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CASE NO.: Appeal (civil)  3063 of 2004

PETITIONER: Gajraj Jain

RESPONDENT: State of Bihar & Ors.

DATE OF JUDGMENT: 07/05/2004

BENCH: RUMA PAL & S.H. KAPADIA.

JUDGMENT: J U D G M E N T

[Arising out of SLP (C) No.21997 of 2002]

WITH

CONTEMPT PETITION (C) No.101 OF 2003 IN  CIVIL APPEAL No.              OF 2004  @ SLP (C)  No.21997 of 2002.  

KAPADIA, J.

       Leave granted.

       The question in this civil appeal by special leave is \027  whether Bihar State Industrial Credit and Investment  Corporation Limited (hereinafter referred to as "BICICO")  acted malafide and in breach of section 29 of the State Financial  Corporation Act, 1951 by transferring the assets of the debtor  company on 19.3.2002 and executing the agreement dated  26.4.2002 with M/s Stichworth Exports Pvt. Ltd. (respondent  no.4).

       The facts giving rise to this appeal are as follows:

       In 1982, a company by the name M/s Katihar Flour Mills  (P) Ltd. was incorporated to take over the assets and business of  a partnership firm M/s Katihar Flour Mills, a business  conducted by Jeloka group.  The said company was promoted  by Gopi Krishna Jeloka (since deceased), Binod Jeloka and  Pradeep Jeloka (since deceased).  The company is engaged in  the business of manufacturing, processing, buying and selling  of all kinds of grains and wheat products.  The flour mill is the  main asset of the company.  It is located in Katihar, Bihar.  On  16.5.1988, a term loan of Rs.90 lacs was taken by the said  company from BICICO, a State Financial Corporation within  the meaning of the State Financial Corporation Act, 1951  (hereinafter referred to as "the 1951 Act") and a charge was  registered under the Companies Act, 1956.  At this stage, it is  important to mention that Central Bank of India had advanced  working capital of Rs.1.40 crores to the company and therefore,  had a second charge on the plant and machinery of the  company. On 20.10.1993, an agreement was approved by the  share-holder of the company in terms of which three directors  belonging to Jeloka group resigned and three nominees of the  Jain group were inducted.  Under the said agreement, 50% of  the paid up capital was transferred to Jain group, which  deployed Rs.1.24 crores in the company.  Accordingly, the  appellant became a share-holder of the company.  In January,

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2001, Central Bank of India instituted case no.2 of 2001 against  the company and its directors for recovery of its dues  amounting to Rs.1.47 crores and for enforcement of security.   On 2.2.2002, BICICO - respondent no.2 gave notice under  sections 29 and 30 of the 1951 Act for recovery of its dues of  Rs.28.85 lacs.  On 22.2.2002, respondent no.2 issued a sale  notice for auction of the flour-mill at Katihar in Bihar.  Under  the said notice, the last date for submitting tenders was  21.3.2002.  The tenders were to be opened on 22.3.2002.  On  17.3.2002, the Jeloka Group wrote a letter to respondent no.2  that the company has approached a financier M/s Stichworth  Exports Pvt. Ltd. who was willing to pay the dues of respondent  no.2 against transfer of the assets of the company in their  favour.  By a take over notice dated 18.3.2002, respondent no.2  took possession of the assets of the company.  The possession  receipt was signed by respondent no.3.  On 19.3.2002, M/s  Stichworth Exports Pvt. Ltd., respondent no.4, wrote a letter to  respondent no.2 offering to acquire the assets of the company  for Rs.28.85 lacs plus the dues of Central Bank of India  amounting to Rs.1.70 crores.  On the same day, respondent no.4  made a down payment of Rs.28.85 lacs and the assets were  handed over by respondent no.2 to respondent no.4.  On  20.3.2002, the appellant herein met the law officer of  respondent no.2.  Pursuant to the sale notice dated 22.2.2002,  the appellant submits his tender on 21.3.2002.  He deposits Rs.1  lac as earnest money.  On 22.3.2002, he pays Rs.28.85 lacs  representing the entire dues of respondent no.2.  Despite  payment of the full dues by the appellant, respondent no.2  enters into agreement of sale of assets in favour of respondent  no.4.  Aggrieved, appellant moves the High Court on 21.5.2002  under Article 226 of the Constitution inter alia challenging the  validity of the agreement on the ground of collusion between  respondents no.2, 3 and 4.  On 22.5.2002, respondent no.2  returns the earnest money paid by the appellant alleging that he  has withdrawn his tender.  The appeal therefrom was also  dismissed on 3.9.2002.  Hence, the appellant, representing the  Jain group, has come before this Court in appeal by special  leave.

