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CASE NO.: Appeal (civil)  1650 of 2004

PETITIONER: M/s S.J.S. Business Enterprises (P) Ltd.

RESPONDENT: State of Bihar and Ors.

DATE OF JUDGMENT: 17/03/2004

BENCH: Ruma Pal & P.Venkatarama Reddi.

JUDGMENT: J U D G M E N T

(Arising out of SLP(C) No. 10766/2003)

RUMA PAL, J.           Leave granted. The appellant had been sanctioned a sum of Rs.70 lakhs  by the Bihar State Credit and Investment Corporation Ltd.  (hereinafter referred to as ’BICICO’) in April 1992 for financing  the construction of a hotel.   According to the appellant, BICICO  only disbursed a sum of Rs.44.56 lakhs in instalments as a  result of which  the appellant could not complete the project  without a huge cost overrun.   From time to time upto 2001- 2002, the appellant repaid about Rs.14.23 lakh to BICICO.   However, the outstanding amount, due from the appellant  according to BICICO as on March 2002, was Rs.191.3 lakhs  including interest.  Proceedings were therefore commenced by  BICICO under Section 29 of the State Financial Corporations  Act, 1951 for sale of the hotel which had been mortgaged by  the appellant to BICICO by way of security against the  loan.         The hotel was valued on 3rd July 2001 by BICICO  through its valuer.  According to this valuation, the property  was worth Rs.2.16 crore   After this, a publication was made  on 31st January 2002 offering the hotel for sale on an "As is  where is basis".  Offers were required to be made by 28th  February 2002.  The respondent No. 6 offered to purchase the  hotel for Rs.41 lakhs.  The offer was rejected by BICICO  because  the bid was too low.         The property was again re-valued on 24th January 2002  by BICICO.  By what, according to BICICO, was only an "in- house assessment", the value of the hotel was estimated at  Rs.1.58 crores.  But when a third valuation was again made at  the instance of BICICO in February 2002, the total value of the  property including of the building and land was only Rs.94.81  lakhs.  On 26th March 2002, a second sale notice was  published by BICICO   in respect of the hotel on "As is where  is basis".  This notice has been impugned before us.  Under  this notice offers were to be given by way of a sealed cover by  29th March 2002 i.e. within three days. Of these three days  28th March 2002  was ’Holi’ and 29th March 2002 was ’Good  Friday’.              It appears from the records that on the same day the  second sale notice was published,  the respondent No. 6  made an offer to purchase  the hotel for Rs.95.50 lakhs and in  fact paid Rs. 95.50 lakhs to BICICO. On 30th March 2002,  which  was a Saturday, the offer of the respondent No. 6 was  negotiated and the consideration was finalised at Rs. 1 crore.   The difference between Rs.94.50 lakhs and Rs.1 crore had

