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PETITIONER: KARNATAKA STATE FINANCIAL CORPORATION

       Vs.

RESPONDENT: MICRO CAST RUBBER & ALLIED PRODUCTS (P) LTD. & ORS.

DATE OF JUDGMENT:       03/06/1996

BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) NANAVATI G.T. (J)

CITATION:  1996 SCC  (5)  65        JT 1996 (6)    37

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C. AGRAWAL, J :-      Special leave granted.      The Karnataka  State Financial  Corporation,  appellant herein, is  a State  Financial Corporation established under the provisions of the State Financial Corporations Act, 1951 (hereinafter referred  to as ‘the Act’). Respondent No. 1, a company registered  under the  Companies Act,  set up a unit for  the  manufacture  of  rubber  and  like  products.  The appellant extended finance to the tune of Rs. 14.15 lakhs to respondent No. 1 on March 21, 1981. In August 1981 the unit of respondent No. 1 commenced production but from its very inception it continued to incur losses. In order to make the unit  viable the  appellant, on  December 14,  1981, re- scheduled the payment of the loan. A further sum of Rs. 1.65 lakhs was  sanctioned in  March  1984  for  the  purpose  of purchasing a  Diesel Generating Set. On October 10, 1986 the appellant extended  rehabilitation assistance  under the RSR Scheme of  IDBI  and  treating  the  unit  as  a  sick  unit sanctioned a  further amount  of Rs.  3.93 lakhs. Inspite of these facilities  respondent No. 1 continued to make default in payment  of instalments  for repayment  of the  loan.  On October 23,  1990 the  appellant took over the possession of the unit  of respondent  No. 1  in exercise  of  the  powers conferred on  it under Section 29 of the Act. Thereafter the appellant took  steps for  sale of  the unit  and  for  that purpose a  number of  advertisements  were  issued  inviting offers. No  suitable offer  was received  in response to the first two advertisements. In response to third advertisement issued in  August 1991,  five offers  were received.  Out of them, the  offer of  Shri  P.K.  Joseph  on  behalf  of  M/s Chemtech Industries  for a  sum of  Rs.  24  lakhs  was  the highest and  the Board  of the  appellant approved  the said offer and  decided that  the communication for acceptance of the offer  should be  sent only after October 15, 1991 so as to give  an opportunity  to respondent  No. 1  to bring  any

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other offer  for a  higher amount.  Respondent No. 1 did not bring any  offer. But,  in the  meanwhile, Shri  P.K. Joseph withdrew  his   offer  on   November  30,   1991  Thereafter respondent No.  1 indicated  that it would submit a proposal for the  revival of  the unit  but it failed to come up with any concrete  proposal. Therefore, a fresh advertisement for the sale  of the  unit was  issued on  August 25,  1992.  In response  to  the  said  advertisement,  three  offers  were received. One  offer was  of M/s Chemtech Industries for Rs. 23 lakhs  for land,  building and machinery The second offer was of  M/s Prime  Inputs (India)  Ltd. for  a sum of Rs. 18 lakhs in  respect of  land and  building only  and the third offer was  of M/s  Shakti Rubbers  for Rs. 6 lakhs for plant and machinery only. A joint meeting of the offerers was held on September  28, 1992.  Respondent No.  1 was also invited. After considering  the said offers, a tentative decision was taken to  accept the  offers submitted  by M/s  Prime Inputs (India) Ltd. and M/s Shakti Rubbers. Respondent No. 1 sent a letter dated  October 21,  1992 seeking 15 days time to make payment and  submit a  proposal for  revival of the unit. By letter dated  November 12,  1992, further time was sought by respondent No. 1 till December 15, 1992. On January 4, 1995, an offer  was submitted  by respondent No. 2 to purchase the entire unit  including land,  building, plants,  furnishings and  fixture   for  Rs.  25  lakhs.  The  said  proposal  of respondent No. 2 as well as the offers received earlier were considered by  the Board of the appellant and it was decided to accept  the offers  of M/s  Prime Inputs (India) Ltd. and M/s Shakti  Rubbers. On  January  25,  1993,  agreement  was entered for  the sale  of entire  unit to  them. Thereafter, respondents Nos.  1 and  2 filed the writ petition (CWC 3591 of 1993) in the Karnataka High Court which has given rise to this appeal.  The said  writ petition  of respondents Nos. 1 and 2  was allowed  by the  learned single Judge of the High Court by  judgment  dated  August  11,  1993  whereby    all proceedings subsequent  to receipt  of tenders  pursuant  to public notice were quashed and the appellant was directed to observe  the  directions  Nos.  2,  3  and  4  contained  in paragraph 22 of the judgment of this Court in Mahesh Chandra v. Regional] Manager, U.P, Financial Corporation and Others, 1993 (2)  SCC 279. Writ Appeal No. 3297 of 1993 filed by the appellant against  the said judgment of learned single Judge was dismissed  by the  Division Bench  of the  High Court by judgment dated February 15, 1994. Hence this appeal.      As indicated  earlier, the  learned single Judge, while allowing the  writ petition  filed by respondents Nos. 1 and 2, has  directed the appellant to observe directions Nos. 2, 3 and  4 contained in paragraph 22 in the judgment of Mahesh chandra v.  Regional Manager,  U.P Financial  Corporation  & Ors. (supra). The said directions are as follows :-      "(2)  Valuation   of  a   unit  for      purposes of determining adequacy of      offer or  for  determining  if  bid      offered was adequate, should always      be intimated  to the unit holder to      enable him to file objection if any      as  he  is  vitally  interested  in      getting the maximum price.      (3) If tenders are invited then the      highest price on which tender is to      be accepted  must be  intimated  to      the unit holder.      (4) (a)  If unit  holder is willing      to offer  the sale  price,  as  the      tenderer, then he should be offered

