Chairman and Managing Director, Sipcot, Madras Vs. Contromix Pvt. Ltd.  INSC 284 (12 May 1995)
Agrawal, S.C. (J) Agrawal, S.C. (J) Ahmad Saghir S. (J) S.C. Agrawal.
1995 AIR 1632 1995 SCC (4) 595 JT 1995 (6) 283 1995 SCALE (3)717
have heard learned counsel for the parties.
appeal is directed against the Judgment of the Madras High Court dated February 23, 1994 in Writ Appeal No.
1994 arising out of Writ Petition No. 18048 of 1993 filed by Contromix Private
Limited, respondent No. 1 herein.
No. 1, a company registered under the Companies Act, 1956, is engaged in the
manufacturing of electronic instruments. The State Industries Promotion
Corporation of Tamil Nadu Ltd. (for short `SIPCOT') is a Financial Corporation
established under the provisions of the State Financial Corporations Act, 1950
(hereinafter referred to as the Act). Respondent No. 1 applied for a term loan
for setting up a project for manufacture of programmable logic controllers,
control panels, electronic timer, temperature scanners, etc. On March 25, 1987 SIPCOT sanctioned a term loan of Rs.
38 lakhs. On June 16,
1987, IDBI soft loan
of Rs. 6.8 lakhs was also sanctioned.
No.1 executed a registered mortgage on July 29, 1987 and created equitable mortgage and
has executed other security documents. As per the terms of securities of the
loan, respondent No. 1 was required to repay the term loan in instalments from December 1, 1989 to June 1, 1994 and the soft loan was to be repaid in instalments from September 18, 1990 till March 18, 1994. Respondent No.1, did not adhere to the payment schedule
and became a defaulter in payment of the principal amount as well as the
interest. At the request of respondent No. 1, the repayment of the term loan
was rescheduled to June
1, 1990 to June 1, 1994 and it was again rescheduled and
respondent No. 1 was permitted to repay the loan from June 1, 1991 to June 1, 1994. Inspite of the said rescheduling of the payment respondent
No. 1 was not able to adhere to the revised schedule and committed default in
payment. On August 8, 1991 SIPCOT issued a Show Cause Notice to respondent No.
1 whereupon respondent No. 1 paid a sum of Rs. 1,00,000/- and promised to repay
the entire dues within 2/3 months. Thereafter, the matter was reviewed on September 3, 1991 and respondent No. 1 was asked to
pay 50 per cent of the interest overdues amounting to about Rs. 3.23 lakhs by December 31, 1991 to enable SIPCOT to consider the
rescheduling of the payment of the loan but respondent No. 1 did not make the
said payment. On October
24, 1991 SIPCOT issued
a notice under the provisions of the Act recalling the entire dues amounting to
Rs. 47,22,303/-. After the said notice respondent No. 1 paid a sum of Rs. 1 lakh.
In view of the assurances given by respondent No. 1 that the outstanding amount
will be paid as early as possible, SIPCOT on February 2, 1992 agreed to modify
the schedule of payment and also withdrew the foreclosure notice by letter dated
February 26, 1992. Since respondent No.1 failed to abide by the assurances a
Show Cause Notice was again sent by SIPCOT on May 18, 1992 and the loan was
foreclosed for a second time on June 17, 1992, when a foreclosure order was
passed recalling the sum of Rs. 56,13,406.20 p. outstanding on May 31, 1992. By
letter dated August 17, 1992 respondent No. 1 was informed that the appellant
will take possession of the unit on August 26, 1992. Respondent No. 1 thereupon
paid a sum of Rs. 4,00,000/-. Thereafter Writ Petition No. 14479 of 1992 was
filed in the Madras High Court and as per directions of the High Court
respondent No. 1 paid a sum of Rs. 3,00,000/- on October 31, 1992. As regards the balance amount the High Court, by order
dated December 7, 1992, gave directions fixing the amount
of the instalment and the period for payment of the same. The entire amount was
required to be paid by the end of August 1993 and the first instalment of Rs. 2,00,000/-
was to be paid by December
31, 1992. The High
Court also directed that if there was default in any one of the instalments, it
would be open to the respondent Corporation to take proceedings under the State
Financial Corporations Act, 1951.
