M/S
Amar Alcoholi Ltd. Vs. Sicom Ltd. & Anr [2005] Insc 626 (8 November 2005)
Ashok Bhan & Altamas Kabir J U D G M E N T Bhan, J.
The final judgment and order dated 10th of October, 2003, passed by the High
Court of Judicature at Bombay, Nagpur Bench at Nagpur in Writ Petition No. 153
of 12003 dismissing the writ petition filed by the appellant, is under
challenge in the instant appeal. By the impugned order, the High Court has
declined the prayer of the appellant to quash the auction of the properties including
the plants and machinery of the appellant, which were mortgaged in favour of
SICOM Limited (the first respondent herein).
The short question that arises for our consideration in this appeal is,
whether SICOM (the first respondent) is a State Financial Corporation within
the meaning of and governed by the State Financial Corporations Act, 1951 (for
short "the Act")? To appreciate the question, it would be necessary
to state the facts giving rise to the present appeal, which are in brief, as
follows:
The first respondent, formerly known as "The State Industrial
Investment Corporation of Maharashtra Limited" (SIICOM), is a company
established under the provisions of the Indian Companies Act, 1956,
by the Government of Maharashtra in the year 1966, with 100 per cent shares
being owned by the State Government, with an object of development of
industries and financing the industrial undertakings in the State of
Maharashtra.
The appellant company mainly engaged in the transport business, approached
the first respondent to get a loan for setting up a unit to manufacture grain
based alcohol with installed capacity of 5000 Kilo Litres annually. The
appellant was sanctioned a term loan of Rs.90 lakhs in august, 1994 in
consortium with IREDA (Rs. 65 lakhs) and Oriental Bank of Commerce (Rs. 35
lakhs). Commercial production of the appellant's unit which was scheduled to
begin in April 1995 could commence only in July 1996. On account of such delay
of over one year in commencing production, the appellant company started
defaulting in payment right from July 1996 itself. Several opportunities were
given to the appellant to pay up the amount due and outstanding. On the failure
of the appellant to pay up the same, the first respondent sent a demand notice
dated 23rd March, 1999 to the appellant stating that a sum of Rs.19,91,783/- be
paid by the 31st of March, 1999. Pursuant to the demand notice issued by the
first respondent, certain payments were made by the appellant.
However, the appellant again defaulted in payment of instalments and, as on 14th December, 2000, a sum of Rs.97,57,695/- (principal amount + the interest accrued
thereon) became due and payable. As many as 16 cheques issued by the appellant-company
bearing different dates amounting to Rs.36.81 lakhs were dishonoured on
presentation.
Owing to the continuous defaults and non- payment of instalments and
interest on time, the first respondent issued a take over notice on 8th
January, 2001 stating therein that in case the appellant fails to clear the
outstanding dues of Rs.97,57,695/- on or before the 25th of January, 2001, the
first respondent would take over the possession of the hypothecated and
mortgaged assets on 31st of January, 2001 at 10.00 A.M. Subsequently due to
negotiations between the parties, the first respondent, vide its letter dated 6th February, 2001, deferred the take over of the assets of the appellant company to 20th February, 2001. The appellant-Company was asked to pay Rs.19.81 lakhs by the 15th of February, 2001, failing which the mortgaged assets will be taken over by the
first respondent on 20th of February, 2001. The appellant issued 12 post-dated
cheques amounting to 19.81 lakhs. On receipt of those cheques, the take over
action was again deferred. Out of those 12 cheques issued in favour of the 1st
respondent, four cheques were dishonoured on presentation. The appellant's
limit was once again extended till 20th of August, 2001 to enable it to make
good the outstanding payments, failing which the assets were to be taken over
by the first respondent. The arrears were not cleared and finally owing to
continued defaults on the part of the appellant- company, the first respondent
took over the possession of the assets mortgaged with it invoking its powers
under Section 29 of the State Financial Corporation Act, 1951 (for short
"the Act") and took the actual possession thereof on 23rd of October,
2001.