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    same facility  and unit  should  be      transferred to him. And the arrears      remaining  thereafter   should   be      rescheduled  to   be  recovered  in      instalments with interest after the      payment of  last  instalment  fixed      under the agreement entered into as      a result of tendered amount.      (b) If he brings third parties with      higher offer it would be tested and      may be accepted."  [P. 297]      Shri S.  Ravindra Bhat,  the learned  counsel appearing for the  appellant, has  submitted that  in the facts of the present case  the said  directions  had  been  substantially complied  with   by  the  appellant.  In  this  regard,  the submission of  the learned  counsel  is  that  a  number  of efforts were  made to  sell the  unit of respondent No. 1 by issuing advertisements  from time  to time  but no  suitable offer  was   received  in   response  to   the   first   two advertisements that  were issued in 1991 and the offer for a sum of Rs.24 lakhs made by Shri P.K. Joseph on behalf of M/s Chemtech Industries  which was  received in  response to the third advertisement in 1991 was withdrawn by him on November 30,  1991.   Thereafter,  respondent  No:  1  was  given  an opportunity to  bring a better offer or to submit a proposal for revival  but it  failed to do so and, therefore, a fresh advertisement for  sale of the unit was issued on August 25, 1992. In  response to  the said  advertisement, three offers were received  and offers  submitted  by  M/s  Prime  Inputs (India) Ltd.  for land  and building  and M/s Shakti Rubbers for plant  and machinery  were found  to be better than that submitted by  M/s Chemtech  Industries. When  the matter was under consideration,  respondent No.  2  made  an  offer  on January 4,  1993. The learned counsel has submitted that the said offer  of  respondent  No.  2  was  considered  by  the appellant and  it was  found that it was not better than the offers received  from M/s  Prime Inputs (India) Ltd. and M/s Shakti Rubbers for the following reasons :-      (a) The offers of M/s Prime Inputs (India) Ltd. and M/s      Shakti  Rubbers   envisaged  payment  of  dues  of  the      Karnataka Electricity  Board by  the offerers,  whereas      the offer of respondent No. 2 proposed the said dues to      be paid by the appellant;      (b) There was shorter time for payment of consideration      in the  offers of M/s Prime Inputs (India) Ltd. and M/s      Shakti Rubbers inasmuch as the entire consideration was      payable within 4 years, whereas offer of respondent No.      2 was  a  conditional  offer  and  payment  was  to  be      completed in  5 years  after  initial  commencement  of      production;      (c) In  the case  of M/s  Prime Inputs (India) Ltd. and      M/s Shakti  Rubbers, down  payment of  25% amounting to      Rs. 6  lakhs was made. In the case of respondent No. 2,      only Rs. 2 lakhs was offered, and      (d) In  the case  of respondent No. 2, no earnest money      was paid. All other parties deposited earnest money.      The appellant,  therefore, did  not accept the offer of respondent No. 2 and accepted the offers of M/s Prime Inputs (India) Ltd.  and M/s  Shakti Rubbers.  It is urged that the High Court  was not  justified in  interfering with the said decision of the appellant.      Shri P.  Mahale,  the  learned  counsel  appearing  for respondent No. 1, has submitted that the offer of respondent No. 2  was much  higher than  the offers  made by  m/s Prime Inputs (India)  Ltd. and  M/s  Shakti  Rubbers  inasmuch  as