       Mr. Harish Salve, learned senior counsel appearing on  behalf of the appellant submitted that the impugned agreement  dated 26.4.2002 was collusive, arbitrary and contrary to section  29 of the said Act.  In this connection, learned counsel relied  upon the following circumstances: Firstly, under the public  notice dated 22.2.2002, tenders were to be submitted by  21.3.2002 and the offers were to be opened on 22.3.2002 yet  the assets came to be handed over by respondent no.2 to  respondent no.4 on 19.3.2002.  Secondly, respondent no.4  made downright payment of Rs.28.85 lacs on 19.3.2002.  An  amount of Rs.26 lacs was paid by demand drafts dated  9.3.2002.  According to the learned counsel, the said date of the  demand drafts shows that prior to the commencement of the  tender process and prior to the impugned sale agreement, a  decision was taken by respondent no.2 to hand over and sell the  assets of the company to respondent no.4.  There was no  valuation of the assets prior to acceptance of the bid.  Thirdly,  under the said sale notice, matching offers were required to be  called for from the directors/promoters/guarantors of the  company.  This was never done.  Without inviting matching  offers, the assets were handed over to respondent no.4.   Fourthly, despite repayment of dues amounting to Rs.28.85  lacs by the appellant on 22.3.2002, respondent no.2 failed to  return the assets to the company and arbitrarily appropriated the  payment towards dues recoverable by respondent no.2 from  M/s Aditya Flour Mills Ltd.  Fifthly, the earnest money

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amounting to Rs.1 lac came to be returned to the appellant, after  he had filed a writ petition, without any demand from him.   It  was submitted that the earnest money was refunded in order to  enable respondent no.2 to contend that the appellant has  withdrawn his offer and, therefore, the corporation have agreed  to sell the assets to respondent no.4.  Lastly, the sale agreement  dated 26.4.2002 was entered into in order to defeat the decree  which was likely to be passed by the Debts Recovery Tribunal  in the suit filed by the Central Bank of India for recovery of its  dues.    For aforestated reasons, it was submitted that the sale  transaction was collusive, arbitrary and bad in law.  That the  said transaction was a result of collusion between respondents  no.2, 3 and 4.  On the legality of the sale, it was submitted that  under section 29(4) of the 1951 Act, respondent no.2 was duty  bound to sell the assets and appropriate the sale proceeds in the  first instance to the paramount charge of the corporation and the  balance, if any, was required to be held in trust for Central Bank  of India, which had the second charge on the assets.  It was  submitted that the impugned sale was in breach of section 29(4)  of the said Act and was, therefore, liable to be set aside.

       Per contra, Mr. Gopal Subramaniam, learned senior  counsel appearing on behalf of respondent no.3 submitted that  there was no merit in this appeal.  He contended that one of the  terms of the sale notice was that the auction purchaser has to  liquidate the dues of Central Bank of India.  It was pointed out  that respondent no.2 corporation had handed over the assets of  the company to respondent no.4 who had promised to repay the  dues of the company to Central Bank of India.  That the said  promise was incorporated in the impugned sale agreement dated  26.4.2002.  In the circumstances, it was urged that respondent  no.2 had acted fairly, properly, reasonably and in accordance  with the provisions of section 29(4) of the said 1951 Act.  In  this connection, it was also urged that the appellant had  withdrawn his offer on 22.3.2002 and after almost one month  i.e. on 26.4.2002, the impugned sale agreement came to be  executed by respondent no.2 in favour of respondent no.4 and  consequently, there was no collusion, illegality or arbitrariness  in execution of the agreement as alleged.  Having withdrawn  from the auction, it was urged, the appellant was not entitled to  challenge the sale notice, the method of sale as well as the  agreement dated 26.4.2002.  Learned counsel for respondent  next contended that the appellant had come to court with  unclean hands.  In this connection, it was submitted, on the  basis of the correspondence, that the appellant wanted to  purchase the assets in his own name for Rs.28.85 lacs and that  he had never offered to clear the dues of respondent no.2 or  Central Bank of India.  In this connection, reliance was placed  on the undated letter (Annexure R.2/4).  For the aforestated  reasons, it was submitted that the civil appeal deserves to be  dismissed.

