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

J U D G M E N T

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,

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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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”,

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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

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Rs.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:

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“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

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29  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

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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

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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

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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

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Mahesh 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.”

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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

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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.  

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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.

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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)

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New Delhi, Dated: May 16, 2008

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