REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.......................OF 2008
(arising out of SLP (Civil) No. 21002 of 2006)
State of U.P. & Ors. ......Appellants
Vs.
M/s. Swadeshi Polytex Ltd. & Ors. .....Respondents
WITH
C.A.No............/2008 @ SLP (C) No.3272/2006
JUDGMENT
HARJIT SINGH BEDI,J.
1. Leave granted.
2. Respondent No.1, M/s. Swadeshi Polytex Limited
(hereinafter referred to as “SPL”) a company registered
under the Companies Act, 1956 and presently a sick unit
has its registered Office at Kavi Nagar, Industrial Area,
2
Ghaziabad. Concededly approximately 33% of the shares
of the SPL are held by Swadeshi Cotton Mills Limited,
Kanpur (a unit of the National Textile Corporation, a
Government Enterprise) about 28% and 15% by M/s.
Paharpur Cooling Towers Limited and some financial
institutions respectively, and the remaining 23% or so by
the general public. It is on record that the CMD of the
National Textile Corporation Ltd. is holding the charge of
SPL and steps are underway for the rehabilitation of the
company. It appears that till year 1996-97, SPL was
doing reasonably well whereafter a financial crisis seems
to have set in, forcing its closure on 30th September
1998. As SPL was unable to pay the wages due to its
employees, several applications were filed by its
workmen under the provisions of the Uttar Pradesh
Industrial Peace (Timely Payment of Wages) Act, 1978
(hereinafter called the 1978 Act). A recovery certificate
was thereafter issued under sub-section (1) of Section 3
of the 1978 Act and pursuant thereto, the Company was
called upon to make good the wages due to the workmen
3
and on its inability to do so, the authorities proceeded to
recover the amounts due as arrears of land revenue. A
report was thereafter submitted by the Amin on 7th
January 2005 which was endorsed by the Sub-Divisional
Magistrate, Ghaziabad in his communication dated 10th
February 2005, whereupon an attachment notice in
Form 73-D was issued and a proclamation for the sale of
the property on 23rd February 2005 was also ordered.
The proclamation was however cancelled by the SDM,
Ghaziabad and on re-consideration, an order dated 1st
April 2005 was passed and the Tehsildar, Ghaziabad was
directed to hold the auction on 2nd May 2005 after giving
wide publicity and after the properties had been properly
valued. A fresh proclamation was accordingly issued by
the Sub-Divisional Magistrate, Ghaziabad on 1st April
2005 itself, without disclosing the details of the
properties or their estimated value as also the date of the
auction. An auction notice was, however, published in
“Amar Ujala” on the 22nd April 2005 indicating that the
estimate value of the properties was about 27 Crores and
4
that the transfer of the property pursuant to the auction
would be made on the terms and conditions stipulated
by the U.P. State Industrial Development Corporation
(hereinafter called the UPSIDC) the present appellant. It
is also the case of the appellant herein that the personal
service of the sale proclamation was also made on the
Chowkidar of the SPL on 21st April 2005. The auction
was in fact held on the stipulated day i.e. 2nd May 2005
and the UPSIDC was found to be the highest bidder. The
recovery certificate issued by the Deputy Labour
Commissioner and the auction notice dated 22nd April
2005 was challenged by SPL by way of Writ Petition No.
35005 of 2005 referring to the irregularities in the
issuance of the sale proclamation and the auction notice
and it was prayed that the proceedings be quashed. A
reply was filed in response to the Writ Petition but the
petition was ultimately dismissed with the observation
that repeated attempts to recover the dues had failed on
account of the recalcitrant attitude of SPL and that the
procedural defects which had been pointed out could be
5
challenged by filing objections under Rule 285 (i) of the
Uttar Pradesh Zamindari Abolition & Land Reforms
Rules, 1952 (hereinafter called the “Rules”). Several
objections were accordingly filed with respect to the
auction and the preceding events, but the Commissioner,
Meerut Division, in his order dated 24th June 2005
dismissed the objections. Aggrieved by the order dated
24th June 2005, SPL preferred a revision petition before
the Board of Revenue under section 293 of the U.P.
