2003 (8) TMI 408 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the Corporation's action under Section 29 of the Financial Corporation Act, 1951.
2. Requirement of notice to the petitioner before auctioning the property.
3. Allegation of mala fide action by the Corporation.
4. Applicability of the doctrine of lis pendens.
5. Validity of the sale conducted by the Corporation.

Detailed Analysis:

1. Legality of the Corporation's Action Under Section 29 of the Financial Corporation Act, 1951:
The Corporation exercised its special power under Section 29 of the Financial Corporation Act, 1951, to take over and sell the mortgaged property due to the petitioner's failure to repay the loan. The court highlighted that Section 29 allows the Corporation to take over and transfer the property without the need for prior notice to the petitioner. The Corporation's actions were deemed lawful as they were within the statutory provisions.

2. Requirement of Notice to the Petitioner Before Auctioning the Property:
The court noted that despite the absence of a legal requirement to serve notice under Section 29, the Corporation issued auction notices six times, thereby providing ample opportunity for the petitioner to respond. The petitioner's awareness of the outstanding dues and the Corporation's attempts to settle the matter were acknowledged. The court found no violation of statutory provisions or unfairness in the Corporation's actions.

3. Allegation of Mala Fide Action by the Corporation:
The petitioner alleged that the Corporation's actions were mala fide, particularly regarding the sale of the property without prior notice and the alleged undervaluation of the property. The court emphasized that merely alleging mala fides is insufficient without specific pleadings and evidence. The court found no substantial evidence to support the claim of mala fide actions by the Corporation. The court cited the Supreme Court's judgment in State Financial Corpn. v. Jagdambe Oil Mills, which supports the Corporation's right to recover its dues without being hindered by vague allegations of mala fides.

4. Applicability of the Doctrine of Lis Pendens:
The petitioner argued that the sale was invalid under the doctrine of lis pendens since the petition was filed before the sale deed was executed. The court dismissed this argument, noting that the doctrine of lis pendens does not protect the petitioner's rights in this context, as the Corporation's actions were within its statutory rights under Section 29.

5. Validity of the Sale Conducted by the Corporation:
The petitioner contended that the sale was invalid due to incorrect property measurements in the auction advertisement and the alleged undervaluation of the property. The court rejected these claims, stating that minor irregularities in the advertisement do not constitute mala fide actions. The court also noted that the property's valuation decreased over time due to the aging machinery, justifying the sale price of Rs. 4 lakhs. The court referred to the Supreme Court's ruling in Chairman & M.D. Sipcot, Madras v. Contromix (P.) Ltd., which validates sales conducted through public auctions or tenders with adequate publicity.

Conclusion:
The court dismissed the petition, finding no merit in the petitioner's claims. The Corporation's actions were lawful, reasonable, and within the scope of its statutory powers. The petitioner failed to substantiate allegations of mala fide actions or procedural violations. The sale of the property was upheld as valid, and no relief was granted to the petitioner.