PETITIONER: THE CHAIRMAN AND MANAGING DIRECTOR,SIPCOT, MADRAS - 8 AND OR Vs. RESPONDENT: CONTROMIX PVT.LTD. BY ITS DIRECTOR(FINANCE) SEETHARAMAN, MAD DATE OF JUDGMENT12/05/1995 BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) AHMAD SAGHIR S. (J) CITATION: 1995 AIR 1632 1995 SCC (4) 595 JT 1995 (6) 283 1995 SCALE (3)717 ACT: HEADNOTE: JUDGMENT:
J U D G M E N T
S.C. Agrawal. J.:
Leave granted.
We have heard learned counsel for the parties.
This appeal is directed against the Judgment of the
Madras High Court dated February 23, 1994 in Writ Appeal No.
97 of 1994 arising out of Writ Petition No. 18048 of 1993
filed by Contromix Private Limited, respondent No. 1 herein.
Respondent No. 1, a company registered under the
Companies Act, 1956, is engaged in the manufacturing of
electronic instruments. The State Industries Promotion
Corporation of Tamil Nadu Ltd. (for short `SIPCOT’) is a
Financial Corporation established under the provisions of
the State Financial Corporations Act, 1950 (hereinafter
referred to as the Act). Respondent No. 1 applied for a term
loan for setting up a project for manufacture of
programmable logic controllers, control panels, electronic
timer, temperature scanners, etc. On March 25, 1987 SIPCOT
sanctioned a term loan of Rs. 38 lakhs. On June 16, 1987,
IDBI soft loan of Rs. 6.8 lakhs was also sanctioned.
Respondent No.1 executed a registered mortgage on July 29,
1987 and created equitable mortgage and has executed other
security documents. As per the terms of securities of the
loan, respondent No. 1 was required to repay the term loan
in instalments from December 1, 1989 to June 1, 1994 and the
soft loan was to be repaid in instalments from September 18,
1990 till March 18, 1994. Respondent No.1, did not adhere to
the payment schedule and became a defaulter in payment of
the principal amount as well as the interest. At the request
of respondent No. 1, the repayment of the term loan was
rescheduled to June 1, 1990 to June 1, 1994 and it was again
rescheduled and respondent No. 1 was permitted to repay the
loan from June 1, 1991 to June 1, 1994. Inspite of the said
rescheduling of the payment respondent No. 1 was not able to
adhere to the revised schedule and committed default in
payment. On August 8, 1991 SIPCOT issued a Show Cause Notice
to respondent No. 1 whereupon respondent No. 1 paid a sum of
Rs. 1,00,000/- and promised to repay the entire dues within
2/3 months. Thereafter, the matter was reviewed on September
3, 1991 and respondent No. 1 was asked to pay 50 per cent of
the interest overdues amounting to about Rs. 3.23 lakhs by
December 31, 1991 to enable SIPCOT to consider the
rescheduling of the payment of the loan but respondent No. 1
did not make the said payment. On October 24, 1991 SIPCOT
issued a notice under the provisions of the Act recalling
the entire dues amounting to Rs. 47,22,303/-. After the said
notice respondent No. 1 paid a sum of Rs. 1 lakh. In view of
the assurances given by respondent No. 1 that the
outstanding amount will be paid as early as possible, SIPCOT
on February 2, 1992 agreed to modify the schedule of payment
and also withdrew the foreclosure notice by letter dated
February 26, 1992. Since respondent No.1 failed to abide by
the assurances a Show Cause Notice was again sent by SIPCOT
on May 18, 1992 and the loan was foreclosed for a second
time on June 17, 1992, when a foreclosure order was passed
recalling the sum of Rs. 56,13,406.20 p. outstanding on May
31, 1992. By letter dated August 17, 1992 respondent No. 1
was informed that the appellant will take possession of the
unit on August 26, 1992. Respondent No. 1 thereupon paid a
sum of Rs. 4,00,000/-. Thereafter Writ Petition No.
14479 of 1992 was filed in the Madras High Court and as per
directions of the High Court respondent No. 1 paid a sum of
Rs. 3,00,000/- on October 31, 1992. As regards the balance
amount the High Court, by order dated December 7, 1992, gave
directions fixing the amount of the instalment and the
period for payment of the same. The entire amount was
required to be paid by the end of August 1993 and the first
instalment of Rs. 2,00,000/- was to be paid by December 31,
1992. The High Court also directed that if there was default
in any one of the instalments, it would be open to the
respondent Corporation to take proceedings under the State
Financial Corporations Act, 1951.