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already been paid to BICICO by the respondent No. 6 on 7th  March, 2002.  Therefore by the 26th March, 2002, before the  last date for receiving offers was over and the tenders were  opened, the Respondent No. 6 had deposited the entire  consideration of Rs. 1 Crore.  Nevertheless a letter  accepting  the respondent No.6’s offer  was issued by BICICO on 31st  March 2002 (which was a Sunday) asking the respondent No.  6 to pay the amount of Rs. 1 crore by 31st March 2002 failing  which its offer would stand rejected.  The respondent No. 6  apparently received the letter on the same day from  BICICO  and also replied on that day stating that the amount of Rs. 1  crore had already been paid.  After this, a letter was written  again on the same day by BICICO to the appellant and its two  Directors asking them to match the offer of respondent No. 6  within 10 days from the date of the issue of the letter, failing  which the sale would be concluded in favour of the respondent  No. 6.               On 4th April 2002, a suit was filed  by the appellant  before the Court of the Sub-Judge, Patna, inter-alia,  challenging the action of BICICO.   An application for interim  relief was made to restrain  BICICO from selling the hotel. The   prayer for interim injunction was refused by the Sub Judge on  8th April 2002 and notice was directed to be issued to BICICO.    The next day, a writ petition was filed by the appellant for the  same reliefs as had been prayed for in the suit. An interim  order was passed by the learned Single Judge on 9th April  2002 after hearing counsel for the appellant as well as for   BICICO by which a schedule of repayment by instalments was  prescribed. Subject to payment of the first instalment of Rs. 10  lakhs possession of the hotel was to be handed over by  BICICO to the appellant.   An undertaking was also given by  one of the Directors of the appellant to the Court to abide by  the schedule so fixed.  The appellant paid a sum of Rs. 10  lakhs in terms of the Court’s order to BICICO but the  possession of the hotel was not handed back to the appellant.             It may be mentioned that during this period, BICICO  announced a settlement policy under which concerns which  had taken a loan less than 10 years earlier could settle their  dues by paying double the original principal amount lent by  the BICICO to such defaulters.  The appellant applied for  settlement of its outstanding dues.  However, the prayer of the  appellant for a one time settlement was rejected by BICICO  under the settlement policy.         When the writ petition came up for disposal, the learned  Single Judge dismissed it holding that as the appellant had  suppressed the fact that it had filed a suit prior to the initiation  of writ proceedings its conduct verged on fraud and that the  appellant had, disentitled itself from any relief in the  extraordinary prerogative writ jurisdiction.  It was also held that  the BICICO had acted bonafide in taking action under Section  29  and selling the hotel.  While dismissing the writ petition,  the learned Single Judge directed BICICO to consider the  appellant’s application for one time settlement in accordance  with law. BICICO was directed to hand over the possession of  the hotel to respondent No. 6 and the appellant was directed  to pay Rs.10,000/- by way of costs to the respondent no. 6.           The Division Bench dismissed the appeal preferred by  the appellant  after rejecting the explanation given by the  appellant that the two proceedings had been initiated  independently by the two Directors of the appellant each  without the other’s knowledge. The Division Bench held that  the Court would not interfere with the Single Judge’s order  because of the material suppression of facts by the appellant.         When the special leave petition was initially entertained  by this Court,  we directed the issuance of notice subject to

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the appellant’s depositing a sum of Rs. 1 crore by way of bank  draft/ draft with the Registry of this Court.  We also recorded  that the appellant was willing to recompense the respondent  No. 6 to the extent of any loss incurred by way of interest  on  the amount paid by it.  The demand draft of Rs. 1 crore was  deposited with the Registry of this Court by the appellant and  the amount has since been invested in a nationalised bank in  a short term fixed deposit.         Affidavits have been filed by BICICO and the respondent  No. 6 in which they have claimed that possession of the hotel  was handed over by BICICO to the respondent No. 6 on 27th  May 2003. However, it is not clear whether any resolution of  the Board or any other formal agreement or conveyance deed  in respect of the hotel has been executed by BICICO in favour  of the respondent No. 6 till today.         The principal basis on which the Single Judge and the  only ground on which the Division Bench of the High Court  refused relief to the appellant  was because they found that  the appellant was guilty of suppression of a material fact viz.,  the filing of the suit prior to approaching the Court under  Article 226.         As a general rule, suppression of a material fact by a  litigant  disqualifies such litigant from obtaining any relief.  This  rule has been evolved  out of the need of the Courts to deter a  litigant from abusing the process of Court by deceiving it.  But  the suppressed fact must be a material one in the sense that  had it not been suppressed it would have had an effect on the  merits of the case.  It must be a matter which was material for  the consideration of the Court, whatever view the Court may  have taken .    Thus when the liability to Income Tax was  questioned by an applicant on the ground of her non-  residence, the fact that she had purchased and was  maintaining a house in the country was held to be a material  fact the suppression of which disentitled her from the relief  claimed.   Again        when in earlier proceedings before this  Court, the appellant had undertaken that it would not carry on  the manufacture of liquor at  its distillery and the proceedings  before this Court were concluded on that basis, a subsequent  writ petition for renewal of the licence to manufacture liquor at  the same distillery before the High Court was held to have  been initiated for oblique and ulterior  purposes and the  interim order passed by the High Court in such subsequent  application was set aside by this Court.  Similarly, a challenge  to an order fixing the price was rejected because the  petitioners had suppressed the fact that an agreement had  been entered into between the petitioners and the  Government relating to the fixation of price and that the  impugned order had been replaced by another order .         Assuming that the explanation given by  the appellant  that the suit had been filed by one of the Directors of the  Company without the knowledge of the Director who almost  simultaneously approached the High Court under Article 226  is unbelievable, the question still remains whether the filing of  the suit can be said to be a fact material to the disposal of the  writ petition on merits.   We  think  not.   The  existence  of an