Zamindari Abolition and Land Reforms Act, 1950
(hereinafter called the “Act”) read with Section 219 of the
Land Revenue Act but this petition too was rejected by
order dated 9th September 2005. This order was
challenged before the Lucknow Bench of the Allahabad
High Court in Writ Petition No.5160/2005 and it was
prayed, inter-alia, that the aforesaid order and the order
dated 24th June 2005 be set aside and that the entire
auction proceedings dated 2nd May 2005 be quashed.
The High Court in its interim order dated 20th September
2005 directed the SPL to deposit a sum of Rs.50 Lacs
6
within a period of 30 days and in the meanwhile, directed
that the sale be not confirmed. Aggrieved by the order
dated 20th September 2005, the employees of the SPL
filed a Special Leave Petition and in its order dated 5th
December 2005, this Court directed that if the writ
petition was not disposed of in the course of the week,
the interim order passed by the High Court would stand
vacated. The High Court, however, in its judgment dated
3rd January 2006 allowed the writ petition with costs of
Rs.50,000/- and also passed strictures against the
officers of the State Government who had been
instrumental in arranging the auction. It is against this
order that three Special Leave Petitions have been filed
which are SLP (Civil) No.3272/2006 (U.P. State
Industrial Development Corporation & Anr. Vs. M/s.
Swadeshi Plytex Ltd. & Ors.), SLP (Civil) No.2858/2006
(M/s. Swadeshi Polytex Ltd. Karamchari Kalyan Sangh
vs. M/s. Swadeshi Polytex Ltd. & Ors.) and SLP (Civil)
No.21002/2006 (State of U.P. & Ors. Vs. M/s Swadeshi
Polytex Ltd. & Ors). All these matters are being disposed
7
of by this judgment with the basic facts being taken from
the first mentioned appeal.
3. The learned Single Judge, at the very first instance, dealt
with the preliminary objections raised during the course
of the hearing that in view of the Division Bench
judgments of the High Court dated 13th January 2005,
4th May 2005 and 26th May 2005, it was not open to the
SPL to contend at this stage that the recovery
proceedings including the procedure adopted was not
maintainable in law. The Court observed that W.P.
No.50571/2002 had been filed by M/s. Paharpur Cooling
Towers Pvt. Ltd. and Ors. in which SPL had been arrayed
as respondent No.6 and the proceedings relating to the
issuance of the recovery certificates by the Deputy
Labour Commissioner under sub-section (1) of Section 3
of the 1978 Act had been questioned, but the Division
Bench had dismissed the Writ Petition observing that as
the petitioner therein i.e. M/s. Paharpur Cooling Tower
Pvt. Ltd. was pursuing the matter with the Company
Law Board and had availed of an alternative remedy, the
8
writ petition was not maintainable. The Court also
observed that the matter had been taken by M/s.
Paharpur Cooling Towers Ltd to the Supreme Court and
an interim order dated 7th February 2005 had been made
directing the petitioner to deposit a sum of Rs.5/- Crore
in favour of the Registrar General of this Court, but this
amount had not been deposited and the Special Leave
Petition had been dismissed on 24th February 2005. The
Court accordingly held that in this view of the matter, it
was clear that no order against SPL had been made by
this Court in the above mentioned SLP. The learned
Judge then went into the scope and effect of
W.P.No.35005/2005 filed by SPL impugning the auction
notice dated 22nd April 2005 and observed that this
petition had been dismissed with the observation that it
would be open to SPL to avail of the alternative remedy
available under rule 285(i) of the Rules. The Bench also
noted that the third writ petition, filed by one Jitendra
Khaitan (Writ Petition No.36736/2005) once again
challenging the validity of the auction notice dated 22nd
9
April 2005 had been filed and this writ petition too had
been dismissed with the observation, inter-alia, that in
the light of the order in Writ Petition No.35005/2005, the
petitioner herein could also avail the alternative remedy
by filing objections under rule 285(i) of the Rules. The
Court accordingly rejected the prayer of the respondents
before it that in view of the aforesaid writ petitions, the
writ petition was not maintainable. The Court then
examined the submission as to whether the procedure
envisaged for recovery of arrears under the Act and the
Rules had been observed and in case they had been
breached, the effect thereof and after examining the
various provisions threadbare, held that the Act and
Rules prescribed a procedure for the recovery of arrears
of land revenue and that before a recovery certificate
could be issued, the defaulter was required to be
effectively served, that the Rules in question were
mandatory and required strict compliance and in
conclusion highlighted that there was no material on
record to show that any attempt had been made to serve
10
the demand notice on SPL, and service on the Chowkidar
was clearly not proper service on the defaulter. The
Court also observed that auction sale was liable to set
aside for the additional reason that a clear 30 days notice
of the proposed auction had not been given even if the
service on the Chowkidar was held to be appropriate.
