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TMI Blog2005 (3) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Vinpack') against the judgment and order of the Division Bench of the Karnataka High Court directing KSIIDC to undertake the entire sale process once again and give opportunity to respondent No. 1 to bring better offer for the properties. 3. Respondent No. 1, M/s. Cavalet Industries Ltd. (for short, 'the bor-rower') borrowed a sum of Rs. 116.30 lakhs from KSIIDC as per the sanction letter dated 22nd April, 1991. The borrower committed defaults in payment of the instalments and, therefore, KSIIDC on 30th March, 1995 passed an order under section 29 of the Act for taking over the unit of the borrower for recovery of its dues. However, KSIIDC did not implement that order. There was considerable correspondence between KSIIDC and the borrower, in regard to the offers of some third parties, who were proposing either to purchase the unit or enter into some working arrange-ment with the borrower to run the unit. The efforts of the borrower to enter in to arrangement with third parties to work the unit did not yield any result. The borrower also did not clear the dues and, therefore, KSIIDC passed another order dated 30th October, 1996 under section 29 of the Act for taking over the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia, held that the learned Single Judge, after coming to the conclusion that the guidelines provided in Mahesh Chandra's case (supra) were not followed, was not right in directing KSIIDC to make an offer on the same terms on which it had finalized the sale of the property to Vinpack and, therefore, KSIIDC was directed to undertake the entire process of selling of the unit again by following the guidelines enumerated in Mahesh Chandra's case (supra) and by giving an opportunity to the borrower to bring better offer. 7. Learned counsel appearing for KSIIDC submits that a fair chance was given to the borrower to either bring a better offer or a one time settlement, but the borrower failed to do so; the KSIIDC was considerate and sympathetic towards the borrower and having passed an order on 30th March, 1995 under section 29 of the Act, it was not implemented, in view of the fact that the borrower was negotiating with third parties to enter in to arrangements to work the unit; the guidelines laid down in Mahesh Chandra's case (supra) have been overruled and in any case, the borrower was given by learned Single Judge same offer on which unit was sold to Vinpack, further directing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its obligations as envisaged in section 29 of the Act. Section 29(1) gives Financial Corporation in the event of default the right to take over the management or possession or both and thereafter deal with the property. 11. The sale was set aside by the High Court relying upon the interpretation placed on section 29 by this Court in Mahesh Chandra's case (supra). The subsequent line of cases have distinguished the decision in Mahesh Chandra's case (supra). 12. In U.P. Financial Corporation v. Gem Cap (India) (P.) Ltd. [1993] 2 SCC 299, it was held the High Court while exercising its jurisdiction under article 226 of the Constitution cannot sit as an appellate authority over the acts and deeds of the corporation and seek to correct them and that the Doctrine of fairness, evolved in administrative law was not supposed to convert the writ courts into appellate authorities over administrative authorities. On the facts of the case it was held that the borrower had no intention of repaying any part of the debt and was merely putting forward one or other reason to keep the corporation at bay. While striking down the directions issued by the High Court, this Court held that the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assigned. The Court further held that, "Unless its action is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the courts or a third party to substitute its decision, however more prudent, commercial or businesslike it may be, for the decision of the Corporation. Hence, whatever the wisdom (or the lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable". 14. In Chairman and Managing Director, SIPCOT, Madras v. Contromix Pvt. Ltd. [1995] 4 SCC 595, the financial corporation after taking over the unit of the defaulting borrower under section 29 of the Act issued advertisement inviting offers for sale of the mortgaged assets. An intending purchaser made an offer, and after further negotiations the offer was revised. The revised offer was accepted by the financial corporation and the sale was finalized. A writ petition was filed by the borrower challenging the sale, on the ground that the market value of the assets was more than the sale price and the guidelines laid down in Mahesh Chandra's case (supra) have not been followed. The writ petition was allowed and it was held that the said sale wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fallen on account of its being used or due to the same getting outdated and if the value of the unit was higher than the sale price it would have been possible for the borrower to obtain a better offer and his failure to do so negatives the inference that the sale price was low. The court also observed that, the failure on the part of the financial corporation to give intimation to the borrower before accepting the offer made by the purchaser was of little consequence in the facts of the case because the borrower had sufficient opportunity to obtain a higher offer, but he has failed to do so. 16. In Karnataka State Financial Corporation v. Micro Cast Rubber & Allied Products (P.) Ltd. [1996] 5 SCC 65, the issue was whether the financial corporation was wrong in rejecting the offer given by the borrower which, after proper evaluation, was considered lower than the offer made by the purchasers. This Court, while upholding the action of the financial corporation, held that the guidelines contained in Mahesh Chandra's case (supra) are in the nature of guidelines for the exercise of the power under section 29 of the Act and the action of the State Financial Corporation should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Gem Cap (India) (P.) Ltd.'s case (supra) and found it to be more in line with the legislative intent behind enacting the Act. 18. Recently in S.J.S. Business Enterprises (P.) Ltd. v. State of Bihar [2004] 7 SCC 166, while reiterating the aforestated legal position, it was held that reasonableness of the action of financial corporation under section 29 of the Act should be tested against the dominant consideration to secure the best price. 19. From the aforesaid, the legal principles that emerge are : (i)The High Court while exercising its jurisdiction under article 226 of the Constitution does not sit as an appellate authority over the acts and deeds of the financial corporation and seek to correct them. The Doctrine of fairness does not convert the writ courts into appellate authorities over administrative authorities. (ii)In a matter between the corporation and its debtor, a writ court has no say except in two situations; (a)there is a statutory violation on the part of the corporation or (b)where the corporation acts unfairly i.e., unreasonably. (iii)In commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted by issuing advertisements in the newspapers. Steps were taken to secure the best price. The question before the High Court was only about the validity of sale to Vinpack and the plea of the borrower was that the unit was sold at ridiculously low price. The learned Single Judge gave reasonable opportunity to the borrower to pay the same amount as payable by Vinpack failing which unit was directed to be sold to Vinpack after specified date. The borrower failed to comply with the order of the learned Single Judge or seek extension of time and also did not challenge it in writ appeal within time specified in the order of the learned Single Judge. Under these circumstances, the unit was sold to Vinpack and the possession handed over to it. The Division Bench, after holding that the procedure adapted was not in conformity with the guidelines enumerated in Mahesh Chandra's case (supra) did not examine the effect of offer given to the borrower and not availed by him resulting the sale in favour of Vinpack. In this view, the approach of the Division Bench cannot be sustained. Further, the subsequent line of cases distinguishing Mahesh Chandra's case (supra) and the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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