Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : UPFC Loan-how To Auction, Decree Set Aside-even Then Bona Fide Purchaser To Be Protected.
JUDGEMENT TITLE : Jalesh Bhatia And Ors. Vs. U.P.S.C. And Ors. On 23/03/2006 By Allahabad High Court
CASE NO : WRIT - C NO. 7969 OF 1989
CORAM : Hon'ble B.S. Chauhan,J. And Hon'ble Dilip Gupta,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

A.F.R.
Reserved

Civil Misc. Writ Petition No. 7969 Of 1989

Jalesh Bhatia & Ors.
Versus
The UPFC & Ors.
*****
Hon'ble Dr. B. S. Chauhan, J.
Hon'ble Dilip Gupta, J.

(Delivered By Hon'ble Dilip Gupta, J.)

This Petition Has Been Filed By M/s. Chemtech (India) (hereinafter Referred To As The "Industrial Unit") And Its Two Partners For Quashing The Recovery Certificate Issued By The U.P. Financial Corporation Ltd., Kanpur (hereinafter Referred To As The ''UPFC') And The Recovery Notices Issued By The Assistant Collector, Delhi And For Quashing The Sale Proceedings Of The Unit And For Other Consequential Reliefs.
The Industrial Unit Acquired Shed No.G-19 Sector IX In New Okhla Industrial Development Authority (hereinafter Referred To As The ''NOIDA') On Lease From NOIDA For Manufacture Of Latex Foam Products And For The Purposes Of Establishing The Industrial Unit, An Application For Grant Of Loan Was Submitted Before The UPFC Which Sanctioned The Loan Of Rs.2.5 Lacs On 6th May, 1982. In Order To Secure The Loan The Petitioners Had Created An Equitable Mortgage On 1.7.1981 In Favour Of UPFC As Also The Hypothecation Deed And The Agreement Dated 1.7.1981 According To Which The Petitioners Were Required To Make The Payment In Accordance With The Schedule Failing Which The Entire Loan Could Be Recalled And The Petitioners Could Be Directed To Return The Amount Forthwith. The Petitioners, However, Failed To Make Payment In Accordance With The Schedule As A Result Of Which A Notice Dated 26/27th October, 1985 Was Sent By UPFC Mentioning Therein That As They Had Failed To Abide By The Terms Of The Mortgage Deed And Had Not Deposited The Overdues Relating To The Loan In Spite Of Several Requests, The UPFC Had Decided To Recall Whole Of The Outstanding Amount Of The Loan Under The Terms Of The Deed Of The Mortgage. It Was Also Mentioned In The Notice That Repayment Of Whole Of The Outstanding Amount Of Rs.2,85,270.81 Should Be Made Within 30 Days Failing Which Steps Would Be Taken To Recover The Said Amount By Issuance Of Recovery Certificate To The Collector. Subsequently, Another Notice Dated 16.12.1986 Was Sent To The Petitioner To Make The Payment Of The Aforesaid Amount Within 15 Days Failing Which The UPFC Would Exercise Powers Vested In It Under Section 29 Of The State Financial Corporation Act, 1951 (hereinafter Referred To As The ''Act') And Takeover The Physical Possession Of The Property And Also Take Further Action For Transfer Of The Assets Of The Unit Mortgaged To The UPFC. The Petitioners, However, Did Not Make The Payment Under The Said Notice And, Therefore, The Corporation Took Over The Physical Possession Of The Industrial Unit On 13th December, 1986.
At This Stage It May Be Pertinent To State That Another Industrial Unit Namely M/s. Bhatia Enterprises Situated On Plot No.G-18, Sector IX, NOIDA Had Also Been Granted Loan By UPFC But It Also Failed To Make Payments As A Result Of Which A Similar Notice Was Issued By The UPFC And As It Failed To Abide By The Terms Indicated In The Notice, Physical Possession Of The Said Industrial Unit Was Also Taken By The UPFC On 16th December, 1986.
The UPFC Thereafter Issued Advertisement For Sale Of A Number Of Such Industrial Units Including That Of The Petitioner And M/s. Bhatia Enterprises. These Advertisements Were Initially Issued In Hindustan Times On 2nd March, 1987 And Thereafter On 22nd April, 1987. They Were Also Advertised In Navbharat Times And Economic Times. Pursuant To The Aforesaid Advertisements Two Tenders Were Received By The Corporation For Purchase Of The Said Units. One M/s. Bhatia Rasayan Udyog Offered A Sum Of Rs.1,34,000/- And Sri O.P. Nagpal Respondent No.3 Offered A Sum Of Rs.1,40,000/-. Both These Offers Were Also Rejected As Being Inadequate. Sri O.P. Nagpal, However, Submitted Another Offer Which Was Accepted For A Sum Of Rs.1,70,000/- For Both The Units. This Was Accepted By The Managing Director Of UPFC On 23rd May, 1987 And A Communication Dated 17.6.1987 Was Sent To Sri O.P. Nagpal Intimating The Terms And Conditions. Subsequently, A Request Was Made By Sri O.P. Nagpal By The Letter Dated 25.7.1987 To Allot The Two Units Separately In The Names Of Sri O.P. Nagpal (G-18) And Sri Ramesh Gupta (G-19). This Request Was Also Accepted By The Managing Director Of The UPFC. The Said Respondents Thereafter Deposited 25% Of The Offered Amount And The Balance Amount In Instalments. The Physical Possession Of The Industrial Units Was Given To Sri O.P. Nagpal And Sri Ramesh Gupta On 17th August, 1987. Thereafter The Sale Deed Was Duly Executed In Favour Of The Said Respondents By UPFC On 6th October, 1987. The Final Payment Towards The Sale Consideration Was Made On 23rd December, 1989. It May Also Be Stated That As The Entire Money Could Not Be Recovered Through The Sale Deed, The UPFC Issued The Notice For Recovery Of The Balance Amount Under The Provisions Of U.P. Public Money (Recovery Of Dues) Act, 1972.