The Court also held that the sale proclamation issued on
2nd May 2005 was not valid and did not comply with the
provisions of rule 285, 286 and 283 of the Rules and that
the proclamation that had been issued was only of
Rs.1.10 Crores and did not provide for the full amount as
envisaged under rule 245, which provided an
opportunity to the defaulter to make good the payment
so as to avoid the sale of the property. The Court also
held that on facts, it was impossible for the auction-
purchaser i.e., the UPSIDC to have procured the Bank
Drafts from the Punjab National Bank, Kanpur on the
day of the auction so as to make the deposit of the 25%
of the sale price at the fall of the hammer as the auction
had been conducted at Meerut, about 460 Kms. away
11
from Kanpur and that the balance 75% of the amount
due on the auction had also been deposited late i.e. on
18th May 2005 which again was contrary to rule 285-D of
the rules. The Court also observed that it appeared that
the property had been sold at a price far below its market
price and in conclusion, passed strictures against the
district authorities which had conducted the auction and
sale of the property in question thus quashing the order
dated 9th September 2005 passed by the Board of
Revenue, the order dated 24th June 2005 of the
Commissioner as well as the auction sale proceedings
dated 2nd May 2005 conducted by the Tehsildar,
Ghaziabad with costs of Rs.50,000 and all consequential
relief, and a direction that it would be open for the State
Government to recover the costs from the salary of the
officers who were responsible “for the auction of the
property in question in such unruly manner” by holding
an enquiry and that the Chief Secretary was advised to
take appropriate action against the defaulting officers.
12
4. Before we embark on an examination of the contentions
raised by the learned counsel for the parties, we deem it
appropriate to refer to certain supervening and material
factors. It is the admitted position that the workmen at
whose instance the initial process of sale of the property
had been initiated, have entered into an agreement dated
3rd January 2008 with SPL and the entire due amount
due to them and something more has since been paid. It
is also clear that the auction-purchaser is the UPSIDC,
which is a Government agency and is the owner of the
land over which the super-structure of SPL has been
built.
5. In this background, the learned counsel for the
appellants has submitted that the findings recorded by
the High Court were erroneous as it was clear from the
record that despite numerous opportunities given to SPL
to make the payments due to their own workmen, no
serious attempt had been made to do so and that on the
contrary, every attempt had been to forestall the
payment. It has been pointed out that the had suddenly
13
woken up to its obligations and made full payment after
the decision in the writ petition to take advantage of the
huge spurt in the price of real estate in Ghaziabad and
the surrounding areas. It has been pleaded that there
was absolutely no irregularity in the procedure relating
to the auction and the finding of the High Court that the
sale price appeared to be undervalued was also not
based on any relevant material. It has also been pleaded
that no substantial injury had been caused to SPL, as
the recovery certificate initially had been issued in the
year 2002 and had been challenged by the associates of
SPL or by SPL itself and despite the fact that in the case
of the SLP filed by M/s. Paharpur Cooling Towers Ltd.,
this Court had directed that a sum of Rs.5 Crore be
deposited before the Registrar General, the order had not
been complied with and the SLP had been dismissed
proving a lack of intention on the part of the SPL or its
associates to make the payment. It has finally been
pleaded that the UPSIDC had deposited a sum of
Rs.32.20 Crores in May 2005 and the sale had thereafter
14
been confirmed in its favour and the possession
transferred, and that if this amount plus interest of 18%
was taken into account, the amount now due to the
appellant would be almost 48 Crores, in case the order
was to be set aside.
