2011 (11) TMI 820 - HC - Companies Law

Summary

Issues Involved:
1. Legality and correctness of the sale of mortgaged property by the State Finance Corporation.
2. Sale of property below market value without fixing reserve price.
3. Rejection of borrower's request to pay the amount quoted by the successful bidder.
4. Acceptance of balance payment from the successful bidder beyond the stipulated period without forfeiting earnest money.

Detailed Analysis:

1. Legality and Correctness of the Sale:
The core question in this writ appeal is the legality and correctness of the sale of the mortgaged property by the State Finance Corporation for an amount less than the market value indicated in the Valuation Certificate prepared by the Registered Valuer, without fixing the reserve price, and rejecting the borrower's request to pay the amount quoted by the successful bidder even before the payment of 90% of the balance consideration. The Corporation later accepted the balance amount from the successful bidder without forfeiting the earnest money as per the auction condition.

2. Sale Below Market Value Without Reserve Price:
The property was sold for Rs. 1.20 crores, which was below the market value of Rs. 156.43 lakhs fixed by the authorized valuer. The auction notification did not contain either the market value or the upset price of the property. The Corporation was expected to fix the upset price to ensure the property would not be sold below a certain value, which was not done.

3. Rejection of Borrower's Request:
The appellant had approached the Corporation to pay the bid amount quoted by the successful bidder, but the request was turned down. The appellant submitted a representation on 2 November 2009, agreeing to pay the amount quoted by the third respondent. However, the Corporation rejected this request on 17 November 2009 without providing a substantial reason.

4. Acceptance of Balance Payment Beyond Stipulated Period:
The auction notification contained a mandatory clause requiring the successful bidder to pay the balance 90% within thirty days from the date of confirmation. The third respondent failed to pay the balance consideration within the stipulated period and requested the Corporation not to present the cheques until he gave permission. The Corporation accepted the balance payment after 92 days, violating the mandatory auction conditions.

Analysis and Conclusion:
- The Corporation violated the mandatory conditions of the auction by accepting the balance payment beyond the stipulated period without forfeiting the earnest money.
- The sale was made below the market value without fixing the reserve price, which is essential for ensuring that the property is not sold at a throwaway price.
- The rejection of the appellant's request to pay the amount quoted by the successful bidder was arbitrary, especially since the successful bidder had not deposited the money within the prescribed period.
- The Corporation acted unreasonably and unfairly, indicating collusion between the Corporation and the successful bidder.

Disposition:
The sale of the property in favor of the third respondent is set aside. The Corporation is directed to take possession of the property from the third respondent upon repayment of the amount deposited by him and to auction the property again following a transparent procedure, fixing the reserve price, and obtaining a fresh valuation certificate. The writ petition is allowed with no costs, and connected miscellaneous petitions are closed.