We Have Heard Sri A.B. Saran, Learned Senior Counsel Appearing For The Petitioners And Sri P.S. Baghel, Learned Counsel Appearing For The UPFC And Sri Pankaj Mittal For Respondent Nos. 3 And 4.
Sri A.B. Saran, Learned Senior Counsel Appearing For The Petitioners Submitted That The Petitioners' Industrial Unit And The Other Industrial Unit Of M/s. Bhatia Enterprises Are Two Separate Units And, Therefore, The UPFC Did Not Have Any Authority To Transfer Both The Units Together; That The UPFC Has Not Acted In A Fair And Reasonable Manner In Effecting The Sale Of The Petitioners' Unit And That The Industrial Unit Has Been Sold For A Very Nominal Price. Sri P.S. Baghel And Sri Pankaj Mittal, Learned Counsel Appearing For The Respondents, However, Submitted That Action Has Been Taken By The UPFC In Accordance With Law And The Industrial Units Have Been Sold After Due Advertisement And Publicity. They Have Further Submitted That The Sale Deeds Have Been Executed In Favour Of Sri O.P. Nagpal And Sri Ramesh Gupta Who Are Running The Industrial Units Ever Since Then And, Therefore, Also No Interference Is Required At This Stage.
We Have Carefully Considered The Submissions Advanced By The Learned Counsel For The Parties.
The Records Clearly Reveal That In Spite Of Repeated Notices Sent To The Industrial Unit, It Did Not Deposit The Amount And Committed Defaults In Payment Of Instalments. The Corporation, Therefore, Initiated The Recovery Proceedings Under Section 29 Of The Act. Section 29 Of The Act Clearly Provides That Where Any Industrial Concern Makes Any Default In Repayment Of Any Loan Or Advance Or Any Instalments Or Otherwise Fails To Comply With The Terms Of Its Agreement With The Financial Corporation, The Financial Corporation Shall Have The Right To Takeover The Management Or Possession Or Both Of The Industrial Concern, As Well As The Right To Transfer By Way Of Lease Or Sale And Realize The Property Pledged, Mortgaged, Hypothecated Or Assigned To The Financial Corporation.
The Supreme Court Has Time And Again Examined The Powers Given To The UPFC Under Section 29 Of The Act And In This Connection We Consider It Appropriate To Refer To These Decisions.
In U.P. Financial Corporation Vs. M/s. Gem Cap (India) Pvt. Ltd. & Ors., AIR 1993 SC 1435 The Supreme Court Observed :-
" ...............At The Same Time, It Is Necessary To Keep Certain Basic Facts In View. The Relationship Between The Corporation And The Borrower Is That Of Creditor And Debtor. The Corporation Is Not Supposed To Give Loans Once And Go Out Of Business. It Has Also To Recover Them So That It Can Give Fresh Loans To Others...............The Fairness Required Of The Corporation Cannot Be Carried To The Extent Of Disabling It From Recovering What Is Due To It. While Not Insisting Upon The Borrower To Honour The Commitments Undertaken By Him, The Corporation Alone Cannot Be Shackled Hand And Foot In The Name Of Fairness. Fairness Is Not A One Way Street, More Particularly In Matter Like The Present One..................Indeed, In A Matter Between The Corporation And Its Debtor, A Writ Court Has To Say Except In Two Situations : (1) There Is A Statutory Violation On The Part Of The Corporation Or (2) Where The Corporation Acts Unfairly I.e., Unreasonably. While The Former Does Not Present Any Difficulty, The Latter Needs A Little Reiteration Of Its Precise Meaning. What Does Acting Unfairly Or Unreasonably Mean? Does It Mean That The High Court Exercising Its Jurisdiction Under Art. 226 Of The Constitution Can Sit As An Appellate Authority Over The Acts And Deeds Of The Corporation And Seek To Correct Them? Surely, It Cannot Be. That Is Not The Function Of The High Court Under Art. 226. Doctrine Of Fairness, Evolved In Administrative Law Was Not Supposed To Convert The Writ Courts Into Appellate Authorities Over Administrative Authorities. The Constraints - Self-imposed Undoubtedly - Of Writ Jurisdiction Still Remain. Ignoring Them Would Lead To Confusion And Uncertainty. The Jurisdiction May Become Rudderless." (Emphasis Supplied)