Respondent No. 1 did not make the payment of the sum of
Rs. 2,00,000/- by December 31, 1992 as per aforesaid order.
On January 5, 1993 SIPCOT took possession of the mortgaged
assets of respondent No. 1. The mortgaged assets were valued
by SIPCOT at Rs. 36.44 lakhs. In February 1993 SIPCOT issued
an advertisement inviting offers for sale of the mortgaged
assets, but no offer was received in response to the said
advertisement. A second advertisement issued by SIPCOT was
published in the Indian Express on June 2, 1993. In response
to the said advertisement ETK International Ferrites
Limited, respondent No. 2 herein, made an offer to purchase
the assets for a sum of Rs. 14.26 lakhs. Since the said
offer was too low, SIPCOT negotiated with respondent No. 2
and as a result of such negotiations respondent No. 2 agreed
to revise the offer and to pay a sum of Rs. 38 lakhs. The
said offer of respondent No. 2 was accepted by the SIPCOT
and respondent No. 2 paid the entire amount of Rs. 38 lakhs
by September 15, 1993.
On September 19, 1993, respondent No. 1 filed the writ
petition giving rise to this appeal in the Madras High Court
wherein the action of SIPCOT in selling the assets to
respondent No. 2 was challenged on the ground that the
market value of the assets would be Rs. 72.60 lakhs and the
sale of the same for Rs. 38 lakhs to respondent No. 2 was
invalid in view of the law laid down by this Court in Mahesh
Chandra v. Regional Manager, U.P. Financial Corporation &
Ors. 1993 (2) SCC 279. The writ petition was disposed of by
a learned single Judge of the High Court by Judgment dated
December 1, 1993. The learned single Judge has observed:
“A perusal of the pleadings
certainly shows that the Corporation had
been very considerate in giving time to
the petitioner company for making
payments. Certainly I cannot say that
the Corporation had acted in a manner
referred to by the Supreme Court of
India in Mahesh Chandra’s case.”
The learned single Judge was, however, of the view that
SIPCOT had acted in haste and hurry, to the prejudice of
respondent No. 1, in taking possession of the unit on
January 5, 1993 and in selling the same and the said action
of the SIPCOT violated the directions of this Court in
Mahesh Chandra case (supra). The learned single Judge held
that respondent No. 1 could not get any relief unless he is
willing to deposit the said sale price of Rs. 38 lakhs
within a reasonable time. Therefore, the learned single
Judge quashed the sale of the mortgaged assets by SIPCOT,
subject to the following directions:
(i) The impugned proceedings dated
6.9.93 shall stand set aside if the
petitioner company deposits with the
first respondent a sum of Rs. 20 lakhs
on or before 31.12.93 and a further sum
of Rs. 18 lakhs on or before 20.1.94.
(ii) On the petitioner depositing the
said sum of Rs. 38 lakhs on or before
20.1.1994, or at any earlier point of
time, the respondents 1 to 3 are
directed to redeliver the unit back to
the petitioner company.
(iii) In the event of the non-payment of
any one of the amounts on or before the
dates above mentioned the impugned order
dated 6.9.93 shall stand validated. It
will then be open to the respondents 1
to 3 to hand over the unit to the fourth
respondent.
(iv) The balance of amount payable under
the loan transaction shall be repaid in
monthly instalments of Rs. 3 lakhs,
commencing from February 1994, payable
on or before 10.3.1994, and so on till
the entire payment is complete.
The default of any one of the
instalments under clause (iv) it will be
open to the respondent to take action in
accordance with law.”
Respondent No. 1 did not, however, comply with the said
directions given by the learned single Judge. Respondent No.
