TMI Blog2011 (11) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment Corporation [hereinafter referred to as 'the Corporation'] during the year 1994. The immovable property which is the subject matter of the present litigation was given as security. The appellant was running a spinning mill and due to market recession, they sustained severe loss and as a result, the loan installments were not paid as per the agreement. The Corporation agreed to settle the account by way of one time settlement. As per the terms of settlement, the unit was expected to pay the entire amount by 1 January 2004. Since one time settlement was not honored in its entirety, the Corporation took possession of the unit on 4 December 2006. The Corporation, through an authorized valuer, valued the property. The valuer fixed the market value at ₹ 156.43 lakhs. Subsequently, the property was sold in favour of third respondent for an amount below the market value. 3. The appellant approached the Corporation to pay the bid amount quoted by the successful bidder. However, the request was turned down. The third respondent failed to pay the balance consideration less EMD within the mandatory period of thirty days as stipulated in the auction notification and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporation was not prepared to accept the payment subsequent to the expiry of the time prescribed under one time settlement. (ii) The Valuer appointed by the Corporation fixed the market value of the property at ₹ 156.43 lakhs. However, the property was sold for a sum of ₹ 1.20 crores. Since the sale was made below the market rate, the same is liable to be set aside. (iii) The Corporation was expected to indicate the reserve price in the sale notification. However, no such reserve price was fixed. (iv)The property was worth more than ₹ 2.50 crores as on the date of public auction. However, it was sold for a sum of ₹ 1.20 crores; (v) There were only two bidders and it was in fact, a collusive sale and the same is evident from the difference of price quoted by the successful bidder and the other bidder. The difference was only a sum of ₹ 50,000/-. (vi) The auction notification contains a mandatory clause regarding payment of sale consideration. As per the terms of auction, the bidder should pay the sale amount within thirty days from the date of confirmation, failing which, earnest money deposit would be forfeited. Notwithstanding the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only on account of their failure to pay one time settlement amount, the Corporation took possession of the unit, invoking Section 29 of the State Financial Corporation Act. The Corporation subsequently obtained a valuation report from their authorized valuer. The valuer fixed the market value of the property at ₹ 156.43 crores. The Corporation issued a sale notification dated 8 September 2009 and it was published on 16 September 2009. 11. The total extent of property is about 6.12 acres of land and 8722 sq. ft. of factory building besides a tiled roof office building measuring about 3931 sq. ft. Agricultural land to an extent of 0.82.5 hectares was the second item notified for sale. The auction was held on 1 October 2009. 12. The communication sent by the Corporation on 30 October 2009 to the appellant contained the market value of the property. However, the Corporation has not disclosed the fact that the property was sold on 1 October 2010 for a sum of ₹ 1.20 crores. 13. The auction notification does not contain either the market value or the upset price of the property. The auction was subject to certain conditions. TERMS AND CONDITIONS OF AUCTION : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory in nature. 17. The auction was on 1 October 2009. There were only two bidders. The third respondent quoted ₹ 1.12 Crores as against the offer of ₹ 1,01,50,000/ quoted by the other bidder. The sale was confirmed in the name of the third respondent on 2 November 2009. 18.The third respondent initially quoted a sum of ₹ 1,12,00,000/-and it was enhanced later and he has agreed to pay a sum of ₹ 1.20 crores. CONFIRMATION : 19.The order of confirmation dated 2 November 2009 reads thus :- In the tender-cum-public auction sale held at our Office on 01.10.2009 in respect of the subject company's land, building thereon and scrap machinery you have quoted a sum of ₹ 112.00 lakhs as your highest bid on outright payment basis and subsequently enhanced to ₹ 120.00 lakhs (Rupees One crore and twenty lakhs only). Now our Corporation has decided to accept your offer and you are hereby advised to remit the balance bid amount of ₹ 108.00 lakhs along with the sales tax amount for the machinery of ₹ 9760/-totalling to ₹ 1,08,09,760/-after adjusting the 10% bid amount paid by you as detailed below. Sl. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues for a sum of ₹ 98 lakhs, the cheques were not presented by the Corporation in view of the request to that effect. Subsequently, on 29 December 2009, the third respondent deposited a sum of ₹ 70 lakhs. However, he requested the Corporation not to present the remaining cheques as he was not having the funds in his account. The payment of ₹ 70 lakhs on 29 December 2009 itself was beyond the prescribed period. It was delayed by 27 days, excluding thirty days time given to make the payment. Subsequently, he has made payment on various dates and the last payment was on 2 December 2010. Therefore, even according to the Corporation, there was a delay of 92 days in making payment. However, very strangely, the Corporation condoned the delay and issued the sales certificate. 25. The issue is whether the auction sale was a nullity. The further question is whether the Corporation was justified in condoning the delay by not taking steps to forfeit the earnest money deposit made by the third respondent in view of the mandatory conditions as contained in the auction notification and the subsequent order of confirmation. 