2007 (8) TMI 446 - SC - Companies Law

Extraordinary remedy under article 226 of the Constitution from the High Court denied - Held that - Appeal dismissed. Several facts had been suppressed by the appellant-company. Collusive action has been taken with a view to deprive the respondent-bank from realizing legal and legitimate dues to which it was otherwise entitled. The Company had never disclosed that it had created third party s interests in the property mortgaged with the Bank. It had also shifted machinery and materials without informing the respondent-bank prejudicially affecting the interest of the Bank. It has created tenancy or third parry s right over the property mortgaged with the Bank. All these allegations are relevant when such petitioner comes before the Court and prays for discretionary and equitable relief. In our judgment, the submission of the respondent-bank is well-founded that appellant is not entitled to ask for an extraordinary remedy under article 226 of the Constitution from the High Court as also equitable remedy from this Court under article 136 of the Constitution. A party, whose hands are soiled, cannot hold the writ of the Court. Thus the High Court was not in error in refusing relief to the appellant-company.

Summary

Issues Involved:
1. Legality of the respondent-bank's actions under the Securitization Act.
2. Alleged non-receipt of appellant's representation by the respondent-bank.
3. High Court's summary dismissal of the writ petition.
4. Compliance with interim orders and contempt of court.
5. Suppression of material facts by the appellant.

Issue-wise Detailed Analysis:

1. Legality of the respondent-bank's actions under the Securitization Act:
The appellant-company obtained a loan of Rs. 85 lakhs from the respondent-bank and mortgaged its property. Due to market conditions, the appellant failed to pay the interest, leading the bank to issue a notice under Section 13(2) of the Securitization Act. The appellant claimed to have made a representation on 20-10-2004, which the bank allegedly did not consider. The appellant argued that the bank's actions were illegal and violated the principles laid down in Mardia Chemicals Ltd. v. Union of India, which mandates that a secured creditor must consider objections raised by the borrower and communicate reasons for non-acceptance before taking action under Section 13(4).

2. Alleged non-receipt of appellant's representation by the respondent-bank:
The respondent-bank contended that no representation dated 20-10-2004 was received. The bank's affidavit stated that the letter received on that date did not reference the notice and was related to telephonic talks. The appellant did not initially file a rejoinder to this claim but later asserted that the representation was sent through a reputed courier. The Court found the appellant's claim dubious and an afterthought to benefit from the Mardia Chemicals ruling.

3. High Court's summary dismissal of the writ petition:
The High Court dismissed the appellant's writ petition summarily. The Supreme Court upheld this dismissal, stating that the appellant had not made a case for relief. The Court emphasized that the appellant had failed to comply with the loan repayment schedule and the bank was within its rights to take action under the Act. The appellant's failure to prove that a representation was made and considered further weakened its case.

4. Compliance with interim orders and contempt of court:
The Supreme Court had granted interim relief on the condition that the appellant deposits Rs. 20 lakhs per month. The appellant failed to comply with this order, leading the Court to note the non-compliance in its order dated 25-7-2007. The Court held that the appellant, being in contempt of the interim order, had no right to be heard on merits. The appellant's conduct in ignoring the payment condition while enjoying the stay of dispossession was deemed contemptuous.

5. Suppression of material facts by the appellant:
The respondent-bank alleged that the appellant had not disclosed material facts, including creating third-party interests in the mortgaged property and shifting machinery without informing the bank. The appellant's failure to candidly state all facts to the High Court was seen as a serious breach of conduct. The Court emphasized that a party seeking equitable relief must come with clean hands and full disclosure of facts. The appellant's actions, including filing collusive suits to prevent dispossession, further demonstrated bad faith.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's decision. The appellant's failure to comply with interim orders, suppression of material facts, and dubious claims regarding the representation led to the denial of relief. The Court reiterated the importance of adhering to legal and equitable principles, emphasizing that a party in contempt or acting in bad faith cannot seek judicial relief. The appeal was dismissed with costs.