1 filed an appeal (W.A.No.97 of 1994) against the Judgment
of the learned single Judge. The said appeal was disposed of
by a Division Bench of the High Court by Judgment dated
February 23, 1994. The learned Judges were of the view that
there was failure on the part of SIPCOT to follow the
guidelines laid down by this Court in Mahesh Chandra case
(supra) in the matter of sale of the unit by tender and by
private negotiations. The learned Judges of the High Court
have observed that since the financial agency had advanced
in all Rs. 44.80 lakhs (Rs. 38 lakhs term loan and Rs. 6.80
lakhs soft loan) in the year 1987, it is clear that the unit
was worth more than Rs. 44.80 lakhs even in the year 1987
and, therefore, it could not have been sold in the year 1993
for a sum of Rs. 38 lakhs only. The learned Judges also
observed that instead of imposing conditions on respondent
No. 1 for setting aside the sale by tender even though the
said sale was found illegal and opposed to the judgment in
Mahesh Chandra case (supra) the learned single Judge ought
to have set aside the sale and directed the appellants to
put up the unit for sale afresh by giving some reasonable
time to respondent No. 1 to repay the amount, if possible.
As regards taking possession of unit by the SIPCOT, the
learned Judge observed:
“No grievance is made before us
that there was anything illegal in the
Financial Corporation taking possession
of the unit, rightly also, because the
petitioner was a defaulter. In spite of
the fact that several opportunities were
given to it for repaying the amount as
per the instalments, it failed to repay.
Therefore, after setting aside the sale
effected in favour of the 4th
respondent, the Financial Agency has to
take back the possession of the unit and
continue to keep it in its possession.
Thereafter, it has to take steps to
bring the unit for sale afresh.”
The learned Judges were of the view that before the
unit was brought for sale afresh, a reasonable time should
be given to respondent No. 1 to make payment of the entire
amount which had become due as on January 1, 1994 and if
respondent No. 1 failed to pay the entire amount, which has
become due as per the terms and conditions of the term loan
and soft loan on January 1, 1994, within the specified
period, it would be open to the appellants to put up the
unit for sale in accordance with law. The learned Judges,
therefore, modified the order passed by the learned single
Judge and directed as under:
“The sale by tender held by
respondents 1 to 3 and confirmed in
favour of respondent No.4 is set aside.
Respondents 1 to 3 shall take the unit
into possession on refunding the amount
to the 4th respondent. Accordingly,
respondent No. 4 shall hand over
possession of the unit to respondents 1
to 3. The petitioner/appellant is
granted time till the end of April, 1994
to pay the entire amount that would
become due on 1.1.1994 as per the terms
of the term loan and soft loan and also
to pay the remaining amount on 1.6.1994.
In the event the petitioner/appellant
pays the amount as per the first
condition on or before 30th April, 1994,
respondents 1 to 3 shall hand over the
unit to the petitioner/appellant. In the
event the petitioner/appellant fails to
pay the amount as per the aforesaid
condition respondents 1 to 3 shall be at
liberty to proceed to put up the unit
for sale by auction or tender in
accordance with law and in terms of the
judgment of the Supreme Court in Mahesh
Chandra’s case (AIR 1993 SC 935).”
Feeling aggrieved by the said directions given in the
said Judgment of the Division Bench of the High Court, the
appellants have filed this appeal.
At the out set it may be stated that SIPCOT has been
quite accommodating in the matter of repayment of the dues
by respondent No. 1 and has rescheduled the payment of the
instalments a number of times and the notice of foreclosure
which was given on October 24, 1991 was also withdrawn on
the basis of the assurance given by respondent No. 1
regarding payment of the dues. A second notice of
foreclosure had to be issued on June 17, 1992 since
respondent No. 1 failed to abide by the assurances given by
it. Respondent No. 1 also failed to comply with the
directions that were given by the High Court in its order
dated December 7, 1992 while disposing of the earlier Writ
Petition No. 14479 of 1992 of by respondent No. 1. It is
only thereafter that SIPCOT took possession of the unit of
respondent No. 1 on January 5, 1992 and started proceedings
for the sale of the unit. It would thus appear that
sufficient latitude was given by SIPCOT to respondent No. 1
to honour its commitments in regard to the payment of loan,
but respondent No. 1 was making continuous defaults in
discharging its obligations in that regard. The learned
single Judge has also found that SIPCOT had been very
considerate in giving time to respondent No. 1 for making
payments and it cannot be said that SIPCOT has acted in an
arbitrary or unreasonable manner. So also the learned judges
on the Division Bench of the High Court have found that
rightly no grievance had been made that there was anything
illegal in SIPCOT taking possession of the unit because
inspite of the fact that several opportunities were given to
respondent No. 1 for repaying the amount as per the
instalments, it failed to repay. The only fault that has
been found in the action taken by SIPCOT is in the matter of
the procedure followed for sale of the mortgaged assets of
respondent No. 1. The learned single judge as well as the
Division Bench of the High Court have held that the said
sale was not conducted in accordance with the guidelines
laid down by this Court in Mahesh Chandra case (supra)
inasmuch as (i) the sale was not held by auction and was
held by inviting tenders followed by negotiations; (ii) the
price for which the properties were sold was low; and (iii)
before accepting the offer of Rs. 38 lakhs made by
respondent No. 2, no intimation was given to respondent No.
