2011 (3) TMI 1479 - SC - Indian Laws

Rights of Financial Corporation in case of default Whether the plaintiff-Vincent Paul has made out a case for discretionary relief of specific performance ?

Issues Involved:
1. Validity of the decree for specific performance granted by the High Court.
2. Compliance with statutory procedures for sale of property under Section 29 of the State Financial Corporations Act, 1951.
3. Adequacy of the sale process conducted by Kerala Financial Corporation (KFC).
4. Guidelines for future sales of public property by KFC.

Detailed Analysis:

1. Validity of the Decree for Specific Performance Granted by the High Court:
The High Court of Kerala granted a decree for specific performance in favor of Vincent Paul, who had submitted a tender for the purchase of property from KFC. The Supreme Court examined whether there was a concluded contract between KFC and Vincent Paul. The Court noted that the communication dated October 31, 1988, from KFC to Vincent Paul was conditional and required confirmation from Vincent Paul within a week, which was not provided. Therefore, the Supreme Court concluded that there was no concluded contract and set aside the High Court's decree for specific performance.

2. Compliance with Statutory Procedures for Sale of Property under Section 29 of the State Financial Corporations Act, 1951:
The Supreme Court emphasized that KFC, being a statutory corporation, must follow the procedures outlined in Section 29 of the Act for the sale of attached properties. The Court observed that the State Government had not framed specific rules or guidelines for such sales, which led to procedural lapses in the sale process conducted by KFC.

3. Adequacy of the Sale Process Conducted by Kerala Financial Corporation (KFC):
The Court scrutinized the sale process initiated by KFC and found several deficiencies. KFC had invited tenders and received a bid from Vincent Paul, which was later challenged due to procedural irregularities. The Court highlighted that KFC did not follow a transparent and competitive process to ensure the best price for the property. The subsequent tender process, which received a higher bid from K.K. Ummer Farook, was also marred by pending litigation and procedural issues.

4. Guidelines for Future Sales of Public Property by KFC:
To address the procedural deficiencies and ensure transparency in future sales, the Supreme Court laid down specific guidelines for KFC:
- Advertisement: The decision to sell property must be advertised in two leading newspapers, including one in the vernacular language.
- Valuation: Obtain valuation from an approved valuer and fix the reserve price in consultation with the secured creditor.
- Methods of Sale: The property can be sold through quotations, public tenders, public auctions, or private treaties, with public tenders or auctions being preferred.
- Notice to Borrower: Serve a 30-day notice to the borrower before the sale.
- Highest Bidder: The highest bidder does not have an automatic right to the property; the sale must be confirmed by the authority.
- Best Price: Ensure maximum public participation to secure the best price for the property.
- Reserve Price: Fix the reserve price based on accurate valuation.
- Debtor's Opportunity: Provide the debtor with a reasonable opportunity to contest the valuation.

Conclusion:
The Supreme Court set aside the High Court's judgment granting specific performance to Vincent Paul and invalidated all related sale transactions. The Court directed KFC to reinitiate the sale process by adhering to the newly established guidelines to ensure transparency and fairness. Any deposits received from parties were to be returned with interest. All appeals were disposed of on these terms.

← Previous Next →