In U.P. Financial Corporation & Ors. Vs. Naini Oxygen & Acetylene Gas Ltd. & Anr., (1995) 2 SCC 754 The Supreme Court Observed :-
"However, We Cannot Lose Sight Of The Fact That The Corporation Is An Independent Autonomous Statutory Body Having Its Own Constitution And Rules To Abide By, And Functions And Obligations To Discharge. As Such, In The Discharge Of Its Functions, It Is Free To Act According To Its Own Light. The Views It Forms And The Decisions It Takes Are On The Basis Of The Information In Its Possession And The Advice It Receives And According To Its Own Perspective And Calculations. Unless Its Action Is Mala Fide, Even A Wrong Decision Taken By It Is Not Open To Challenge. It Is Not For The Courts Or A Third Party To Substitute Its Decision, However More Prudent, Commercial Or Businesslike It May Be, For The Decision Of The Corporation. Hence, Whatever The Wisdom (or The Lack Of It) Of The Conduct Of The Corporation, The Same Cannot Be Assailed For Making The Corporation Liable." (Emphasis Supplied)

In Haryana Financial Corporation & Anr. Vs. Jagdamba Oil Mills & Anr., (2002) 3 SCC 496 The Supreme Court Observed As Follows :-
" The Corporation As An Instrumentality Of The State Deals With Public Money. There Can Be No Doubt That The Approach Has To Be Public-oriented. It Can Operate Effectively If There Is Regular Realization Of The Instalments. While The Corporation Is Expected To Act Fairly In The Matter Of Disbursement Of The Loans, There Is Corresponding Duty Cast Upon The Borrowers To Repay The Instalment In Time, Unless Prevented By Insurmountable Difficulties. Regular Payment Is The Rule And Non-payment Due To Extenuating Circumstances Is The Exception. If The Repayments Are Not Received As Per The Scheduled Time-frame, It Will Disturb The Equilibrium Of The Financial Arrangements Of The Corporations. They Do Not Have At Their Disposal Unlimited Funds. They Have To Cater To The Needs Of The Intended Borrowers With The Available Finance. Non-payment Of The Instalment By A Defaulter May Stand In The Way Of A Deserving Borrower Getting Financial Assistance.