6. The learned counsel for the respondents have, however,
supported the judgment of the High Court. It has been
especially emphasized that the workers due having been
discharged by SPL, it did not lie on the State Government
or a State Government undertaking, the appellant
herein, to still pursue the matter doggedly in this Court.
It has been reiterated that the property in question had
not been properly valued, as provided by rule 283 of the
Rules and that the notice of the proclamation has also
not been served on the SPL or on any of its functionaries
and had in fact been served to the Chowkidar and that
too, about a week before the auction whereas a minimum
notice period of 30 days ought to have been given. It has
further been pleaded that the auction purchaser i.e., the
UPSIDC had not deposited 25% of the sale price and/or
15
the balance of 75% of the amount within 15 days, as
required under rule 245 of the Rules and this too was a
ground which was relevant in determining the propriety
of the sale of the auction.
7. As would be clear, the arguments pressed by the learned
counsel for both the sides pertain to the procedure
adopted for the auction. Sub-section (1) of Section 3 of
the 1978 Act provides that in case the occupier of an
industrial establishment is in default of payment of
wages in excess of Rs.50,000/-, the Labour
Commissioner may forward to the Collector a certificate
under his signatures specifying the wages due from the
establishment concerned and that the Collector shall
accordingly proceed to realize the amounts due as
arrears of land revenue. Admittedly the recovery
certificate had been issued and sent to the Collector,
Ghaziabad by the Labour Commissioner under section 3
(1) and it is in this situation that the proceedings against
the SPL had been set in motion. Section 279 of the Act
provides for the recovery of arrears of land revenue by
16
various methods including an attachment and sale of the
immovable property of the defaulter in respect of the
arrears due. Section 280 stipulates that as soon as the
land revenue had become due, a writ of demand may be
issued by the Tehsildar calling upon the defaulter to pay
the amount within a specified time and under section
284, the property of the defaulter may also be attached.
Section 327 provides for the modes of service of the
notice on the defaulter and reads as under:
“327. Mode of service of notice.- Any
notice or other document required or
authorised to be served under this Act
may be served either –
(a) by delivering it to the person on whom it is to be
served, or
(b) by leaving it at the usual or last known place of
abode of that person, or
(c) by sending it in a registered letter addressed to
that person at his usual or last known place of
abode, or
(d) in case of an incorporated company or body by
delivering it or sending it in a registered letter
addressed to the Secretary or other principal
17
functionary of the company or body at its
principal office, or
(e) in such other manner as may be laid down in
the Code of Civil Procedure, 1908.
8. Section F of Chapter 10 of the Rules deals with the
coercive procedure which can be adopted by the Collector to
recover the amounts as arrears of land revenue.
9. Rules 235 and 236 authorize the Tehsildar to issue
citations, writs and warrants etc. as per the prescribed form
whereas Rules 241 and 245 provide as to how the citation is
to be issued and writ of demand for the purpose of land
revenue. Rule 246 provides for the service of the writ or
citation shall, if possible, be made on the defaulter personally,
but if service cannot be made on the defaulter, it can be made
on the agent and sub-rule thereof further postulates that
personal service shall be made by delivery to the defaulter or
the agent of the foil of the writ of citation and with the
sanction of the Collector such writs of demand may also be
served as registered post. Rule 247-A also refers to a warrant
of arrest which may be executed by a duly authorized person
18
for the recovery of the arrears and Rule 247-B (1) deals with
the situation that where a defaulter at the time of his arrest
pays the entire amount of arrears specified in the warrant of
arrest to the process-server or to authorized officer, the
defaulter will not be arrested. Rules 272, 272-A, 272-B, 273,
273-A, 278 and 285-C deal with the procedure for the
attachment of the land which is proposed to be sold and Rule
273-A postulates that the procedure envisaged in Order XXI,
Rule 54 of the Code of Civil Procedure must be followed at the
time of attachment. Rule 285-C also provides that in case the
defaulter pays the arrears of land revenue in respect of the
land proposed to be sold on any day before the fixed day of
the sale, the sale officer on being satisfied shall stay the sale.