In order to recover the arrears, it was decided to put the mortgaged property
to auction. The advertisement for sale of the property was published on 23rd of
November, 2001 in response to which the only offer of Rs.261 lakhs was received
which was rejected on the ground that the offer for purchase was below the
disposal value estimated by the Government Approved Valuer. Soon thereafter,
the appellant approached the first respondent in January, 2002 for One Time
Settlement (OTS). The proposal put forth by the appellant was accepted by the
first respondent vide its letter dated 6th February, 2002 for OTS at Rs.95
lakhs. The appellant issued a cheque of Rs.20 lakhs towards OTS which was
dishonoured on presentation.
However, the said amount of Rs. 20 lakhs was subsequently paid by the
appellant company. The balance sum of Rs.75 lakhs which was payable by the
appellant on or before the 28th of February, 2002, as per the terms of the OTS,
remained unpaid. To clear the balance payment, the last date for payment of the
said amount of Rs.75 lakhs was extended thrice by the first respondent, the
last one being the 28th March, 2002. Not being able to clear the dues, the
appellant again requested for extension of time till 15th of April, 2002 for
clearing the outstanding dues, which was not agreed to. The appellant was
informed by the first respondent that it shall be taking steps to safeguard its
interest including auctioning the assets in possession of the first respondent
by identifying the interested buyers. As the appellant failed to make the
payment as per the terms of the OTS within the stipulated period, the OTS was
cancelled on 9th of April, 2002.
After cancellation of OTS, the unit of the appellant was advertised for sale
for the second time on 8th of June, 2002. The highest offer of Rs.376 lakhs was
received in the auction and the same was approved by the first respondent. The
appellant vide its letter of 2nd of July, 2002 was given an opportunity to
match the offer or give better offer to clear dues of Rs.100.94 lakhs existing
as on 30th of June, 2002 on or before 18th of July, 2002. Needful was not done.
On 6th of August, 2002, another opportunity was given to the appellant, as a
special case, to make the aforesaid payment by the 18th of August, 2002. There being no better offer, the auction price of Rs.376 lakhs was accepted but,
however the party who had given the offer of Rs.376 lakhs did not pay the
balance purchase consideration.
Due to failure of the second auction also, the first respondent decided to
re-auction it for the third time and advertisement was published in the newspapers
on 30th October, 2002. M/s. Karan Distilleries Pvt. Ltd., which offered the
highest bid in response to the said advertisement, is the 2nd respondent in
this appeal. It offered Rs.225 lakhs which, after negotiations, was finally
increased to Rs.320 lakhs, which was accepted by the first respondent. The
appellant and its promoter were given a chance to match/improve upon the offer
made by the 2nd respondent. As there was no counter-offer received from the
appellant despite giving them chance, the first respondent proceeded with the
sale of the assets to recover its dues. On receipt of the entire consideration,
the first respondent handed over the physical possession of the assets of the
appellant to the 2nd respondent and also executed Deed of conveyance in their
favour.
Aggrieved by the order of auctioning, the appellant filed writ petition in
the High Court seeking, inter alia, stay of the auction proceedings for sale of
the unit by the first respondent. The High Court by way of interim relief, stayed
the proceedings subject to the appellant's depositing a sum of Rs. 50 lakhs on
or before 21st of March, 2003, failing which the stay was to stand vacated
automatically without any further reference to the Court. The appellant could
deposit only half of the amount ordered by the High Court and thus failed to
comply with the direction. As the compliance with the order of the High Court
was a condition precedent to the interim order, the stay stood vacated
automatically.
After filing of the writ petition, the appellant filed an additional
affidavit before the High Court submitting that the provisions of Section 29 of
the Act were not applicable to the first respondent as it ceases to be a
financial corporation after the reduction of shares of the Govt. of Maharashtra
to 49% only.