       Mr. Gupta, learned senior counsel appearing on behalf of  respondent no.4 submitted that the company became sick by  January, 2001 as the appellant had failed to bring in funds to  reduce the debts of the company.  He submitted that on  22.2.2002, the public notice for auction was issued.  Therefore,  respondent no.3 approached respondent no.4 to take over the  assets of the company for Rs.28.85 lacs along with the amounts  due and payable to Central Bank of India.  Consequently, on  17.3.2002, the Jeloka Group informed respondent no.2 that an  investor was ready and willing to purchase the assets of the  company for Rs.28.85 lacs plus the dues of Central Bank of  India.  On 19.3.2002, accordingly, respondent no.4 informed  respondent no.2 that it was prepared to buy the assets with the

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promise to liquidate the dues of the company to Central Bank of  India.  Along with the letter, respondent no.4 paid Rs.28.85  lacs, against which respondent no.2 handed over the assets of  the company to the purchaser, subject to the understanding that  in the event of a buyer being found by tender process the assets  would be returned to respondent no.2.

       Learned counsel for the respondent next contended that  the appellant made two offers on 21.3.2002.  By the first offer,  appellant offered to buy the assets of the company in his own  name for Rs.1.40 crores, which offer was withdrawn on the  same day, followed by the second offer to buy the said assets  for Rs.28.85 lacs.    On the same date, there was one more offer  from Shri P.K. Jain, which was also withdrawn.  In the  circumstances, the Tender Committee recorded that since both  the offers were withdrawn, the highest offer was from  respondent no.4 and consequently, on 26.4.2002, the impugned  agreement came to be in favour of respondent no.4 who  undertook to discharge the liabilities of the company to Central  Bank of India, which had a second charge on the said assets.  In  the present case, it was submitted that all requisite steps for sale  were adequately taken.  It was contended that the adequate  notice of sale was given; that the offer was kept open for one  month; that the bids were received pursuant to the tender; and  when the bids were withdrawn, the auction had failed and in the  circumstances, it cannot be suggested that the auction was not  properly conducted or that respondent no.2 did not take steps to  obtain the best possible price for the assets or that respondent  no.2 acted unreasonably in selling the assets to respondent no.4.

       Learned counsel for respondent no.4 submitted that mere  fact that the possession was handed over to respondent no.4 on  19.3.2002 did not affect the validity of the public auction.  In  this connection, reliance was placed on section 29 of 1951 Act.   It was submitted that after taking possession, respondent no.2  was entitled to deal with the property without conducting a sale  and that it was open to respondent no.2 to manage the property  in any manner during the pendency of sale.  In the  circumstances, it was submitted that there was no violation of  section 29(4) of the 1951 Act.  It was contended that in the  present case, at no point of time, was there any challenge to the  procedure adopted by respondent no.2 prior to the sale notice.   In the circumstances, the appellant cannot be permitted to  question the sale notice or the method of sale.  Lastly, it was  urged that the first charge in favour of respondent no.2 was not  subject matter of proceedings before the Debts Recovery  Tribunal and, therefore, it was not open to Debts Recovery  Tribunal to adversely comment on the sale under section 29 of  the 1951 Act.  In conclusion, it was contended that the  impugned sale did not violate sections 29 and 30 of the 1951  Act and that respondent no.2 - corporation had acted fairly,  reasonably and in accordance with law and consequently, no  interference was called for under Article 136 of the  Constitution.