Rules 282 and 283 when read together provide that in the
proclamation of sale to be issued in Form Z.A. 74, it will be
incumbent on the Collector to give the estimated value of the
property calculated in accordance with the rules in Chapter
XV of the Revenue Manual.
10. We now examine the primary
arguments in the background of the above provisions. The
19
question arises as to whether the provisions for the
attachment and sale of the property had been followed
scrupulously, as would be necessary in such a case. We
notice that the learned Single Judge has examined the matter
and has concluded that there was no material on record to
show that proper procedures had been adopted. A positive
finding has been arrived at on facts that the Tehsildar or the
Collector had even attempted to serve the demand notice
personally or by registered post on SPL, as called upon under
Section 327 of the Act and Rule 246, as the notice had been
served on the Chowkidar who could not be said to be an agent
of SPL. It must also be noticed from a bare reading of the
Rule 246 that the notice can be served on the agent only if it
is not possible to serve it on the actual defaulter. In the
present case, we find that no attempt whatever had been
made to serve the notice to the actual defaulter and had been
served on the Chowkidar at the very initial stage.
11. There is yet another circumstance which indicates that
the procedure for sale had not been followed. It appears from
the record that the notice of citations for appearance and
20
demand had been issued on 11th January 2005 and on 1st
April 2005, the Sub-Divisional Magistrate had passed an order
for the valuation of the properties as well as for wide publicity
of the auction and sale of the property in question and the
Tehsildar, Ghaziabad had been appointed as the auction
officer and the auction had been fixed for the 2nd May 2005. It
is clear from the record that the sale proclamation had been
issued on 1st April 2005 without any valuation of the
properties and only the area of the vacant land had been
specified therein and it was this notice that had been served
on the Chowkidar on the 21st April 2005 and publication had
been made in the newspaper “Amar Ujala” on the 22nd April
2005. There has, thus, been a clear violation of the Rules 283
and 285 ibid. Rule 283 provides for the estimated value of the
property to be determined under the provisions contained in
Chapter XV of the Revenue Manual. The said Chapter
specifies the procedure for valuation of the property in terms
of other similar properties. It is, however, clear from the
record that the figure 27 Crores, the value of the property
which is mentioned in the advertisement in the “Amar Ujala”,
21
appears to have picked up without any basis as it is not the
case of the UPSIDC that the property had been valued in
accordance with the provisions of the Revenue Manual or by a
valuer or expert in the field.
12. Moreover, Rule 273-A makes the provision under Order
XXI, Rule 54 of the CPC applicable to proceedings for
attachment and Rule 1-A of Rule 54 specifically provides for
the judgment-debtor to attend court on a specified date to
take notice of the date which is fixed for setting the
proclamation of the sale. Concededly, this procedure had not
been followed. The learned counsel for the respondent has
also disputed the valuation of the property by the UPSIDC and
has referred us to the pleadings in the writ petition and in
particular to paragraphs 26 and 30 thereof. These paragraphs
are reproduced below:
“That the auction was held on 2.5.2005
but in the furd neelam no time of auction was
provided. Even the description of the land
sought to be auctioned, has not been provided
in the furd neelam. Six bidders, had
participated in the auction, out of which only
U.P. State Industrial Development Corporation
was the major bidder in competition with one
M/s. Suder Steel Pvt. Ltd. The property worth
22Rs.56.00 Crores as per the rate list issued by
the U.P. State Industrial Development
Corporation has been auctioned for petty
amount of Rs.32.00 Crores and odd. In the
open market, rate of the property in question
could fetch atleast Rs.100 Crores. This is
apparent from the letter dated 26.4.2005
issued by Shri Mahak Singh, District Manager,
UPSIDC. The circle rate of the land of the area
fixed by UPSIDC is effective from 9.4.2005 is
Rs.3000/- per sq.meter, by which calculation,
cost of the land in question comes to Rs.56.42
Crores approx., whereas the same has been
sold only @ Rs.1700/- per sq.meter,
amounting to Rs. 32.20 Crores, to the
UPSIDC. A true copy of the furd neelam letter
dated 26.4.2005 issued by District Manager,
UPSIDC are annexed herewith as Annexure
No.23A & 24 to this Writ Petition.