In Matters Like The Present One, Fairness Cannot Be A One-way Street. Corporations Borrow Money From The Government Or Other Financial Corporations And Are Required To Pay Interest Thereon. Where The Borrower Has No Genuine Intention To Repay The Adopts Pretexts And Ploys To Avoid Payment, He Cannot Make The Grievance That The Corporation Was Not Acting Fairly, Even If Requisite Procedures Have Been Followed.


..................................

The Fairness Required Of The Corporations Cannot Be Carried To The Extent Of Disabling Them From Recovering What Is Due To Them. The Matter Can Be Looked At From Another Angle. Unless Its Action Is Mala Fide, Even A Wrong Decision By It Is Not Open To Challenge. It Is Not For The Courts Or A Third Party To Substitute Its Decision, However, More Prudent, Commercial Or Businesslike It May Be, For The Decision Of The Corporation.

The Aforesaid Guidelines Issued In Mahesh Chandra Case Place Unnecessary Restrictions On The Exercise Of Power By Financial Corporation Contained In Section 29 Of The Act By Requiring The Defaulting Unit-holder To Be Associated Or Consulted At Every Stage In The Sale Of The Property. A Person Who Has Defaulted Is Hardly Ever Likely To Cooperate In The Sale Of His Assets. The Procedure Indicated In Mahesh Chandra Case Will Only Lead To Further Delay In Realization Of The Dues By The Corporation By Sale Of Assets. It Is Always Expected That The Corporation Will Try And Realize The Maximum Sale Price By Selling The Assets By Following A Procedure Which Is Transparent And Acceptable, After Due Publicity, Wherever Possible." (Emphasis Supplied)

In Gajraj Jain Vs. State Of Bihar & Ors., (2004) 7 SCC 151 And S.J.S. Business Enterprises (P) Ltd. Vs. State Of Bihar & Ors., (2004) 7 SCC 166 The Supreme Court Emphasised That The State Financial Corporations Must Not Act Unfairly In Exercising Powers Under Section 29 Of The Act And Reasonableness Is To Be Tested Against The Dominant Consideration To Secure The Best Price For The Property To Be Sold.
In Karnataka State Industrial Investment & Development Corporation Ltd. Vs. Cavalet India Ltd. & Ors., (2005) 4 SCC 456 The Supreme Court After Referring To The Aforesaid Decisions Pointed Out That The Following Legal Principles Emerge:-
(i) The High Court While Exercising Its Jurisdiction Under Article 226 Of The Constitution Does Not Sit As An Appellate Authority Over The Acts And Deeds Of The Financial Corporation And Seek To Correct Them. The Doctrine Of Fairness Does Not Convert The Writ Courts Into Appellate Authorities Over Administrative Authorities.
(ii) In A Matter Between The Corporation And Its Debtor, A Writ Court Has No Say Except In Two Situations:
(a) There Is A Statutory Violation On The Part Of The Corporation, Or
(b) Where The Corporation Acts Unfairly I.e. Unreasonably.
(iii) In Commercial Matters, The Courts Should Not Risk Their Judgments For The Judgments Of The Bodies To Which That Task Is Assigned.

(iv) Unless The Action Of The Financial Corporation Is Mala Fide, Even A Wrong Decision Taken By It Is Not Open To Challenge. It Is Not For The Courts Or A Third Party To Substitute Its Decision, However, More Prudent, Commercial Or Businesslike It May Be, For The Decision Of The Financial Corporation. Hence, Whatever The Wisdom (or The Lack Of It) Of The Conduct Of The Corporation, The Same Cannot Be Assailed For Making The Corporation Liable.

(v) In The Matter Of Sale Of Public Property, The Dominant Consideration Is To Secure The Best Price For The Property To Be Sold And This Could Be Achieved Only When There Is Maximum Public Participation In The Process Of Sale And Everybody Has An Opportunity Of Making An Offer.