No. 1 did not make the payment of the sum of Rs. 2,00,000/- by December 31, 1992 as per aforesaid order.
On January 5, 1993 SIPCOT took possession of the
mortgaged assets of respondent No. 1. The mortgaged assets were valued by
SIPCOT at Rs. 36.44 lakhs. In February 1993 SIPCOT issued an advertisement
inviting offers for sale of the mortgaged assets, but no offer was received in
response to the said advertisement. A second advertisement issued by SIPCOT was
published in the Indian Express on June 2, 1993. In response to the said
advertisement ETK International Ferrites Limited, respondent No. 2 herein, made
an offer to purchase the assets for a sum of Rs. 14.26 lakhs. Since the said
offer was too low, SIPCOT negotiated with respondent No. 2 and as a result of
such negotiations respondent No. 2 agreed to revise the offer and to pay a sum
of Rs. 38 lakhs. The said offer of respondent No. 2 was accepted by the SIPCOT
and respondent No. 2 paid the entire amount of Rs. 38 lakhs by September 15, 1993.
September 19, 1993, respondent No. 1 filed the writ petition giving rise to
this appeal in the Madras High Court wherein the action of SIPCOT in selling
the assets to respondent No. 2 was challenged on the ground that the market
value of the assets would be Rs. 72.60 lakhs and the sale of the same for Rs.
38 lakhs to respondent No. 2 was invalid in view of the law laid down by this
Court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation &
Ors. 1993 (2) SCC 279. The writ petition was disposed of by a learned single
Judge of the High Court by Judgment dated December 1, 1993. The learned single Judge has
perusal of the pleadings certainly shows that the Corporation had been very
considerate in giving time to the petitioner company for making payments.
Certainly I cannot say that the Corporation had acted in a manner referred to
by the Supreme Court of India in Mahesh Chandra's case." The learned
single Judge was, however, of the view that SIPCOT had acted in haste and
hurry, to the prejudice of respondent No. 1, in taking possession of the unit
on January 5, 1993 and in selling the same and the
said action of the SIPCOT violated the directions of this Court in Mahesh
Chandra case (supra). The learned single Judge held that respondent No. 1 could
not get any relief unless he is willing to deposit the said sale price of Rs.
38 lakhs within a reasonable time. Therefore, the learned single Judge quashed
the sale of the mortgaged assets by SIPCOT, subject to the following
The impugned proceedings dated 6.9.93 shall stand set aside if the petitioner
company deposits with the first respondent a sum of Rs. 20 lakhs on or before
31.12.93 and a further sum of Rs. 18 lakhs on or before 20.1.94.
On the petitioner depositing the said sum of Rs. 38 lakhs on or before
20.1.1994, or at any earlier point of time, the respondents 1 to 3 are directed
to redeliver the unit back to the petitioner company.
In the event of the non-payment of any one of the amounts on or before the
dates above mentioned the impugned order dated 6.9.93 shall stand validated. It
will then be open to the respondents 1 to 3 to hand over the unit to the fourth
The balance of amount payable under the loan transaction shall be repaid in
monthly instalments of Rs. 3 lakhs, commencing from February 1994, payable on
or before 10.3.1994, and so on till the entire payment is complete.
default of any one of the instalments under clause (iv) it will be open to the
respondent to take action in accordance with law." Respondent No. 1 did
not, however, comply with the said directions given by the learned single
Judge. Respondent No. 1 filed an appeal (W.A.No.97 of 1994) against the
Judgment of the learned single Judge. The said appeal was disposed of by a
Division Bench of the High Court by Judgment dated February 23, 1994. The learned Judges were of the view that there was failure
on the part of SIPCOT to follow the guidelines laid down by this Court in
Mahesh Chandra case (supra) in the matter of sale of the unit by tender and by
private negotiations. The learned Judges of the High Court have observed that
since the financial agency had advanced in all Rs. 44.80 lakhs (Rs. 38 lakhs
term loan and Rs. 6.80 lakhs soft loan) in the year 1987, it is clear that the
unit was worth more than Rs. 44.80 lakhs even in the year 1987 and, therefore,
it could not have been sold in the year 1993 for a sum of Rs. 38 lakhs only.
