petitioner to pay the bid amount within the stipulated period. In view of the series of failures on the part of the petitioner the sale has been confirmed in favour of the fourth respondent and interests of third parties have also been materialised. It is not possible for this Court to interfere at this stage and the petitioner has to blame himself for the situation.
17. A Division Bench of this Court in SHRI KANDAVEL INDUSTRIES, M/S . ETC. v. THE TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LTD. & ANOTHER (1994 Writ L.R., 281) had occasion to consider the scope of the State Financial Corporation Act and after discussion has held that when a notice is issued under Section 30 of the Act and the demands made therein are not complied with, the Corporation shall be at liberty to choose to take any one of more of the actions contemplated under Section 31 of the Act and Courts exercising jurisdiction under Article 226 of the Constitution of India may not interfere. It is further stated that the High Court will not sit as an Appellate Authority over the action of the Corporation and seek to correct them at every stage when the property is brought for sale. It is further stated that it was open to the party aggrieved to invoke his remedy only before the Civil Court and recourse to Article 226 of the Constitution of India shall be discouraged.
18. In this case, the petitioner has relied upon the provisions under Order 34, Rule 5 C.P.C. and under Section 60 of the Transfer of Property Act. Assuming that he has any case to be agitated under those provisions, even so the petitioner could have proceeded only under those provisions and not to approach this Court under Article 226 of the Constitution of India. Therefore, there are no grounds to interfere with the impugned sale which has become finalised in favour of the fourth respondent.
19. In the result, the writ petition is dismissed. No costs. Connected miscellaneous petition is closed as unnecessary.