Before dealing with the arguments, we may notice the  provisions of section 29 of the 1951 Act, section 100 of  Transfer of Property Act and the concept of best possible price  which is dominant consideration for the sale under section 29 of  the 1951 Act.  We quote herein below section 29 of the 1951  Act:\027 "29.    Rights of Financial Corporation in case of  default.\027(1) Where any industrial concern, which  is under a liability to the Financial Corporation  under an agreement, makes any default in

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repayment of any loan or advance or any  instalment thereof or in meeting its obligations in  relation to any guarantee given by the Corporation  or otherwise fails to comply with the terms of its  agreement with the Financial Corporation, the  Financial Corporation shall have the right to take  over the management or possession or both of the  industrial concerns, as well as the right to transfer  by way of lease or sale and realise the property  pledged, mortgaged, hypothecated or assigned to  the Financial Corporation.

(2)     Any transfer of property made by the  Financial Corporation, in exercise of its powers  under sub-section (1), shall vest in the transferee  all rights in or to the property transferred as if the  transfer had been made by the owner of the  property.

(3)     The Financial Corporation shall have  the same rights and powers with respect to goods  manufactured or produced wholly or partly from  goods forming part of the security held by it as it  had with respect to the original goods.

(4)     Where any action has been taken  against an industrial concern under the provisions  of sub-section (1), all costs, charges and expenses  which in the opinion of the Financial Corporation  have been properly incurred by it as incidental  thereto shall be recoverable from the industrial  concern and the money which is received by it  shall, in the absence of any contract to the  contrary, be held by it in trust to be applied firstly,  in payment of such costs, charges and expenses  and, secondly, in discharge of the debt due to the  Financial Corporation, and the residue of the  money so received shall be paid to the person  entitled thereto.

(5)     Where the Financial Corporation has  taken any action against an industrial concern  under the provisions of sub-section (1), the  Financial Corporation shall be deemed to be the  owner of such concern, for the purposes of suits by  or against the concern, and shall sue and be sued in  the name of the concern."

       The above section has been interpreted by this Court in  several matters.  In the case of M/s S.J.S. Business Enterprises  (P) Ltd. v. State of Bihar & Ors. reported in [2004 (3) Scale  374], the Division Bench of this Court, to which one of us  (Ruma Pal, J.) was a party, while setting aside the impugned  sale, observed that:\027 "17.    \005. It is axiomatic that the statutory powers  vested in the State Financial Corporation under the  State Financial Corporation Act, must be exercised  bonafide.  The presumption that public officials  will discharge their duties honestly and in  accordance with the law may be rebutted by  establishing circumstances which reasonably  probablize the abuse of that power.  In such event  it is for the concerned officer to explain the  circumstances which are set up against him.  If

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there is no credible explanation forthcoming the  Court can assume that the impugned action was  improper [See: M/s Pannalal Binjraj & Ors. v.  Union of India & Ors. AIR 1957 SC 397, 409].   Doubtless some of the restrictions placed on State  Financial Corporations exercising their powers  under Section 29 of the State Financial  Corporation Act, as prescribed in Mahesh Chandra  v. Regional Manager, U.P. Financial Corpn. 1993  (2) SCC 279, are no longer in place in view of the  subsequent decision in Haryana Financial State  Corporation v. Jagdamba Oils Mills.  However, in  over-ruling the decision in Mahesh Chandra, this  Court has affirmed the view taken in Chairman  and Managing Director; SIPCOT, Madras v.  Contromix Pvt. Ltd. 1995 (4) SCC 595 and said  that in the matter of sale under section 29, the State  Financial Corporation 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 only be achieved when there is a  maximum 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 interesting in  purchasing the property and generally secures the  best price".

18.     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."

In the light of the aforestated judgment of this Court, the  issue which arises for determination is \027 whether respondent  no.2 corporation acted reasonably and in accordance with  section 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 no.4 on 26.4.2002.  As stated above,  respondent no.2 corporation had a paramount first charge on the  assets of the flour mill whereas the Central Bank of India had  the second charge thereon.  There is a difference between a  charge and mortgage.  In the case of a charge under section 100  of the T.P. 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 realisation of such property, a phrase  used in section 29(1) of the 1951 Act.  A charge as defined  under section 100 of T.P. Act may be enforced by sale  [See:  CPC by Mulla (15th Edition) page 2420].  We have discussed  the concept of charge as it has a direct bearing on the  interpretation of section 29 of the 1951 Act.