(vi) Public Auction Is Not The Only Mode To Secure The Best Price By Inviting Maximum Public Participation, Tender And Negotiation Could Also Be Adopted.

(vii) The Financial Corporation Is Always Expected To Try And Realize The Maximum Sale Price By Selling The Assets By Following A Procedure Which Is Transparent And Acceptable, After Due Publicity, Wherever Possible And If Any Reason Is Indicated Or Cause Shown For The Default, The Same Has To Be Considered In Its Proper Perspective And A Conscious Decision Has To Be Taken As To Whether Action Under Section 29 Of The Act Is Called For. Thereafter, The Modalities For Disposal Of The Seized Unit Have To Be Worked Out.

(viii) Fairness Cannot Be A One-way Street. The Fairness Required Of The Financial Corporations Cannot Be Carried To The Extent Of Disabling Them From Recovering What Is Due To Them. While Not Insisting Upon The Borrower To Honour The Commitments Undertaken By Him, The Financial Corporation Alone Cannot Be Shackled Hand And Foot In The Name Of Fairness.

(ix) Reasonableness Is To Be Tested Against The Dominant Consideration To Secure The Best Price.

It Is, Therefore, Clear From The Aforesaid Decisions That The Purpose For Which UPFC Or Other Such Corporations Created Was Not To Give Loans Once And Go Out Of Business But To Recover Them Also So That Fresh Loans Can Be Given To Others And That The Requirement Of Fairness From UPFC Must Not Be Carried To Such An Extent That It Becomes Disabled From Recovering What Is Due To It. A Writ Court Can Interfere In The Matter Where There Is A Statutory Violation On The Part Of The Corporation Or Where The Corporation Acts Unfairly. This Apart, The Doctrine Of Fairness Should Not Convert The Writ Courts Into Appellate Authorities Over Administrative Authorities Which Take Decisions On The Basis Of The Information In Their Possession And The Advice They Receive And According To Their Own Prospective And Calculations. It Has Also Been Emphasised By The Supreme Court That Where The Borrower Has No Genuine Intention To Repay The Loan And Adopts Various Methods To Avoid The Payment, Then He Must Not Be Permitted To Raise A Grievance That The Corporation Was Not Acting Fairly. It Is In The Light Of The Aforesaid Principles Enunciated By The Supreme Court That We Have To Examine The Present Case.
In The Present Case It Is Not Disputed That Repeatedly Advertisements Were Issued By The UPFC In A Number Of Newspapers For Sale Of The Industrial Units. Wide Publicity Was, Therefore, Caused By The UPFC For Sale Of The Industrial Units. Much Emphasis Has Been Placed By Sri A.B. Saran, Learned Senior Counsel Appearing For The Petitioners Upon The Fact That M/s. Bhatia Rasayan Udyog Had Offered A Sum Of Rs.1,34,000/- For The Petitioner Unit But Instead Of Offering The Unit To M/s. Bhatia Rasayan Udyog, The UPFC Gave It To Sri O.P. Nagpal. There Is Nothing On The Record To Indicate That M/s. Bhatia Rasayan Udyog Had Ever Raised Any Objection Against Rejection Of Its Offer And, Therefore, It Clearly Transpires That They Were Not Interested At All In Purchase Of The Unit. This Apart, The Offer Of M/s Bhatia Rasayan Udyog Was Found To Be Inadequate And Even The Offer Of Sri O.P. Nagpal For Rs. 1,40,000/- Was Found To Be Inadequate. It Is Only Subsequently When Sri O.P. Nagpal Revised His Offer To Rs. 1,70,000/- For Both The Units That It Was Accepted By The Managing Director Of The UPFC. This Contention Of The Learned Senior Counsel, Therefore, Cannot Be Accepted.