The learned Judges also observed that instead of imposing conditions on
respondent No. 1 for setting aside the sale by tender even though the said sale
was found illegal and opposed to the judgment in Mahesh Chandra case (supra)
the learned single Judge ought to have set aside the sale and directed the
appellants to put up the unit for sale afresh by giving some reasonable time to
respondent No. 1 to repay the amount, if possible.
regards taking possession of unit by the SIPCOT, the learned Judge observed:
grievance is made before us that there was anything illegal in the Financial
Corporation taking possession of the unit, rightly also, because the petitioner
was a defaulter. In spite of the fact that several opportunities were given to
it for repaying the amount as per the instalments, it failed to repay.
after setting aside the sale effected in favour of the 4th respondent, the
Financial Agency has to take back the possession of the unit and continue to
keep it in its possession.
it has to take steps to bring the unit for sale afresh." The learned
Judges were of the view that before the unit was brought for sale afresh, a
reasonable time should be given to respondent No. 1 to make payment of the
entire amount which had become due as on January 1, 1994 and if respondent No.
1 failed to pay the entire amount, which has become due as per the terms and
conditions of the term loan and soft loan on January 1, 1994, within the
specified period, it would be open to the appellants to put up the unit for
sale in accordance with law. The learned Judges, therefore, modified the order
passed by the learned single Judge and directed as under:
sale by tender held by respondents 1 to 3 and confirmed in favour of respondent
No.4 is set aside.
1 to 3 shall take the unit into possession on refunding the amount to the 4th
respondent. Accordingly, respondent No. 4 shall hand over possession of the
unit to respondents 1 to 3. The petitioner/appellant is granted time till the
end of April, 1994 to pay the entire amount that would become due on 1.1.1994
as per the terms of the term loan and soft loan and also to pay the remaining amount
event the petitioner/appellant pays the amount as per the first condition on or
before 30th April, 1994, respondents 1 to 3 shall hand over
the unit to the petitioner/appellant. In the event the petitioner/appellant
fails to pay the amount as per the aforesaid condition respondents 1 to 3 shall
be at liberty to proceed to put up the unit for sale by auction or tender in
accordance with law and in terms of the judgment of the Supreme Court in Mahesh
Chandra's case (AIR 1993 SC 935)." Feeling aggrieved by the said
directions given in the said Judgment of the Division Bench of the High Court,
the appellants have filed this appeal.
out set it may be stated that SIPCOT has been quite accommodating in the matter
of repayment of the dues by respondent No. 1 and has rescheduled the payment of
the instalments a number of times and the notice of foreclosure which was given
on October 24, 1991 was also withdrawn on the basis of the assurance given by
respondent No. 1 regarding payment of the dues. A second notice of foreclosure
had to be issued on June
17, 1992 since
respondent No. 1 failed to abide by the assurances given by it. Respondent No.
1 also failed to comply with the directions that were given by the High Court
in its order dated December
7, 1992 while
disposing of the earlier Writ Petition No. 14479 of 1992 of by respondent No.
1. It is only thereafter that SIPCOT took possession of the unit of respondent
No. 1 on January 5,
1992 and started
proceedings for the sale of the unit. It would thus appear that sufficient
latitude was given by SIPCOT to respondent No. 1 to honour its commitments in
regard to the payment of loan, but respondent No. 1 was making continuous
defaults in discharging its obligations in that regard. The learned single
Judge has also found that SIPCOT had been very considerate in giving time to
respondent No. 1 for making payments and it cannot be said that SIPCOT has
acted in an arbitrary or unreasonable manner. So also the learned judges on the
Division Bench of the High Court have found that rightly no grievance had been
made that there was anything illegal in SIPCOT taking possession of the unit
because inspite of the fact that several opportunities were given to respondent
No. 1 for repaying the amount as per the instalments, it failed to repay. The
only fault that has been found in the action taken by SIPCOT is in the matter
of the procedure followed for sale of the mortgaged assets of respondent No. 1.