1 so as to enable it to make a higher offer.
In the matter of sale of public property, the dominant
consideration is to secure the best price for the property
to be sold. This can be achieved only when there is maximum
public participation in the process of sale and every body
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. But many times it may not be
possible to secure the best price by public auction when the
bidders join together so as to depress the bid or the nature
of the property to be sold is such that suitable bid may not
be received at public auction. In that event, the other
suitable mode for selling of property can be by inviting
tenders. In order to ensure that such sale by calling
tenders does not escape attention of an intending
participant, it is essential that every endeavour should be
made to give wide publicity so as to get the maximum price.
These considerations which govern the sale of public
property have been held to be applicable to a sale of
property by the State Financial Corporations under section
29 of the Act in Mahesh Chandra case (supra). In that case
this Court has held that sale by public auction is
universally recognised to be the best and most fair method
and is beyond reproach and, if it is not possible to adopt
the said method, sale may be held by inviting tenders, but
in that event every endeavour should be made to give wide
publicity to get the maximum price. The said decision
cannot, therefore, be construed as laying down that a sale
by tender is impermissible and invalid. The learned judges,
in that case, have referred to the decisions of this Court
in Sachidananda Pandey v. State of West Bengal, 1987 (2) SCR
223 and Haji T.M. Hassan v. Kerala Financial Corporation,
1988 (1) SCR 1079, wherein it has been held that one of the
modes of securing the public interest, when it is considered
necessary to dispose of a property, is to sell the property
by public auction or by inviting tenders. It cannot,
therefore, be said that a sale by inviting tenders is ipso
facto invalid. The validity of such a sale will have to be
considered in the light of the facts and circumstances of
the particular case.
In the facts and circumstances of this case, it cannot
be said that the failure on the part of SIPCOT to sell the
property by public auction and selling it to respondent No.
2 by inviting tenders is bad for the reason that the said
property has not received the best price in the market. As
indicated earlier in response to the first advertisement no
offer was received from anybody and in response to the
second advertisement also only one offer was received from
respondent No. 2 and that too was only for Rs. 14.26 lakhs.
Through negotiations SIPCOT was able to secure a revised
offer of Rs. 38 lakhs, which was more than the amount of Rs.
36.44 lakhs, at which the unit had been valued. Respondent
No. 1 had sufficient opportunity, during the pendency of the
matter in the High Court as well as in this Court, to secure
an offer higher than Rs. 38 lakhs made by respondent No. 2,
but he has not been able to bring any higher offer. In the
circumstances it cannot be said that the price at which the
unit was sold was low. The sanction of the loan of Rs. 44.80
lakhs in 1987 cannot afford a basis for holding that the
value of the unit in 1993 could not be less than Rs. 44.80
lakhs. The value of the plant and machinery could have
fallen on account of its being used during the period from
1987 to 1993 or due to the same getting outdated. If the
value of the unit was higher than Rs. 38 lakhs it would have
been possible for respondent No. 2 to obtain a better offer.
His failure to do so negatives the inference that the sale
price of Rs. 38 lakhs is low. Similarly, the failure on the
part of SIPCOT to give intimation to respondent No. 1 before
accepting the offer of Rs. 38 lakhs made by respondent No.
2, is of little consequence in the facts of this case
because respondent No. 1 has had sufficient opportunity both
before the High Court as well as in this Court to obtain a
higher offer, but he has failed to do so.
In these circumstances no fault can be found with the
action of SIPCOT in selling the unit to respondent No. 2 for
Rs. 38 lakhs and the Judgment of the High Court, in setting
aside the said sale cannot be upheld.
The appeal is, therefore, allowed. The Judgment of the
Division Bench dated February 23, 1994 in Writ Petition No.
97 of 1994 as well as Judgment of learned single Judge dated
December 1, 1993 in Writ Petition No. 18048 of 1993 are set
aside and the said writ petition filed by respondent No. 1
is dismissed. Having regard to the facts and circumstances,
there will no be order as to costs.