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respondent No  2 had  also offered  to pay  a sum  of Rs. 10 lakhs  to  Canara  Bank  in  final  settlement  of  dues  of respondent No.  1 to the said Bank which had a second charge on the  land, building and machinery and that this amount of Rs. 10  lakhs is  in addition  to Rs. 25 lakhs to be paid to the appellant.      The  directions   contained  in  paragraph  22  of  the judgment  in   Mahesh  Chandra   v.  Regional  Manager,  U.P Financial Corporation  & Ors,  (supra) are  in the nature of guidelines for the exercise of the power under Section 29 of the Act.  The action  of the  State Financial Corporation is not liable  to be interfered with if it has acted broadly in consonance  with   these  guidelines.   In  the   facts  and circumstances of  this case,  we are of the opinion that the directions Nos.  2, 3  and 4  in these  guidelines had  been substantially complied  with by  the  appellant.  There  was compliance with  direction No.  2 inasmuch as before issuing the first  advertisement for  sale of the unit in March 1981 the unit had been evaluated at Rs. 28 lakhs. Keeping in view the various  offers that  have been  received, it  cannot be said that  the said evaluation was improper. Directions Nos. 3 and 4 were also fulfilled inasmuch as respondent No. 1 was made aware  of the  various offers that had been received in response to the advertisements that were issued from time to time and  respondent Mo.  1 was given sufficient opportunity to submit  proposal for  revival of  the unit  or to  obtain higher offers. The only question is whether in accepting the offers of  M/s Prime  Inputs (India)  Ltd.  and  M/s  Shakti Rubbers the  appellant has  rejected  the  higher  offer  of respondent No.  2. As pointed out earlier, the offer made by respondent No.  2 was  not accepted by the appellant for the reasons that on proper evaluation it was found that it could not be  regarded higher  than that  made by M/s Prime Inputs (India) Ltd.  and M/s  Shakti Rubbers  because it  was found that the  offer made  by  respondent  No.  2  envisaged  the payment of  dues to  the Karnataka  Electricity Board by the appellant, whereas  the offers  made  by  M/s  Prime  Inputs (India) Ltd.  and M/s  Shakti Rubbers  envisaged payment  of such dues  by the offerers. It was also found that there was shorter time  for payment  of consideration in the offers of M/s  Prime  Inputs  (India)  Ltd.  and  M/s  Shakti  Rubbers inasmuch as  under the  said offers the entire consideration is payable  within 4  years, whereas  in offer of respondent No. 2  the payment  is to  be completed  in  S  years  after initial commencement  of  production.  Furthermore,  it  was found that  in offers  of m/s  Prime Inputs (India) Ltd. and M/s Shakti  Rubbers, down payment of 25%, amounting to Rs. 6 lakhs, was  being made,  while in  case of  respondent No. 2 only Rs.  2 lakhs  was offered.  Moreover, in  the offer  of respondent No.  2 no  earnest money  was to  be paid,  while earnest money  was to  be deposited  by other  offerers.  As regards the  undertaking by  respondent No.  2 to pay Rs. 10 lakhs to  Canara Bank  in final  settlement of  the dues  of respondent No.  1, it  may be stated that the said liability towards Canara Bank is secured by second charge on the land, plant and  machinery that  was being  sold by the appellant. The said  sale by  the appellant  was subject  to  the  said charge. Every  purchaser was  bound to  discharge  the  said liability of the Canara Bank and the offer of payment of Rs. 10 lakhs  by respondent  No. 2  to  Canara  Bank  does  not, therefore, enhance the value of the said offer.      In  the  matter  of  a  sale  by  the  State  Financial Corporation in  exercise of  the power conferred on it under Section 29  of the  Act the  scope  of  judicial  review  is confined to two situations, namely, (1) there is a statutory

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violation on the part of the State Financial Corporation, or (2) where  the State  Financial Corporation  acts  unfairly, i.e., unreasonably.  While exercising its jurisdiction under Article 226 of the Constitution, the High Court does not sit as an  appellate authority  over the  acts and  deeds of the State  Financial   Corporation.  [See   :   U.P.   Financial Corporation v.  Gem Cap  (India) Pvt.  Ltd. and Others, 1993 (2) SCC  299 at  p. 306].  It has  not been pointed out that there is  any statutory  violation on  the part  of the ] in accepting the  offers of  M/s Prime  Inputs (India) ltd. and M/s Shakti  Rubbers and in rejecting the offer of respondent No. 2.  Nor can  it be said that the action of the appellant in not accepting the offer of respondent No. 2 and accepting the offers  of M/s  Prime Inputs (India) Ltd. and M/s Shakti Rubbers was  unfair or  unreasonable. The  High  Court  was, therefore, not  justified in  interfering with the action of the appellant  in accepting  the offers  of M/s Prime Inputs (India) Ltd. and M/s Shakti Rubbers for the sale of the unit of respondent  No. 1. The writ petition filed by respondents Nos. 1 and 2 is, therefore, liable to be dismissed.      During the  pendency of  this  appeal  in  this  Court, respondent No.  1 had  placed before the Court an offer made by M/s  Sunny Brooks  to purchase the unit for Rs. 28 lakhs. The said  offer cannot  be said  to be  substantially higher than the  offers made  by M/s  Prime Inputs (India) Ltd. and M/s  Shakti   Rubbers  in   September  1992  so  to  justify interference with the sale by the appellant in favour of the said offers.  We are,  therefore, not inclined to uphold the impugned judgment  of the  High Court  in view  of the  said offer.      In the  result, the  appeal is  allowed,  the  impugned judgment of  the Division  Bench of  the  High  Court  dated February 15,  1994 as  well as  the judgment  of the learned single judge  dated August  11, 1993  are set aside and writ petition filed by respondents Nos. 1 and 2 is dismissed with costs.