The learned single judge as well as the Division Bench of the High Court have
held that the said sale was not conducted in accordance with the guidelines
laid down by this Court in Mahesh Chandra case (supra) inasmuch as
sale was not held by auction and was held by inviting tenders followed by negotiations;
price for which the properties were sold was low; and
accepting the offer of Rs. 38 lakhs made by respondent No. 2, no intimation was
given to respondent No. 1 so as to enable it to make a higher offer.
matter of sale of public property, the dominant consideration is to secure the
best price for the property to be sold. This can be achieved only when there is
maximum public participation in the process of sale and every body has an
opportunity of making an offer. Public auction after adequate publicity ensures
participation of every person who is interested in purchasing the property and
generally secures the best price. But many times it may not be possible to
secure the best price by public auction when the bidders join together so as to
depress the bid or the nature of the property to be sold is such that suitable
bid may not be received at public auction. In that event, the other suitable
mode for selling of property can be by inviting tenders. In order to ensure that
such sale by calling tenders does not escape attention of an intending
participant, it is essential that every endeavour should be made to give wide
publicity so as to get the maximum price.
considerations which govern the sale of public property have been held to be
applicable to a sale of property by the State Financial Corporations under
section 29 of the Act in Mahesh Chandra case (supra). In that case this Court
has held that sale by public auction is universally recognised to be the best and
most fair method and is beyond reproach and, if it is not possible to adopt the
said method, sale may be held by inviting tenders, but in that event every endeavour
should be made to give wide publicity to get the maximum price. The said
decision cannot, therefore, be construed as laying down that a sale by tender
is impermissible and invalid. The learned judges, in that case, have referred
to the decisions of this Court in Sachidananda Pandey v. State of West Bengal,
1987 (2) SCR 223 and Haji T.M. Hassan v. Kerala Financial Corporation, 1988 (1)
SCR 1079, wherein it has been held that one of the modes of securing the public
interest, when it is considered necessary to dispose of a property, is to sell
the property by public auction or by inviting tenders. It cannot, therefore, be
said that a sale by inviting tenders is ipso facto invalid. The validity of
such a sale will have to be considered in the light of the facts and
circumstances of the particular case.
facts and circumstances of this case, it cannot be said that the failure on the
part of SIPCOT to sell the property by public auction and selling it to
inviting tenders is bad for the reason that the said property has not received
the best price in the market. As indicated earlier in response to the first
advertisement no offer was received from anybody and in response to the second
advertisement also only one offer was received from respondent No. 2 and that
too was only for Rs.14.26 lakhs.
negotiations SIPCOT was able to secure a revised offer of Rs. 38 lakhs, which was
more than the amount of Rs.36.44 lakhs, at which the unit had been valued.
Respondent No. 1 had sufficient opportunity, during the pendency of the matter
in the High Court as well as in this Court, to secure an offer higher than Rs.38
lakhs made by respondent No. 2, but he has not been able to bring any higher
offer. In the circumstances it cannot be said that the price at which the unit
was sold was low. The sanction of the loan of Rs.44.80 lakhs in 1987 cannot
afford a basis for holding that the value of the unit in 1993 could not be less
than Rs. 44.80 lakhs. The value of the plant and machinery could have fallen on
account of its being used during the period from 1987 to 1993 or due to the
same getting outdated. If the value of the unit was higher than Rs. 38 lakhs it
would have been possible for respondent No. 2 to obtain a better offer.
failure to do so negatives the inference that the sale price of Rs. 38 lakhs is
low. Similarly, the failure on the part of SIPCOT to give intimation to
respondent No. 1 before accepting the offer of Rs. 38 lakhs made by respondent
of little consequence in the facts of this case because respondent No. 1 has
had sufficient opportunity both before the High Court as well as in this Court
to obtain a higher offer, but he has failed to do so.
these circumstances no fault can be found with the action of SIPCOT in selling
the unit to respondent No. 2 for Rs. 38 lakhs and the Judgment of the High
Court, in setting aside the said sale cannot be upheld.
appeal is, therefore, allowed. The Judgment of the Division Bench dated February 23, 1994 in Writ Petition No. 97 of 1994 as
well as Judgment of learned single Judge dated December 1, 1993 in Writ Petition
No. 18048 of 1993 are set aside and the said writ petition filed by respondent
No. 1 is dismissed. Having regard to the facts and circumstances, there will no
be order as to costs.