adequate or suitable alternative remedy available to a litigant  is merely a factor which a Court entertaining an application  under Article 226 will consider for exercising the discretion to  issue a writ under Article 226 . But the existence of such  remedy does not impinge upon  the jurisdiction of the High  Court to deal with the matter itself if it is in a position to do so  on the basis of the affidavits filed. If however a party has  already availed of the alternative remedy while invoking the  jurisdiction under Article 226, it would not be appropriate  for

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the Court to entertain the writ petition.  The Rule is based on  public policy but the motivating factor is the existence of a  parallel  jurisdiction  in another Court. But this Court has also  held  in  C. B.   Gosain Bhan V. State of Orissa 14 STC  766= 1963 (2) SCR 879   that even when an alternative  remedy has been availed of by a party but not pursued that  the party could  prosecute proceedings under Article 226 for  the same relief. This Court has also held that that when a  party has already moved the High Court under Article 226 and  failed to obtain relief and then moved an application under  Article 32 before this Court for the same relief, normally the  Court will not entertain the application under Article 32. But  where in the parallel jurisdiction, the order is not a speaking  one or the matter has been disposed of on some other  ground, this Court has, in a suitable case, entertained the  application under Article 32  . Instead of dismissing the writ  petition on the ground that the alternative remedy had been  availed of the Court may call upon the party to elect whether it  will proceed with the alternative remedy or with the application  under Article 226.  Therefore  the  fact  that  a  suit  had   already been filed by the  appellant was not such a fact the  suppression of which could have affected the final disposal of  the writ petition on merits.             In this case, admittedly the appellant has withdrawn  the suit two weeks after the suit had been filed.    In other  words the appellant elected to pursue its remedies only under  Article 226. The pleadings were also complete before the High  Court.  No doubt, the interim order which was passed by the  High Court was obtained when the suit was pending. But by  the time the writ petition was heard the suit had already been  withdrawn a year earlier. Although the appellant could not, on  the High Court’s reasoning, take advantage of the interim  order, it was not  correct in rejecting the writ petition itself  when the suit had admittedly been withdrawn, especially when   the matter was ripe for hearing and all the facts necessary for  determining the writ petition on merits were before the Court,  and when the Court was not of the view that the writ petition  was otherwise not maintainable.         As the issue of suppression was the only ground on  which the High Court has rejected the appellant’s plea for  relief, we would ordinarily have set aside the order of the High  Court in view of our finding and remanded back to the High  Court for decision of the matter on merits.   But the matter has  been argued on merits before us and we are in a position to  dispose of the matter which we accordingly proceed to do.         We are of the view that the sale effected in favour of  respondent No. 6  cannot be sustained.  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  probabalize 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 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

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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".           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 this case, the first notice of sale was given on 31st  January 2002. A period of about four weeks was given  to the  purchasers to submit their offers by 28th February 2002. The  period of four weeks can therefore be taken to be the ordinary  norm. But when the second  impugned notice of sale was  given on 26th March 2002, less than three days were given for  the purchasers to inspect the premises, make necessary  arrangements and submit their offers to BICICO. Of these  three days, two were public holidays when banks would have  also been shut. The period of notice was, in the  circumstances, entirely inadequate. Besides, we have not  been told the reason for this unusual haste. Such precipitate  action was not called for unless there were some other  considerations weighing with the authorities, considerations  which have not been disclosed to the Court.           The method in which the sale was conducted is also  questionable. Three valuations were obtained between          3rd July 2001 to February 2002 before the property was sold to  the respondent No. 6.  What was valued in July 2001 as worth  Rs. 2.16 crores is valued at Rs. 94.81 about 10 months later,  a fall of over Rs. 1.50 crores.          The third extra ordinary circumstance is that the  respondent No. 6 had submitted his offer on the day on which  the sale notice was published and made payment of the entire  consideration on the same day before the last date for  submission of tenders was over and even before its offer  could have been accepted. It is unlikely that this would have  been done unless the respondent No.6 knew (i) the valuation  made and (ii) that its offer would be accepted.   Indeed a  portion of the respondent No. 6 ’s offer had already been paid  on 7th March 2002 i.e. prior to the sale notice itself.  According  to the Respondent No. 6 this  was pursuant to the earlier  infructuous sale notice, a payment which, again for some  undisclosed reasons, had not been returned by BICICO to the  respondent No. 6.                  No satisfactory explanation is forthcoming from the  authorities to explain these deviations from the norm.  The  concatenation of inexplicable and unexplained circumstances   is sufficient for us to hold that the sale was unfair and  consequently invalid.         In Jagdamba Oils Mills Ltd. (supra), It  was observed

