2005 (11) TMI 250 - SC - Companies Law

Whether SIICOM (the first respondent) is a State Financial Corporation within the meaning of and governed by the State Financial Corporations Act, 1951? Held that - Appeal dismissed. By mere reduction in its stakes to below 50 per cent, SIICOM (the first respondent) would not cease to be a State Financial 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 financial 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. Outstanding amount due - 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.

Issues Involved:
1. Whether SIICOM is a State Financial Corporation under the State Financial Corporations Act, 1951.
2. Validity of the auction of the appellant's properties by SIICOM.
3. Non-supply of details of the outstanding amount due.
4. Alleged inadequacy of the sale consideration.
5. Return of any balance amount to the appellant after adjusting the outstanding dues.

Issue-wise Detailed Analysis:

1. Whether SIICOM is a State Financial Corporation under the State Financial Corporations Act, 1951:
The primary issue was whether SIICOM, the first respondent, qualifies as a State Financial Corporation under the State Financial Corporations Act, 1951. The court noted that SIICOM was established by the Government of Maharashtra with the objective of developing industries and financing industrial undertakings in the state. It was initially a 100% government-owned entity. The Central Government had extended the provisions of section 29 of the Act to SIICOM, making it a financial corporation under the Act. Despite the reduction of government shareholding to 49%, SIICOM continued to be treated as a financial corporation by both the State and Central Governments. The court concluded that SIICOM remains a State Financial Corporation under the Act, as the reduction in government shareholding does not alter its status.

2. Validity of the auction of the appellant's properties by SIICOM:
The appellant defaulted on loan repayments, leading SIICOM to issue multiple notices and eventually take possession of the mortgaged assets under section 29 of the Act. The properties were auctioned multiple times due to initial unsuccessful attempts. The court found that SIICOM followed due process and provided the appellant with several opportunities to settle the dues or match the auction bids. The court upheld the auction process as valid and justified under the circumstances.

3. Non-supply of details of the outstanding amount due:
The appellant contended that SIICOM did not furnish the true and correct accounts of the outstanding dues. The High Court rejected this claim, noting that no substantial evidence was provided to support this allegation. The Supreme Court concurred, stating that the appellant failed to present any material evidence to substantiate the claim of non-supply of details.

4. Alleged inadequacy of the sale consideration:
The appellant argued that the mortgaged property was sold at an inadequate price. The High Court dismissed this argument, stating that no material evidence was provided to prove the inadequacy of the sale consideration. The Supreme Court agreed, emphasizing that the appellant was given opportunities to match or improve the auction bids but failed to do so. The court found no basis to challenge the adequacy of the sale price.

5. Return of any balance amount to the appellant after adjusting the outstanding dues:
The appellant requested the return of any balance amount after adjusting the outstanding dues from the sale proceeds. The respondents conceded that any excess amount after settling the dues would be returned to the appellant. The court directed that the appellant could file an appropriate application to SIICOM, which should be decided within two months. Any excess amount should be returned to the appellant promptly.

Conclusion:
The Supreme Court dismissed the appeal, upholding the decisions of the High Court. The court confirmed that SIICOM is a State Financial Corporation under the Act, validated the auction process, and found no merit in the claims regarding non-supply of details and inadequacy of the sale price. The court also directed the return of any balance amount to the appellant after adjusting the outstanding dues. There was no order as to costs.

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