That as per the newspaper clipping
published in The Times of India property
section, New Delhi edition dated 25.6.2005,
the land price in Kavi Nagar, Ghaziabad is Rs.
11,000/- per sq.mt. The petitioner has
suffered a substantial injury and loss in the
auction held by the District Administration of
a prime property situated at Kavi Nagar,
Ghaziabad Industrial Area, Ghaziabad @
Rs.1700/- per sq.mt. a true copy of the
newspaper clipping dated 25.6.2005 is
annexed herewith as Annexure No.27 to this
Writ Petition.”
The replies to the paragraphs are given in SLP(C)
No.3272 of 2006:
23
“That in reply to the contents of paras 23
to 25 of the writ petition which are not correct,
hence denied. It is submitted that the
petitioner had full knowledge about the
auction, and the auction has not held much
higher to the present circle rate. It is further
submitted that the rate offered and accepted
by the deponent is of developed land whereas,
the present land is a lease land on 99 years of
which already 35 years had expired and it is
undeveloped area for which maximum rate
has been got in the auction held on 2.5.2005.”
13. Shri Nariman, the learned senior counsel for the
respondents, therefore, appears to be right in contending that
the specific averments made by SPL in the writ petition have
not been denied by the respondent and it was therefore open
to SPL to contend that the property had not been properly
valued and that the sum of Rs.27 crores represents not even
half the market price. In Gajraj Jain vs. State of Bihar
(2004) 7 SCC 151 while dealing with a case under the State
Financial Corporations Act, this is was what this Court had to
say:
“In the light of the aforesaid
judgment of this Court, the issue which
arises for determination is – whether
Respondent 2 Corporation acted
reasonably and in accordance with Section
2429 of the 1951 Act in transferring the
assets of the Company on 19.3.2002 and
in entering into agreement for sale with
Respondent 4 on 26.4.2002. As stated
above, Respondent 2 Corporation had a
paramount first charge on the assets of
the flour mill whereas Central Bank of
India had the second charge thereon.
There is a difference between a charge and
a mortgage. In the case of a charge under
Section 100 of the TP Act, there is no
transfer of interest in the property. A
charge is not a jus in rem. It is jus ad rem.
It creates a right of payment out of the
property/fund charged with the debt or
out of proceeds of the realization of such
property, a phrase used in Section 29(1) of
the 1951 Act. A charge as defined under
Section 100 of the TP Act may be enforced
by sale [See Mulla: Civil Procedure Code
(15th Edn.), p.2420]. We have discussed
the concept of charge as it has a direct
bearing on the interpretation of Section 29
of the 1951 Act.
In the present case, it has been urged
that absence of valuation report and the
reserved bid does not vitiate the sale. We
do not find met in this argument. In the
case of S.J.S. Business Enterprises (P) Ltd.
it has been held that the financial
corporation, in the matter of sale under
Section 29, must act in accordance with
the statute and must not act
unreasonably. In this case, the
Corporation fails on both the counts. It
has neither complied with the provisions of
sub-sections (1) and (4) of Section 29, nor
has it acted fairly. The test of
25
reasonableness has been laid down in the
above judgment in which it is held that
reasonableness to be tested against the
dominant consideration to secure the best
price. Value or price is fixed by the market.
In the case of a going concern, one has to
value the assets shown in the balance
sheet (Datta,S.: Valuation of Real
Property,p.198). In our view, if the object
of Section 29 of the Act is to obtain the
best possible price then the Corporation
ought to have called for the valuation
report. This has not been done. There is
no inventory of assets produced before us.
The mortgaged assets of the Company
could be sold on itemized basis or as a
whole, whichever is found on valuation to
be more profitable. No particulars in that
regard have been produced before us. If
publicity and maximum participation is to
be attained then the bidders should know
the details of the assets (or itemized value).
