2005 (3) TMI 474 - SC - Companies Law

Whether Karnataka State Industrial Investment and Development Corporation ( KSIIDC ) acted in a bona fide manner in sale of the properties of the borrower exercising its right under section 29 of State Financial Corporation Act, 1951? Held that - Appeal allowed. The impugned judgment directing KSIIDC to redo the entire sale process cannot be sustained. Therefore, the impugned judgment is set aside and it is to be held that on failure of the borrower to comply with the directions of the Single Judge, the action of KSIIDC to sell the unit in favour of Vinpack was valid and legal.

Issues Involved:
1. Bona fide conduct of KSIIDC in the sale of properties under Section 29 of the State Financial Corporation Act, 1951.
2. Validity of the sale process and compliance with legal guidelines.
3. Borrower's opportunity to bring a better offer.
4. Judicial review and the scope of High Court's jurisdiction under Article 226 of the Constitution.
5. Reasonableness and fairness in the actions of financial corporations.
6. Securing the best price for public property.

Issue-Wise Detailed Analysis:

1. Bona fide Conduct of KSIIDC:
The primary question was whether KSIIDC acted in a bona fide manner in selling the borrower's properties under Section 29 of the State Financial Corporation Act, 1951. The Supreme Court examined KSIIDC's actions, noting that they issued three advertisements for the sale of the unit and accepted Vinpack's offer after negotiations. The borrower failed to bring any better offer despite being given multiple opportunities. The Court concluded that KSIIDC acted in a bona fide manner, following a transparent and reasonable procedure to secure the best price for the property.

2. Validity of the Sale Process and Compliance with Legal Guidelines:
The High Court set aside the sale, citing non-compliance with guidelines from Mahesh Chandra v. Regional Manager, U.P. Financial Corporation. However, the Supreme Court noted that subsequent cases had distinguished or overruled Mahesh Chandra's guidelines. The Court emphasized that the financial corporation's actions should be tested against securing the best price, and KSIIDC's process was found to be fair and reasonable.

3. Borrower's Opportunity to Bring a Better Offer:
The borrower was given an opportunity by the Single Judge to match Vinpack's offer but failed to comply. The Division Bench directed KSIIDC to redo the sale process, but the Supreme Court found this unnecessary as the borrower had ample opportunity to bring a better offer and failed to do so. The Court held that the borrower's failure to act within the given timeframe validated the sale to Vinpack.

4. Judicial Review and Scope of High Court's Jurisdiction:
The Supreme Court reiterated that the High Court, under Article 226 of the Constitution, does not sit as an appellate authority over the actions of financial corporations. Judicial review is limited to cases of statutory violation or unreasonable conduct by the corporation. The Court found that KSIIDC's actions did not violate any statutes and were not unreasonable.

5. Reasonableness and Fairness in the Actions of Financial Corporations:
The Court emphasized that fairness in the actions of financial corporations cannot disable them from recovering dues. The financial corporation's actions should be transparent and aimed at securing the best price. KSIIDC's actions were found to be reasonable and in line with these principles, as they issued advertisements and negotiated to secure the best price.

6. Securing the Best Price for Public Property:
The dominant consideration in the sale of public property is to secure the best price, which can be achieved through maximum public participation. The Court noted that public auction is not the only method; tenders and negotiations can also be used. KSIIDC's process of issuing advertisements and negotiating with Vinpack was aimed at securing the best price, fulfilling this requirement.

Conclusion:
The Supreme Court set aside the High Court's judgment directing KSIIDC to redo the sale process. The Court held that KSIIDC acted in a bona fide manner, and the sale to Vinpack was valid and legal. The appeals were allowed, affirming KSIIDC's actions and the sale process followed.

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