The High Court dismissed the writ petition holding that the first respondent
was a financial corporation and it had been notified as such by the Central
Government in exercise of its powers under Section 46 of the Act. It was further
held that reduction of shareholdings below 50% of the Govt.
of Maharashtra would not make any difference to the status of the first
respondent being a financial corporation. The other two submissions, viz, (i)
that the true and correct accounts of the outstanding dues were not furnished
to the appellant and, therefore, the attachment and sale of the appellant's
property was not justified; and (ii) that it was sold at inadequate price, were
rejected by the High Court, holding that no material has been placed before the
Court to substantiate aforesaid contentions.
Aggrieved against the dismissal of its writ petition, the appellant has
filed the present appeal by grant of special leave.
Counsel for the parties have been heard.
It is not in dispute that the first respondent was established by the State
Government with the object of developing the industries and financing
industrial concerns in the State. It is also not in dispute that the Central
Government had extended the provisions of Section 29 of the Act to the first
respondent. Thus, the first respondent would be covered by the expression
"an institution established by a State Government" offering range of
services including the object of financing industrial concerns in the State of
Maharashtra.
It would thus be a financial corporation covered under the Act.
Section 46 of the Act confers the power on the Central Government to extend
the provisions of the Act "to any institution established by a State
Government". Section 46 of the Act reads as under:
"46. Power to apply Act to certain financial institutions in existence
at commencement of Act -(1) The Central government may, by notification in the
official Gazette, direct that all or any of the provisions of this Act shall,
subject to such exceptions and restrictions as may be specified, apply to any
institution established by a State Government which has for its object the
financing of industrial concerns, and on the issue of such notification, the
institution shall be deemed to be a Financial Corporation established by the
State Government for the State within the meaning of this Act and the
provisions of this Act shall become applicable thereto according to the tenor
of the notification.
Provided that no notification shall be issued under this sub- section in
respect of any institution unless a request is made in that behalf by the State
Government concerned.
(2) Any notification issued under sub-section (1) may suspend the operation
of any enactment applicable to any such institution immediately before the
issue of the notification." In the year 1986 a request was made to the
Central Government by the Government of Maharashtra to extend the provisions of
Sections 27, 29, 30, 31, 32A to 32F, 41, 41A, 42 and 44 of the Act to the first
respondent. The Central Government accepted the request of the Government of
Maharashtra and the provisions of the afore- mentioned sections were extended
to the first respondent vide notification No. F.No.5(9)/86-IF-II dated 11th
December, 1986.
Government of Maharashtra vide the Govt.
Resolution bearing No. IDL/1093/(8928)/IND-8 dated 3rd October, 1994
decided:
(a) to have a public participation in the capital structure of the first
respondent in accordance with the new industrial policy framed by the
Government of Maharashtra in the year 1983;
(b) to hold only 49% of the share capital by the Government;
(c) to give by private placement 26% of the capital to the selected
financial institutions and banks;
(d) to offer 2% capital out of the said 26%, to the employees of the said
company in consonance with the policy framed by the Government of India; and
(e) to offer the balance 25% to the public through public issue.
It would be seen from the above that provisions of Section 29 and other
provisions of the Act were made applicable to the first respondent by the
Central Government by virtue of the powers vested in it under Section 46 of the
Act. Section 29 enables the first respondent to take over the assets of the
delinquent borrowers. As the appellant had failed to discharge its liability in
spite of several opportunities afforded to it, as has been enumerated in the
foregoing paragraphs, in our view, the first respondent was fully justified in
taking over the assets of the appellant in exercise of its powers under Section
29 of the Act.
Under Section 46 of the Act the Central Government by a notification in the
official Gazette is empowered to direct that all or any of the provisions of
the Act shall, subject to such exceptions and restrictions as may be specified,
apply to any institution established by a State Government which has for its
object the financing of industrial concerns, and on the issuance of such
notification the institution shall be deemed to be "a Financial
Corporation" established by the Government within the meaning of the Act.