Apart From The Said M/s. Bhatia Rasayan Udyog, The Petitioners Have Not Been Able To Get Any Better Buyer Till Date. The Records Also Reveal That A Detailed Report Was Prepared For Both The Units Giving The Valuation Of The Land And Construction Separately For The Two Units. As Per The Valuation Report Cost Of Land Was Indicated At Rs.9600/-, Cost Of Building At Rs.42,700/- And Cost Of Plant And Machinery At Rs.1,18,700/-. It May Further Be Pertinent To Mention Here That Under The Terms And Conditions Indicated In The Letter Dated 17th June, 1987 Sent By UPFC To Sri O.P. Nagpal, It Was Clearly Stated That Apart From The Amount Of Rs.1,70,000/-, He Would Also Have To Bear The Statutory Liabilities On The Fixed Assets Of The Unit Including The Dues Of NOIDA/UPSEB Etc. It Has Been Stated In The Counter Affidavit Filed On Behalf Of Sri O.P. Nagpal And Sri Ramesh Chandra Gupta That They Had Also To Pay The Electricity Dues Of Rs.7580/- And Rs.4648.69 In Respect Of The Two Units And Also Water Charges Of About Rs.700/-.
It Is In The Light Of The Aforesaid Observations That We Have To Examine The Contention Of The Learned Senior Counsel For The Petitioners That The UPFC Acted Unreasonably. The UPFC Had Followed The Procedures But What Has Been Contended Is That The Two Units Had Not Been Sold For An Adequate Price. As Stated Above, Nothing Has Been Brought On Record By The Petitioners To Indicate That The Two Units Would Have Fetched Any Better Price And, Indeed, They Have Not Been Able To Get A Better Buyer. We Cannot, Therefore, Hold That The Decision Taken By The UPFC In Executing The Sale Deeds On The Basis Of The Material Before It Was Unfair Or That It Suffers From Any Mala Fide. It Is Also Not Possible For This Court To Act As An Appellate Body And Substitute Its Decision For That Taken By The Corporation.
Sri A.B. Saran, Learned Senior Counsel Appearing For The Petitioners Then Contended That The Notices Under Section 29 Of The Act Had Been Published In The Newspapers But As The Petitioners Did Not Read The Newspapers, It Cannot Be Presumed That They Had Knowledge Of This Notice. This Submission Has Merely To Be Stated To Be Rejected. The Advertisements Had Been Published In National Newspapers Having Wide Publicity And, Therefore, In Such Circumstances The Petitioners Cannot Plead Ignorance Of The Advertisements.
There Is Also No Force In The Contention Of The Learned Senior Counsel For The Petitioners That Both The Units Could Not Have Been Sold By A Single Transaction And Indeed No Legal Infirmity Could Be Pointed Out In Disposing Of Both The Units By A Single Transaction.
Before Parting This Case, We Must Also Not Forget That The Physical Possession Of The Industrial Unit Was Taken By The UPFC On 16.12.1986 And Thereafter The Physical Possession Was Given To Sri O.P. Nagpal And Ramesh Gupta On 7.8.1987 And Ever Since Then They Have Been Running Their Units. The Respondent Nos. 3 And 4 Are Bona Fide Purchasers. In View Of The Pronouncement Made By Hon'ble Supreme Court In Ashwin S. Mehta & Anr. Vs. Custodian & Ors. (2006) 2 SCC, 385, They Are Required To Be Protected. While Deciding The Said Case, Reliance Has Been Placed By The Hon'ble Supreme Court Upon The Earlier Judgments Rendered In Nawab Zain-ul-Abdin Khan Vs. Mohd. Asghar Ali Khan (1887) 15 IA 12 And Padanathil Ruqmini Amma Vs. P.K. Abdulla (1996) 7 SCC, 668. Thus, No Interference Is Called For At The Behest Of The Petitioners Industrial Unit Which Had Defaulted In The Repayment Of The Loan And In The Meanwhile During The Course Of Last Two Decades, The Said Respondents Are Running Their Business From The Said Premises And Might Have Invested A Large Amount. Disturbing Them Would Be Against All Equitable Principles.
The Recovery Certificate Was Issued Only To Recover The Balance Amount, Which Could Not Be Recovered By Sale Of The Industrial Unit. Thus There Is No Infirmity In The Said Certificate.
There Is, Therefore, No Merit In This Petition. It Is, Accordingly, Dismissed. Interim Order, If Any, Stands Vacated.

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