In the absence of the proper mechanisam
the auction-sale becomes only a pretence.
Further, in this case, the Corporation
advanced Rs.90 Lakh to the Company. At
that time, it must have valued the assets.
Nouch report has been produced. Lastly,
in this case, the price of the assets is
pegged to the dues of the Corporation and
Central Bank of India. The assets are
agreed to be sold to Respondent 4 not for
the market price but against repayment of
dues of the Corporation plus a promise to
discharge the liability of Central Bank of
India. Therefore, the Corporation,
Respondent 2, has not acted reasonably.
It has not taken any steps to secure the
best price. In fact, it has failed to protect
26
the interest of Central Bank of India,
which is having the second charge on the
assets transferred to Respondent 4 as well
as the mortgagor which would be entitled
to the balance of the sale proceeds, if any.
It was contended that as the bids were
withdrawn, the offer of Respondent 4 was
accepted. Even assuming for the sake of
argument, that there were no offers except
the offer of respondent 4, it shows that
value of the assets was Rs.198.85 lakhs
(i.e. Rs.28.85 lakhs + Rs.170 Lakhs). No
reason has been given why Respondent 2
did not insist on downright payment of
Rs.198.85 lakhs.”
14. The question of valuation is to our mind of the utmost
importance as it is designed to ensure the best price for the
property and it is essential in this circumstance that wide
publication and notice of the proposed sale should be given as
per Rule 285-A which postulates a notice of 30 days between
the date of issuance of the sale proclamation and the date of
auction. It can hardly be over emphasized that the proper
valuation of the property and wide publicity of the proposed
auction is intimately linked with the price that the auction
fetches. As already mentioned above, the auction had been
held on 2nd May 2005. The sale proclamation had been issued
27
on the 1st April 2005, and served on the Chowkidar on the 21st
April 2005, the publication made in “Amar Ujala” on 22nd
April 2005 whereas rule 285 itself postulates a notice period of
30 days to be counted from the date of issuance of the sale
proclamation. While dealing with a similar situation, this is
was what this Court had to say in S.J.S.Business Enterprises
(P) Ltd. vs. State of Bihar (2004) 7 SCC 166:
“We are of the view that the sale
effected in favour of Respondent 6 cannot be
sustained. It is axiomatic that the statutory
powers vested in State financial corporation
under the State Financial Corporations Act,
must be exercised bona fide. The presumption
that public officials will discharge their duties
honestly and in accordance with the law may
be rebutted by establishing circumstances
which reasonably probabilise the abuse of that
power. In such event it is for the officer
concerned to explain the circumstances which
are set up against him. If there is no credible
explanation forthcoming the court can assume
that the impugned action was improper. (See
Pannalal Binjraj v. Union of India, AIR at
p.409.) Doubtless some of the restrictions
placed on State financial corporations
exercising their powers under section 29 of the
State Financial Corporations Act, as
prescribed in Mahesh Chandra v. Regional
Manager, U.P.Financial Corpn. Are no longer
in place in view of the subsequent decision in
Haryana Financial Corpn. Vs. Jagdamba Oil
Mills. However, in overruling the decision in
28Mahesh Chandra this Court has affirmed the
view taken in Chairman and managing
Director, SIPCOT v. Contromic (P) Ltd. and
said that in the matter of sale under section
29, State financial corporations must act in
accordance with the statute and must not act
unfairly i.e. unreasonably. If they do, their
action can be called into question under
Article 226. Reasonableness is to be tested
against the dominant consideration to secure
the best price for the property to be sold.
“This can be achieved only when
there is a maximum public participation in the
process of sale and everybody has an
opportunity of making an offer. Public auction
after adequate publicity ensures participation
of every person who is interested in
purchasing the property and generally secures
the best price.”
Adequate publicity to ensure maximum
participation of bidders in turn requires that a
fair and practical period of time must be given
to purchasers to effectively participate in the
sale. Unless the subject-matter of sale is of
such a nature which requires immediate
disposal, an opportunity must be given to the
possible purchaser who is required to
purchase the property on “as-is-where-is
basis” to inspect it and to give a considered
offer with the necessary financial support to
deposit the earnest money and pay the offered
amount, if required.”
