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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 ..... Dave, Anil K. Mishra, A. Rohen Singh and Sanjay R. Hegde for the Respondent. JUDGMENT Y.K. Sabharwal, J. - The question that arises for consideration in these matters is whether Karnataka State Industrial Investment and Develop-ment Corporation (for short, 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 (for short, the Act ). 2. The appeals have been preferred by KSIIDC as well as M/s. Vinpack Investments Pvt. Ltd., the purchaser (for short 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further held that if the borrower failed to bring a better offer or agree to buy the unit or if the first instalment is not made to KSIIDC on or before 20th February, 1999, KSIIDC would be at liberty to proceed with the sale in favour of Vinpack. The borrower failed to avail the opportunity granted in the judgment of the learned Single Judge. Therefore, KSIIDC sold the unit to Vinpack on 25th February, 1999. 6. Subsequently, on 26th February, 1999, the borrower filed the Writ Appeal challenging the order of the learned Single Judge. The Division Bench by judgment under appeal, inter 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase were more onerous. 10. The sale of the unit has been effected by KSIIDC in favour of Vinpack under directions of learned Single Judge, having regard to its right of sale under section 29 of the Act. Section 29 gives a right to Financial Corpora-tion inter alia to sell the assets of the industrial concern and realize the property pledged, mortgaged, hypothecated or assigned to Financial Corporation. This right accrues when the industrial concern, which is under a liability to Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting 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 hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realise its loan from the sale of the assets of the Company. The Court observed that a Corporation being an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge, in the discharge of its functions, it is free to act according to its own right. The views it forms and the decisions it takes would be on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations. In such a situation, more so in commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum public participation in the process of sale and everybody has an opportunity of making an offer. It was further held that public auction is not the only mode to obtain the best price and it could be done by inviting tenders, by giving wide publicity so as to get the maximum price. On facts, it was held that through negotiations, the financial corporation was able to secure a revised offer which was more than the price at which the unit had been valued and the borrower had sufficient opportunity, to secure an offer higher, but was not able to bring any higher offer. As regards the valuation of the unit the Court observed that, the value of the plant and machinery could have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure indicated in Mahesh Chandra s case ( supra ) would lead to further delay in realization of the dues by the financial Corporation by sale of assets. The Court held that it was always expected that the Corporation would try and realize the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or cause shown for the default, the same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action under section 29 of the Act is called for. Thereafter, the modalities for disposal of seized unit have to be worked out. The Court approved the view expressed 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to honour the commitments undertaken by him, the financial corporation alone cannot be shackled hand and foot in the name of fairness. ( ix )Reasonableness is to be tested against the dominant consideration to secure the best price. 20. True, the exercise of the right by a financial corporation under section 29 of the Act should be fair and reasonable. Ultimately, whether the action of the financial corporation is bona fide or not would depend on the facts and circumstances of each case. 21. The examination of the facts, in the light of the aforenoted legal principles reveals that KSIIDC acted in a bona fide manner. The procedure followed by KSIIDC to dispose of the assets of the borrower to realize the dues cannot be held to be unreasonable or unfair. The sale was conducted 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 directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the borrower is that of a creditor and debtor. That basic feature cannot be lost sight of. A Corporation is not supposed to give loan and then to write it off as a bad debt and ultimately to go out of business. It has to recover the amounts due so that fresh loans can be given. In that way industrialization, which is the intended object, can be promoted. It certainly is not and cannot be called upon to pump in more money to revive and resurrect each and every sick industrial unit irrespective of the cost involved. That would be throwing good money after bad money. As observed in Gem Cap (India) (P.) Ltd. s case ( supra ) promoting industrialization does not serve public interest if it is at the cost of public funds. It may amount to transferring public money to private account. Further, financial corporation cannot wait indefinitely to recover its dues. 23. Having regard to the facts of the case and the legal principles above noted, 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 Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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