It is not disputed that Respondent No. 1 had been established by the State
Government with the object of financing industries and the Central Government
had issued the notification under Section 46 confering the powers to be
exercised under various sections of the Act including Section 29. As a matter
of fact, Annexure A, annexed with the additional affidavit filed by the
appellant on 9.10.03 itself suggests beyond doubt that respondent no.1 was
established in the year 1996 by the Government of Maharashtra as a 100%
Government owned company with the objective of industrialising of backward
areas of the State of Maharashtra.
Thus, respondent no.1 would be covered by the expression "any
institution established by a State Government" offering range of services.
This apart the Central Government in the year 2003, i.e., even subsequent to
the disinvestment of equity up to 51 per cent held by the Government of
Maharashtra, at the request of the Government of Maharashtra by virtue of its
power under Section 46 (1) of the Act, has made the provisions of Section 32 G
of the Act, applicable to the first respondent vide notification dated 16th of
September, 2003. This also shows that Respondent No. 1 is being treated by the
State of Maharashtra as well as Central Government as the financial Corporation
within the meaning of the Act.
The principal contention advanced by Mr. Ashok A. Desai, the learned senior
counsel appearing on behalf of the appellant, is that consequent to the
reduction of stakes of the Govt. of Maharashtra in the first respondent and
consequent to the change in its nomenclature, the first respondent had ceased
to have the status of a State Financial Corporation under the Act. We are
unable to accept this contention.
In the facts and circumstances enumerated herein above, it is crystal clear
that the first respondent was originally established as, and even as of date
continues to be, a company established by the Government of Maharashtra. It may
be mentioned that the State of Maharashtra being the single largest shareholder
has retained the overall control over the management of the first respondent by
retaining the right to nominate its Directors by virtue of the Amended Article
18(a) of the Articles of Association of the Companies.
By mere reduction in its stakes to below 50 per cent, SICOM (the first
respondent) would not cease to be a State Finance Corporation in view of the
fact that it has been established by the State of Maharashtra for financing
industrial concerns and that it had been so notified by the Central Government
in exercise of its powers under Section 46 of the Act. The first respondent is
a finance corporation covered by the Act and reduction in the shareholdings of
the State of Maharashtra below 50 per cent shall not make any difference to the
status of the first respondent, i.e, being a financial corporation.
The other two points which had been raised in the writ petition regarding
the non-supply of details of the outstanding amount due and the inadequacy of
the sale consideration were rejected by the High Court by observing that no
material had been placed before the Court to substantiate them.
The learned counsel sought to contend before us too, that the auction
proceedings are liable to be set aside because the details of outstanding
amount was not furnished to the appellant and that the mortgaged property had
been sold for inadequate consideration. There is no material placed before us
to substantiate these two contentions. The allegations made are vague,
particularly when the appellant was afforded suitable opportunities to match
the bid/offer and it did not turn up, and cannot be ascertained from any
admitted data. The same are rejected.
It was admitted before the High Court that outstanding amount had been
recovered from the sale of the appellant's property. In view of this, the High
Court had permitted the appellant to withdraw the sum of Rs.25 lakhs deposited
by the appellant in pursuance to the interim order of the High Court. This
direction of the High Court holds good and does not call for any interference.
Lastly, the counsel for the appellant contended that the first respondent be
directed to return the balance amount, if any, after adjusting the outstanding
amount due from the appellant.
The counsel for respondents, in all fairness, concedes that if there is any
balance amount, the same shall be paid back to the appellant. The appellant
would be at liberty to move appropriate application before the first
respondent. If such an application is filed, the first respondent shall take a
decision thereon within a period of two months from the date of the receipt of
such application and, in case there is any excess amount after adjusting the
amount due from the appellant out of the sale proceeds of the mortgaged
property of the appellant-company, the same shall be returned to the appellant
forthwith.
For the foregoing reasons, the appeal stands dismissed. However, there shall
be no order as to costs.
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