Chairman And Managin... v. Contromix Pvt. Ltd. ...

S.C Agrawal, J.— Leave granted.

2. We have heard learned counsel for the parties.

3. This appeal is directed against the judgment of the Madras High Court dated 23-2-1994 in Writ Appeal No. 97 of 1994 arising out of Writ Petition No. 18048 of 1993 filed by Contromix Private Limited, Respondent 1 herein.

4. Respondent 1, a company registered under the Companies Act, 1956, is engaged in the manufacture 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, 1951 (hereinafter referred to as the Act). Respondent 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 25-3-1987, SIPCOT sanctioned a term loan of Rs 38 lakhs. On 16-6-1987, IDBI soft loan of Rs 6.8 lakhs was also sanctioned. Respondent 1 executed a registered mortgage on 29-7-1987 and created equitable mortgage and has executed other security documents. As per the terms of securities of the loan, Respondent 1 was required to repay the term loan in instalments from 1-12-1989 to 1-6-1994 and the soft loan was to be repaid in instalments from 18-9-1990 till 18-3-1994. Respondent 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 1, the repayment of the term loan was rescheduled to 1-6-1990 to 1-6-1994 and it was again rescheduled and Respondent 1 was permitted to repay the loan from 1-6-1991 to 1-6-1994. In spite of the said rescheduling of the payment Respondent 1 was not able to adhere to the revised schedule and committed default in payment. On 8-8-1991, SIPCOT issued a show-cause notice to Respondent 1 whereupon Respondent 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 3-9-1991 and Respondent 1 was asked to pay 50 per cent of the interest overdues amounting to about Rs 3.23 lakhs by 31-12-1991 to enable SIPCOT to consider the rescheduling of the payment of the loan but Respondent 1 did not make the said payment. On 24-10-1991, 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 1 paid a sum of Rs 1 lakh. In view of the assurances given by Respondent 1 that the outstanding amount will be paid as early as possible. SIPCOT on 2-2-1992 agreed to modify the schedule of payment and also withdrew the foreclosure notice by letter dated 26-2-1992. Since Respondent 1 failed to abide by the assurances a show-cause notice was again sent by SIPCOT on 18-5-1992 and the loan was foreclosed for a second time on 17-6-1992, when a foreclosure order was passed recalling the sum of Rs 56,13,406.20 p outstanding on 31-5-1992. By letter dated 17-8-1992 Respondent 1 was informed that the appellant will take possession of the unit on 26-8-1992. Respondent 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 1 paid a sum of Rs 3,00,000 on 31-10-1992. As regards the balance amount the High Court, by order dated 7-12-1992, 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 31-12-1992. 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.

5. Respondent 1 did not make the payment of the sum of Rs 2,00,000 by 31-12-1992 as per aforesaid order. On 5-1-1993, SIPCOT took possession of the mortgaged assets of Respondent 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 2-6-1993. In response to the said advertisement ETK International Ferrites Limited, Respondent 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 2 and as a result of such negotiations Respondent 2 agreed to revise the offer and to pay a sum of Rs 38 lakhs. The said offer of Respondent 2 was accepted by SIPCOT and Respondent 2 paid the entire amount of Rs 38 lakhs by 15-9-1993.

6. On 19-9-1993, Respondent 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 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 2 was invalid in view of the law laid down by this Court in Mahesh Chandra v. Regional Manager, U.P Financial Corpn. (1993) 2 SCC 279, AIR 1993 SC 935 The writ petition was disposed of by a learned Single Judge of the High Court by judgment dated 1-12-1993. 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 case (1993) 2 SCC 279, AIR 1993 SC 935.”

7. The learned Single Judge was, however, of the view that SIPCOT had acted in haste and hurry, to the prejudice of Respondent 1, in taking possession of the unit on 5-1-1993 and in selling the same and the said action of SIPCOT violated the directions of this Court in Mahesh Chandra case (1993) 2 SCC 279, AIR 1993 SC 935. The learned Single Judge held that Respondent 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 6-9-1993 shall stand set aside if the petitioner-Company deposits with the first respondent a sum of Rs 20 lakhs on or before 31-12-1993 and a further sum of Rs 18 lakhs on or before 20-1-1994.

(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, 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 6-9-1993 shall stand validated. It will then be open to 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.”

8. Respondent 1 did not, however, comply with the said directions given by the learned Single Judge. Respondent 1 filed an appeal (WA 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 23-2-1994. 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 (1993) 2 SCC 279, AIR 1993 SC 935 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 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 (1993) 2 SCC 279, AIR 1993 SC 935 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 1 to repay the amount, if possible. As regards taking possession of the unit by 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.”

9. The learned Judges were of the view that before the unit was brought for sale afresh, a reasonable time should be given to Respondent 1 to make payment of the entire amount which had become due as on 1-1-1994 and if Respondent 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 1-1-1994, 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 4 is set aside. Respondents 1 to 3 shall take the unit into possession on refunding the amount to the 4th respondent. Accordingly, Respondent 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 30-4-1994, 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 case (1993) 2 SCC 279, AIR 1993 SC 935.”

10. 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.

11. At the outset it may be stated that SIPCOT has been quite accommodating in the matter of repayment of the dues by Respondent 1 and has rescheduled the payment of the instalments a number of times and the notice of foreclosure which was given on 24-10-1991 was also withdrawn on the basis of the assurance given by Respondent 1 regarding payment of the dues. A second notice of foreclosure had to be issued on 17-6-1992 since Respondent 1 failed to abide by the assurances given by it. Respondent 1 also failed to comply with the directions that were given by the High Court in its order dated 7-12-1992 while disposing of the earlier Writ Petition No. 14479 of 1992 by Respondent 1. It is only thereafter that SIPCOT took possession of the unit of Respondent 1 on 5-1-1992 and started proceedings for the sale of the unit. It would thus appear that sufficient latitude was given by SIPCOT to Respondent 1 to honour its commitments in regard to the payment of loan, but Respondent 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 1 for making payments and it cannot be said that SIPCOT has acted in an arbitrary or unreasonable manner. So also the learned Judge 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 in spite of the fact that several opportunities were given to Respondent 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 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 (1993) 2 SCC 279, AIR 1993 SC 935 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 2, no intimation was given to Respondent 1 so as to enable it to make a higher offer.

12. 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 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. 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 (1993) 2 SCC 279, AIR 1993 SC 935. 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 Sachidanand Pandey v. State of W.B (1987) 2 SCC 295, (1987) 2 SCR 223 and Haji T.M Hassan Rawther v. Kerala Financial Corpn. (1988) 1 SCC 166, (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.

13. 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 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 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 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 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 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 1 before accepting the offer of Rs 38 lakhs made by Respondent 2, is of little consequence in the facts of this case because Respondent 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.

14. In these circumstances no fault can be found with the action of SIPCOT in selling the unit to Respondent 2 for Rs 38 lakhs and the judgment of the High Court, in setting aside the said sale cannot be upheld.

15. The appeal is, therefore, allowed. The judgment of the Division Bench dated 23-2-1994 in Writ Petition No. 97 of 1994 as well as judgment of learned Single Judge dated 1-12-1993 in Writ Petition No. 18048 of 1993 are set aside and the said writ petition filed by Respondent 1 is dismissed. Having regard to the facts and circumstances, there will be no order as to costs.