29
15. We must, therefore, repel Mr. Dwivedi’s argument that as
SPL had suffered no prejudice in the auction proceedings, the
sale should not be interfered with.
16. There is yet another circumstance which vitiates sale.
Rule 285-D of the Rules that 25% of the amount of the
auction money shall be deposited at the fall of the hammer
and the remaining 75% within 15 days. The case of the
appellants is that the Bank draft for 7.80 Crores had been
deposited by the auction purchasers on 2nd May 2005 i.e., the
date of auction but the learned Single Judge has found that as
the auction had been completed at 1.30 p.m., it would not
have been possible to have received the Bank draft from
Kanpur 460 km. away on that date. This finding appears to
be correct. We also find that the balance 75% of the amount
that had been deposited by various Bank drafts on 18th May
2005 was also beyond the 15 days permissible and the finding
of the learned Single Judge based on the record is that though
the drafts were dated 14th May 2005 but they had, in fact, had
been handed over to the concerned authority only on the 18th
30
May 2005. This Court in M.M.Shah vs. S.S.A.S.Mahamad &
Anr. 1954 SCR 108 has held as under:
“Having examined the language of
the relevant rules and the judicial
decisions bearing upon the subject we
are of opinion that the provisions of the
rules requiring the deposit of 25% of the
purchase-money immediately on the
person being declared as a purchaser
and the payment of the balance within 15
days of the sale are mandatory and upon
non-compliance with these provisions
there is no sale at all. The rules do not
contemplate that there can be any sale in
favour of a purchaser without depositing
25% of the purchase-money in the first
instance and the balance within 15 days.
When there is no sale within the
contemplation of these rules, there can
be no question, of material irregularity in
the conduct of the sale. Non-payment of
the price on the part of the defaulting
purchaser renders the sale proceedings
as a complete nullity. The very fact that
the Court is bound to re-sell the property
in the event of a default shows that the
previous proceedings for sale are
completely wiped out as if they do not
exist in the eye of law. We hold,
therefore, that in the circumstances of
the present case there was no sale and
purchasers acquired no rights at all.”
17. For this additional reason as well, the auction sale
cannot be maintained.
31
18. In this view of the matter, we need not go into the
argument raised by Mr. R.F. Nariman that in the facts of the
case we should not entertain this matter in the exercise of the
discretionary jurisdiction under Article 136 of the Constitution
of India.
19. We also notice from the last paragraph of the judgment of
the learned Single Judge appears to have been extremely
annoyed with what he perceived to be gross irregularities on
the part of the officers of the State Government connected
with the sale of the property and he had accordingly directed
as under:
“Subject to above writ petition is
allowed with cost quantifies to
Rs.50,000/- Petitioner shall be entitled to
withdraw Rs.25,000/- and rest of
Rs.25,000/- shall be remitted to U.P.
State Legal Services Authorities to utilize
for providing legal aid to the litigants
approaching Lucknow Bench of High
Court. The cost shall be deposited within
one month from today in this court by
the District Magistrate, Ghaziabad.
Registrar to ensure compliance. It shall
be open for the State Government to
recover the cost from the salary of the
office/officers who are responsible to
auction the property in question in such
unruly manner by holding an inquiry.
32
The Chief Secretary Government of U.P.
is further directed to take appropriate
action against the officers or employees
who had acted in arbitrary manner while
proceeding with the auction and sale of
the property in question.
Let a copy of the judgment be sent
to the Chief Secretary, Govt. of U.P. by
the office within a week for appropriate
action.”
20. We are of the opinion, however, that High Court’s
direction that action should be initiated against the concerned
officers, is not justified and we accordingly expunge these
directions more particularly as SPL’s conduct as well does it
no credit. We, however, maintain the directions in so far as
the costs are concerned. With this minor modification, the
appeals are dismissed.
………………………………….J.
(TARUN CHATTERJEE)
…………………………………J.
(HARJIT SINGH BEDI)
33
New Delhi,
Dated: May 16, 2008