26. The auction notification was very specific tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case pleaded by him. REQUEST NOT TO ENCASH CHEQUES : 32. The letter sent by the third respondent to the Corporation on 30 November 2009 enclosing five cheques clearly establishes the fact that he was not in possession of funds to pay 90% of the bid amount within the stipulated period of thirty days and therefore, he wanted the Corporation not to present the cheques till he gives permission. The letter reads thus :- From S. Palaniappan, S/o. P. Sengodan, 117, Thillai Nagar, Erode 638001 To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., Erode Sirs, Sub : Submission of cheques in Bank. We have given to you five cheques for an amount of ₹ 98,09,760/-of Axis Bank Ltd., Erode. Details as follows : 1. Cheque No. 057634/30-11-09 ₹ 25,00,000/- 2. Cheque No. 057635/30-11-09 ₹ 25,00,000/- 3. Cheque No. 057636/30-11-09 ₹ 25,00,000/- 4. Cheque No. 057637/30-11-09 ₹ 23,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/2/10 5404 950000 Cash 2/2/10 12159760 35. The mala fides on the part of the Corporation is writ large. The offer made by the appellant at the earliest point of time was rejected on 17 November 2009 simply by saying that the request is unacceptable at this juncture. Thereafter, payments were accepted from the third respondent belatedly by condoning the delay on the ground that the highest bidder expressed his inability to mobilize the funds in time. 36. The sale in question was a first sale. Therefore, it was not a distress sale. Valuer has fixed the market value of the property at ₹ 156.43 lakhs. The Corporation was expected to fix the upset price to indicate that the property would not be sold below the said price. The sale was not made by way of tendeRs. It was a public auction. Therefore, the primary requirement was to fix the reserve price and the auction should start only from the indicated price. This essential condition of sale has not been followed by the Corporation. Therefore, sale proceeding is liable to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such, the Bank can consider releasing the remaining property. The appellant has no where accepted the market value as indicated in the valuation certificate or the price fetched in the auction. In fact, there are series of correspondence in the file to show that the appellant has challenged the sale as collusive. Therefore, we reject the contention that the appellant has consented to the sale. 41. The third respondent has taken up a defense that possession of the property was given to him and as such, the sale should not be set aside. The memorandum evidencing handing over the property contains a specific clause that the property was given subject to the outcome of the writ petition filed by the appellant. Therefore, the third respondent was fully aware of the writ petition and as such, he cannot now plead equity on the ground that he is in possession of property. 42. The Corporation was dealing with the property of a third party. Merely because the unit was sick and it was taken over by the Corporation, it would not enable them to sell the property for a pittance. It was a first auction and as such, the Corporation was not obliged to sell the property immediately. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, notwithstanding the fixation of upset price and notwithstanding the fact that a bidder has offered an amount higher than the reserve/upset price, the sale is still open to challenge on the ground that the property has not fetched the proper price and that the sale be set aside. That the fixation of the reserve price does not affect the rights of the parties. Similarly, in the case of A.U. Natarajan (Dr.) v. Indian Bank it has been held that the expressions value of a property and upset price are not synonymous but have different meanings. That the term upset price means lowest selling price or reserve price. That unfortunately in many cases the word value has been used with reference to upset price. That the sale has to commence at the higher price and in the absence of bidders, the price will have to be progressively brought down till it reaches the upset price. That the upset price is fixed to facilitate the conduct of the sale. That fixation of upset price does not preclude the claimant from adducing proof that the land is sold for a low price. 44. In Gajraj Jain v. State of Bihar (2004) 7 SCC 151, the Supreme Court indicated that the absence of valuation repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms and conditions of the sale allowing the authority to extend the time beyond the period specified in the advertisement for making the initial deposit or the balance price. (Emphasis supplied) 46. In M/s. Shilpa Shares and Securities and others vs. The National Cooperative Bank Ltd. and others 2007 (6) Scale 545, auction was conducted under Rule 107 of the Maharashtra Cooperative Societies Rules, 1961. Rule 107(11)(g) of the Rules mandates that 15% of the price of immovable property has to be deposited by the auction purchaser at the time of purchase and the remaining 85% of purchase amount has to be paid within fifteen days from the date of sale. Since the purchaser has not paid 85% of the purchase money before the prescribed period of fifteen days, the Supreme Court observed that non payment of the amount would render the sale proceedings a compete nullity. The Supreme Court observed ::- 5. In Manilal Mohanlal Shah and others v. Sardar Sayed Ahmed Sayed Mahmad and another: AIR 1954 SC 349, it has been held that in such circumstances there is no sale at all if the balance purchase money is not paid within 15 days. It is not a mere irregularity. Non-payment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 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. v. Jagdamba Oil Mills. However, in overruling the decision in Mahesh Chandra this Court has affirmed the view taken in Chairman and Managing Director, SIPCOT v. Contromix (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 opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RECENT JUDGMENT : 52. In Kerala Financial Corpn. v. Vincent Paul: (2011) 4 SCC 171, the Supreme Court found that there were no guidelines in the matter of sale of property taken possession by the State Financial Corporation under Section 29 of the Act. The Supreme Court directed the Kerala State Financial Corporation to adhere to the following directions for sale of property :- (i) The decision/intention to bring the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular language having sufficient circulation in that locality. (ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or (d) by private treaty. Among the above modes, inviting tenders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification does not contain any provision for relaxation or extension of time for deposit, the Corporation cannot extend the time. The act of the Corporation in accepting the payment after 92 days clearly caused prejudice to the appellant. The property value has increased considerably by the time the third respondent has deposited the balance amount. Therefore, we are of the view that there is a statutory violation on the part of the Corporation in selling the property to the third respondent and accepting the balance payment of 90% after the prescribed period. The Corporation has acted unreasonably to the appellant and as such, the very sale is liable to be set aside. Accordingly, the sale of property made in favour of the third respondent is set aside. 54. WHY THE SUBJECT SALE IS BAD :: REASONS IN BRIEF : (i) The Corporation failed to fix the upset price; (ii) The property was sold far below the market value fixed by the Authorized Valuer appointed by the Corporation; (iii) The Corporation violated the mandatory sale consideration regarding deposit of balance consideration within a period of thirty days from the date of confirmation, by accepting 90% of the amount ..... 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