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Under section 29(1) of the 1951 Act, where any  industrial concern under a liability to the financial corporation  makes any default in repayment of loan, the corporation is  empowered to take over possession of the industrial concern  and realize the property pledged, mortgaged, hypothecated or  assigned to the corporation.  Under section 29(4), all costs,  charges and expenses incurred by the corporation as incidental  to such realization of the property pledged, hypothecated or  mortgaged shall be recovered firstly from the industrial concern  and the balance shall be paid to the person entitled thereto.  As  stated above, a charge consists in the right of a creditor to  receive the payment out of the proceeds of the realization of  property or fund charged with the debt.  A bare reading of sub- sections (1) & (4) of section 29 shows that it is similar to  section 69 of T.P. Act under which it is stipulated that a  mortgagee exercising the power of sale is a trustee of the  surplus sale proceeds and after satisfying his own charge he  holds the surplus for the subsequent encumbrancers and  ultimately for the mortgagor [See: Rajah Kishendatt Ram v.  Rajah Mumtaz Ali Khan reported in [Vol. VI Indian Appeals  145 (PC)].  Section 29(1) contemplates, therefore, a sale for  distribution of sale proceeds and not a sale for distribution of  property charged with the debt.  It also implies that the first  charge holder must act in a manner which protects not only its  own interest but also the interest of the subsequent charge  holder and the mortgagor.  This in turn implies that the first  charge holder is bound to obtain the best possible price for the  mortgaged assets and the best possible price must, in the  context, mean the fair market value.   

In the present case, it is not in dispute that the assets of  the flour mill were charged.  The first charge was in favour of  the corporation; whereas the second was in favour of Central  Bank of India.  Under section 29(1), the corporation while  enforcing the first charge was required to put the assets charged  with the debt to sale and apply the sale proceeds in the manner  stated in section 29(4).  But before doing so, it is imperative to  have the assets proposed to be sold, valued.  In breach of sub- sections (1) and (4) of section 29, after putting the assets to sale  by public auction the corporation enters into an agreement for  sale of the assets with respondent no.4 without ascertaining the  market value and realising the sale proceeds for distribution.   The assets are agreed to be sold for Rs.198.85 lacs merely by  adding the corporation dues and the claim of the Central Bank  of India.  Even this sale consideration is not realised in full.   The corporation accepts downright payment of Rs.28.85 lacs  (its own dues) and the balance of Rs.170 lacs is received by it  in the form of a promise to it by respondent no.4 to pay the dues  of Central Bank of India, which is not even a party of the  arrangement.    According to Law and Practice of Income Tax  by Kanga and Palkhiwala [VIIth Edition page 47], a promise  to pay the debt at a future date is no realization.  In the case of  M.C. Chacko v. The State Bank of Travancore, Trivandrum  [(1969) 2 SCC 343], it has been held by this Court, that a mere  undertaking to discharge an obligation or liability of the debtor  may at the highest amount to indemnity, however, it is not  enough to charge the property/fund with the debt.  Further,  according to Mulla and Pullock on Contract Act (XII Edition  page 106), contracting parties may confer rights or benefits  upon a third party in the form of promise to pay but the third  party on whom such right or benefit is conferred by the contract  cannot sue under it.  Lastly, as stated above, a charge cannot be  enforced against a bonafide purchaser for value (See: Law of  Mortgage by Ghose page 127).  In the case of Subbu Chetti v.

