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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

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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

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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

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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.

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    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

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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.