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that, "the Court may assist the borrower who has intention to  repay but is prevented by insurmountable difficulties in  meeting the commitment".  The borrower in that case had  made no payment whatsoever to the State Financial  Corporation of its outstanding loan.  As not even "a minimal  portion of the amount borrowed had been paid  the Court  refused to help the defaulter. The borrower, in this case had  paid over Rs.14 lakhs as against the principal amount of  Rs.44.56 lakhs.  A further amount of Rs.10 lakhs was paid on  27th  March 2002 by the appellant to BICICO i.e. the day after  the impugned sale notice was published. Before the High  Court a sum of Rs.10 lakhs was paid pursuant to the interim  order.  In addition, the appellant had approached the BICICO  to settle its outstanding  dues under the one time settlement  policy. As we have already recorded, we entertained the  special petition on the condition that the appellant would  deposit a sum of   Rs. 1 crore over and above the amount  already paid by it to BICICO.  This the appellant has also  done. All this shows that the appellant could not be termed to  be such a defaulter who deserved no sympathy or assistance  by the Court.         The respondent No 6 has pleaded that it has been  deprived of Rs. 1 crore,  had been kept out of the possession  for 14 months and has, after taking possession,  made  substantial investments in the property.  As far as the first  factor is concerned, the appellant has offered to pay interest   on the amount of Rs. 1 crore to the respondent No. 6.   On the  second, we have not been told whether any formal agreement  has been concluded between BICICO and the respondent No.  6 or whether any conveyance has been executed or any other  formality completed by BICICO to transfer the  title in the hotel  in favour of the respondent no. 6. It appears to have handed  over possession to the Respondent No. 6 only upon the  direction of the High Court.  As far as the third ground is  concerned, the appellant  was fully aware that the appellant  was fighting tooth and nail to redeem its property and that the  sale was the subject matter of scrutiny by Court. If it has  chosen to make renovation or investments        in the hotel, it  has done so despite the knowledge of the precarious nature of  its possession. The investments, if any, were a calculated risk  taken by the respondent No.6 itself the consequence of which  cannot be foisted on the appellant.          In the circumstances, we set aside the decision of the  High Court and grant the appellant the reliefs claimed  in the  writ petition.  The sale of the appellant’s hotel to the  respondent No. 6 is set aside.  The Respondent No. 6 is  directed to hand over the possession of the hotel to BICICO  who will hand over the same to the appellant.  BICICO is at  liberty to withdraw the sum of Rs. 1 crore (except for the  interest thereon) deposited with the Registry of this Court and  will refund the amount of Rs. 1 Crore received by it from the  respondent No.6 to it. BICICO will adjust the sum withdrawn  by it from this Court towards its claim against the  appellant  without prejudice to the rights of either party.  The appellant  may withdraw the interest on the amount of Rs. 1 Crore  deposited by it with the Registry and shall pay the amount to   the respondent No.6. The appellant shall also pay the balance  of the interest on   Rs. 1 crore to the respondent No. 6 at the  rate at which banks grant interest on fixed deposit for the  relevant time i.e. between the dismissal of the writ petition by  the learned Single Judge till the date of making the payment  less the amount already paid by it as aforesaid. The handing  over of the possession of the hotel by BICICO to the appellant  and the payment of the interest on the amount of Rs.1 crore to  the respondent No.6 by the appellant shall be simultaneously

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done.       The appeal is thus allowed with costs.