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Arunachalam Chettiar reported in [AIR 1930 Madras 382], it  has been held that when a person transfers property to another  and stipulates for payment by the purchaser to a third person, a  suit by such person to enforce the stipulation will not lie.  In the  present case, there is no sale for distribution of sale proceeds in  terms of section 29(1).  There is no realisation of the property,  charged with debt, in terms of sub-sections (1) and (4) of  section 29 of the Act.  The interest of Central Bank of India and  the mortgagor is totally defeated by the impugned arrangement  between respondents no.2 and 4.  The words "realisation of the  property pledged, mortgaged, hypothecated" presupposes  realisation of sale proceeds and application/appropriation  thereof to liquidate the dues of the paramount charge-holder  and from the surplus payment to person(s) entitled thereto.  It is  for this reason that the best possible price has got to be tried for  under section 29 of the Act.  In the circumstances, we hold that  the impugned agreement of sale as well as the transfer of assets  in favour of respondent no.4 are in breach of section 29(1) and  section 29(4) of the1951 Act.

In the present case, it has been urged that absence of  valuation report and the reserve bid does not vitiate the sale.   We do not find merit in this argument.  In the case of M/s S.J.S.  Business Enterprises (P) Ltd. (supra), 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 reasonableness has been laid down in the above  judgment in which it is held that reasonableness is to be tested  against the dominant consideration to secure the best price.   Value or price is fixed by the market.  In the case of going  concern, one has to value the assets shown in the balance sheet  (Valuation of Real Property by S. Datta page 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 mechanism the auction sale  becomes only a pretence.  Further, in this case, the corporation  advanced Rs.90 lacs to the company.  At that time, it must have  valued the assets.  No such report has been produced.  Lastly, in  this case, the price of the assets is pegged to the dues of the  corporation and the Central Bank of India.  The assets are  agreed to be sold to respondent no.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 no.2, has not acted reasonably.  It has  not taken any steps to secure the best price.  In fact it has failed  to protect the interest of Central Bank of India, which is having  the second charge on the assets transferred to respondent no.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 no.4 was accepted.   Even assuming for the sake of argument, that there were no  offers except the offer of respondent no.4, it shows that value of  the assets was Rs.198.85 lacs [i.e. Rs.28.85 lacs + Rs.170 lacs).   No reason has been given why respondent no.2 did not insist of  downright payment of Rs.198.85 lacs.

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       In addition to the vitiating circumstances enumerated  above, we find that under the public notice dated 22.2.2002,  tenders were invited.  They were to be submitted by 21.3.2002.   Under the said notice, the tenders were to be opened on  22.3.2002.  The take over of assets is on 18.3.2002.   However,  on 19.3.2002, the corporation hands over the assets to  respondent no.4 against down payment of Rs.28.85 lacs plus  promise to the corporation that the purchaser undertakes to pay  the dues of Central Bank of India.  A part of the amount of  Rs.28.85 lacs was paid by demand drafts dated 9.3.2002.  These  circumstances indicate collusion between respondent no.2  corporation, respondent 3 and respondent no.4.  The take over  of assets is ordered on 18.3.2002 and on 19.3.2002, the assets  are handed over to respondent no.4 against down payment of  Rs.28.85 lacs in demand drafts dated 9.3.2002.  Under section  29(1) of the Act, the corporation is entitled to sell or lease the  assets in order to realise the pledged/hypothecated or mortgaged  property.  Under what colour of title were the assets handed  over to respondent no.4 on 19.3.2002?  Was it under sale, lease  or repayment of loan?  There is no explanation as to how  respondent no.4 could have drawn demand drafts in favour of  corporation on 9.3.2002 when their offer to purchase was on  17/19.3.2002.  It is alleged on behalf of respondent no.4 that  they were given the assets with a specific understanding of  return of property if a higher offer was received in the auction.   No such understanding is recited in the minutes of the tender  committee nor in the recitals in the impugned agreement dated  26.4.2002.  We do not find any resolution/minutes of the Board  of Directors of the corporation in that regard.  In the agreement  dated 26.4.2002, it has been recited that Rs.90 lacs were  advanced as loan in 1988 by corporation to the company  against equitable mortgage of land and assets.  Under section 69  of T.P. Act, equity of redemption existed in favour of the  company.  A mere agreement for sale of assets cannot  extinguish the equity of redemption; it is only on execution of  conveyance that the mortgagor’s right of redemption will be  extinguished. [See: T.P. Act by Mulla page 794].  In the present  case, till today there is no conveyance and, therefore, on  21.3.2002 when appellant herein paid Rs.28.85 lacs to the  corporation representing its full dues, there was complete  liquidation of the dues of the corporation and yet the  corporation did not return the assets to the company and  arbitrarily and for extraneous reasons adjusted the said amount  to the account of M/s Aditya Flour Mills.  The reason is  obvious.  The corporation intended to sell the assets only to  respondent no.4 for a paltry amount of Rs.28.85 lacs.  It has  been repeatedly urged before us, on behalf of respondent no.4,  that the assets in question were not worth Rs.10 crores as  alleged by the appellant.  Even if we assume that respondent  no.4 is right in its submission, even then, in terms of the offer  of respondent no.4, the property was worth Rs.198 lacs.  But  the corporation handed over the assets and agreed to sell them  against down payment of Rs.28.85 lacs.  No reason has been  given by the corporation as to why it did not insist on the full  payment of Rs.198.85 lacs.  Be that as it may, the appellant  herein cleared the dues of the corporation on 21.3.2002, before  opening of tenders on 22.3.2002, and yet the corporation did  not return the assets to the company.   Even the tender money  deposited by the appellant was returned without any demand  from the appellant so that it could be argued by the corporation  that the appellant had withdrawn from the auction and therefore  the offer of respondent no.4 was accepted.  In fact, the  document at page 186 shows that appellant refused to collect  the earnest money and, therefore, the amount was kept by the

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corporation in a separate account.  Lastly, in the case of  Narandas Karsondas v. S. A. Kamtam & Anr.  reported in  [AIR 1977 SC 774], it has been held that putting of property to  auction does not extinguish the right of redemption.  Therefore,  on 21.3.2002, the company had a right to redeem the assets.  It  was submitted that the appellant intended to buy the assets in  his own name.  We do not find merit in this argument.  The  record shows that the appellant as the director of the company  offered to clear the dues of the corporation for which he insisted  on the return of the title deeds (transfer papers) of M/s Katihar  Flour Mills.  In any event, in this case, we are concerned with  the conduct of the corporation which was required to act in  accordance with section 29 of the 1951 Act and not  unreasonably.  In this connection, it may further be pointed out  that under the public notice inviting tenders, the corporation  was obliged to call for matching offers from the  directors/promoters/guarantors.  The corporation did not call for  such offers as its object was to keep out all counter-offers.   Lastly, we are satisfied that the impugned agreement dated  26.4.2002 has been entered into without any consideration in  favour of Central Bank of India.  In conclusion, we may state  that in the present case, respondent no.2 corporation has  misused its authority and power in breach of law by taking into  account extraneous matters and by ignoring relevant matters  which has rendered all its acts ultra-vires.   [See: Express  Newspapers Pvt. Limited & Ors. v. Union of India & Ors. AIR  1986 SC 872 para 118].

       In the circumstances, we set aside the impugned  judgment and order of the High Court and grant to the appellant  the reliefs claimed by him in the writ petition.  We hereby set  aside the agreement dated 26.4.2002 and we direct respondent  no.2 - corporation to transfer Rs.28.85 lacs, wrongly  appropriated to the account of M/s Aditya Flour Mills, to the  account of M/s Katihar Flour Mills (P) Ltd.  Consequent upon  such appropriation, the loan taken by the said company shall  stand repaid.  We further direct the concerned District Judge to  restore possession of the assets (handed over by respondent  no.2 - corporation to respondent no.4 - company on 19.3.2002)  to M/s Katihar Flour Mills (P) Ltd.  In this connection, the  District Judge is directed to draw-up an inventory of the assets.   In case of shortfall, it would be open to M/s Katihar Flour Mills  (P) Ltd. to take such steps as they may be advised.  Consequent  upon our setting-aside the agreement dated 26.4.2002, we direct  the corporation to return the amount paid to it by respondent  no.4 on 19.3.2002.

       Appeal is accordingly allowed, with no orders as to costs.

       In the facts and circumstances of the case, no order is  required to be passed in contempt petition No.101 of 2003.