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TMI Blog2011 (11) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... l assistance by the Tamil Nadu Industrial Investment Corporation [hereinafter referred to as 'the Corporation'] during the year 1994. The immovable property which is the subject matter of the present litigation was given as security. The appellant was running a spinning mill and due to market recession, they sustained severe loss and as a result, the loan installments were not paid as per the agreement. The Corporation agreed to settle the account by way of one time settlement. As per the terms of settlement, the unit was expected to pay the entire amount by 1 January 2004. Since one time settlement was not honored in its entirety, the Corporation took possession of the unit on 4 December 2006. The Corporation, through an authorized valuer, valued the property. The valuer fixed the market value at ₹ 156.43 lakhs. Subsequently, the property was sold in favour of third respondent for an amount below the market value. 3. The appellant approached the Corporation to pay the bid amount quoted by the successful bidder. However, the request was turned down. The third respondent failed to pay the balance consideration less EMD within the mandatory period of thirty days as sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the delayed period. However the Corporation was not prepared to accept the payment subsequent to the expiry of the time prescribed under one time settlement. (ii) The Valuer appointed by the Corporation fixed the market value of the property at ₹ 156.43 lakhs. However, the property was sold for a sum of ₹ 1.20 crores. Since the sale was made below the market rate, the same is liable to be set aside. (iii) The Corporation was expected to indicate the reserve price in the sale notification. However, no such reserve price was fixed. (iv)The property was worth more than ₹ 2.50 crores as on the date of public auction. However, it was sold for a sum of ₹ 1.20 crores; (v) There were only two bidders and it was in fact, a collusive sale and the same is evident from the difference of price quoted by the successful bidder and the other bidder. The difference was only a sum of ₹ 50,000/-. (vi) The auction notification contains a mandatory clause regarding payment of sale consideration. As per the terms of auction, the bidder should pay the sale amount within thirty days from the date of confirmation, failing which, earnest money deposit would be forfeite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuary 2004. It was only on account of their failure to pay one time settlement amount, the Corporation took possession of the unit, invoking Section 29 of the State Financial Corporation Act. The Corporation subsequently obtained a valuation report from their authorized valuer. The valuer fixed the market value of the property at ₹ 156.43 crores. The Corporation issued a sale notification dated 8 September 2009 and it was published on 16 September 2009. 11. The total extent of property is about 6.12 acres of land and 8722 sq. ft. of factory building besides a tiled roof office building measuring about 3931 sq. ft. Agricultural land to an extent of 0.82.5 hectares was the second item notified for sale. The auction was held on 1 October 2009. 12. The communication sent by the Corporation on 30 October 2009 to the appellant contained the market value of the property. However, the Corporation has not disclosed the fact that the property was sold on 1 October 2010 for a sum of ₹ 1.20 crores. 13. The auction notification does not contain either the market value or the upset price of the property. The auction was subject to certain conditions. TERMS AND CONDITIONS OF AUCTI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 17. The auction was on 1 October 2009. There were only two bidders. The third respondent quoted ₹ 1.12 Crores as against the offer of ₹ 1,01,50,000/ quoted by the other bidder. The sale was confirmed in the name of the third respondent on 2 November 2009. 18.The third respondent initially quoted a sum of ₹ 1,12,00,000/-and it was enhanced later and he has agreed to pay a sum of ₹ 1.20 crores. CONFIRMATION : 19.The order of confirmation dated 2 November 2009 reads thus :- In the tender-cum-public auction sale held at our Office on 01.10.2009 in respect of the subject company's land, building thereon and scrap machinery you have quoted a sum of ₹ 112.00 lakhs as your highest bid on outright payment basis and subsequently enhanced to ₹ 120.00 lakhs (Rupees One crore and twenty lakhs only). Now our Corporation has decided to accept your offer and you are hereby advised to remit the balance bid amount of ₹ 108.00 lakhs along with the sales tax amount for the machinery of ₹ 9760/-totalling to ₹ 1,08,09,760/-after adjusting the 10% bid amount paid by you as detailed below. Sl. No. Receipt No. Date Amount ( Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of ₹ 70 lakhs on 29 December 2009 itself was beyond the prescribed period. It was delayed by 27 days, excluding thirty days time given to make the payment. Subsequently, he has made payment on various dates and the last payment was on 2 December 2010. Therefore, even according to the Corporation, there was a delay of 92 days in making payment. However, very strangely, the Corporation condoned the delay and issued the sales certificate. 25. The issue is whether the auction sale was a nullity. The further question is whether the Corporation was justified in condoning the delay by not taking steps to forfeit the earnest money deposit made by the third respondent in view of the mandatory conditions as contained in the auction notification and the subsequent order of confirmation. 26. The auction notification was very specific that the entire payment should be paid within thirty days. In case the auction notification contains an indication that the time for payment of balance 90% would be extended by the Corporation, there would be more people to take part in the auction. The conditions in the auction notification was reproduced in the order of confirmation also. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation not to present the cheques till he gives permission. The letter reads thus :- From S. Palaniappan, S/o. P. Sengodan, 117, Thillai Nagar, Erode 638001 To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., Erode Sirs, Sub : Submission of cheques in Bank. We have given to you five cheques for an amount of ₹ 98,09,760/-of Axis Bank Ltd., Erode. Details as follows : 1. Cheque No. 057634/30-11-09 ₹ 25,00,000/- 2. Cheque No. 057635/30-11-09 ₹ 25,00,000/- 3. Cheque No. 057636/30-11-09 ₹ 25,00,000/- 4. Cheque No. 057637/30-11-09 ₹ 23,00,000/- 5. Cheque No. 057638/30-11-09 ₹ 9760/- Hereby we request your good self to present all these cheques only after getting permission from our side. And also we agree to pay the interest for the days up to the realization of these cheques. This is for your kind information. Thanking you, Yours faithfully, 33. In the subsequent letter sent by the third respondent on 29 December 2009, again his difficulty to pay the balance amount, less the amount paid on that date was indicated. From S. Palaniappan, S/o. P. Sengodan, 117, Thillai Nagar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also a matter of record that the confirmation order was also given on the said date. The Corporation rejected the request made by the appellant on flimsy reasons. It is an admitted position that the third respondent has not paid the balance sale consideration as on the date on which the request of the appellant was rejected by the Corporation. The Corporation was more interested in concluding the sale in favour of third respondent. That appears to be the reason for the rejection of request made by the appellant to pay the amount quoted by the third respondent and at the same time in extending the time to the auction purchaser to pay the balance amount. The very fact that the Corporation accepted the payment 92 days after the expiry of the period prescribed in the auction notification and the order of confirmation clearly indicates the mala fides and the collusive nature of sale. When there were only two bidders and the amount quoted by them was far below the market value and it was by forming a cartel, the Corporation should have postponed the auction taking into consideration the fact that it was a first sale and that they could make one more attempt to get better price. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the valuation certificate issued by the authorized valuer of the Corporation. The appellant is fully justified in their contention that the Corporation officials colluded with the third respondent and sold the property for a lower amount and accepted the payment even after the expiry of the time stipulated in the order of confirmation. CONCEPT OF RESERVE PRICE : 43. The Supreme Court in Anil Kumar Srivastava v. State of U.P.,: (2004) 8 SCC 671, considered the concept of valuation and upset/reserve price and observed thus :- 11. Before coming to the above challenge, we would like to examine the concepts of "valuation" and "upset/reserve price". In the case of Mc Manus v. Fortescue1 it has been held by the Court of Appeal that in a sale by auction, subject to reserve, every offer/bid and its acceptance is conditional. That the public is informed by the fact, that the sale is subject to a reserve, that the auctioneer has agreed to sell for the amount which the bidder is prepared to give only in case that amount is equal to or higher than the reserve. That the reserve puts a limit on the authority of the auctioneer. He cannot accept a price below the upset/re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the sale. We do not find merit in this argument. In the case of S.J.S. Business Enterprises (P) Ltd. it has been held that the financial corporation, in the matter of sale under Section 29, must act in accordance with the statute and must not act unreasonably. In this case, the Corporation fails on both the counts. It has neither complied with the provisions of sub-sections (1) and (4) of Section 29, nor has it acted fairly. The test of reasonableness has been laid down in the above judgment in which it is held that reasonableness is to be tested against the dominant consideration to secure the best price. Value or price is fixed by the market. In the case of a going concern, one has to value the assets shown in the balance sheet (Datta, S.: Valuation of Real Property, p. 198). In our view, if the object of Section 29 of the Act is to obtain the best possible price then the Corporation ought to have called for the valuation report. 15.... In any event, in this case, we are concerned with the conduct of the Corporation which was required to act in accordance with Section 29 of the 1951 Act and not unreasonably. In this connection, it may further be pointed out that under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase money within time is a mandatory requirement and non-compliance with the Rule renders the sale a nullity and not a mere irregularity. 7. In view of the above, we are of the opinion that the auction-sale of the appellants' property was a nullity, and there was no valid auction-sale. THE OTHER AUTHORITIES : 47. The need to secure best price in public auction was emphasized by the Supreme Court in Chairman and Managing Director, SIPCOT v. Contromix (P) Ltd., (1995) 4 SCC 595. The relevant paragraph reads as follows:- 12.In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer. Public auction after adequate publicity ensures participation of every person who is interested in purchasing the property and generally secures the best price. But many times it may not be possible to secure the best price by public auction when the bidders join together so as to depress the bid or the nature of the property to be sold is such that suitable bid may not be received at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49. The Supreme Court in Bharat Sanchar Nigam Ltd. vs. Telephone Cables Ltd. 2010(3) Scale 36, emphasized the need for the Public Sector Undertakings to ensure fairness in their transaction. The Supreme Court said:: A public undertaking is required to ensure fairness, non-discrimination and non-arbitrariness in their dealings and decision making process. Their action is open to judicial review and scrutiny under the Right to Information Act, 2005. 50. The Supreme Court in Navalkha & Sons v. Ramanya Das, (1969) 3 SCC 537, in the context of "confirmation" of sale observed that it is the duty of the Court to satisfy itself that having regard to the market value of the property, the price offered is reasonable. The Supreme Court said : 6.The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offerer does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble secured assets. (iv) A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms the auction-sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders. (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer. It becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. (vi) The essential ingredients of sale are correct valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them. (vii) Reserve price means the price with which the public auction starts and the auction-bidders are not permitted to give bids below the said price i.e. the minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel for the appellant, during the course of his arguments, submitted that the appellant is prepared to deposit the entire amount paid by the third respondent forthwith. According to the learned counsel, the officials of the Corporation informed them that in case the amount is deposited, it would be adjusted in the loan account and the property would not be released until the entire amount is paid. 56. There is no question of permitting the appellant to pay the amount deposited by the third respondent and to release the property. Interest of the Corporation should also be safeguarded. The plaint filed by the Corporation before the learned District Judge Erode shows that a sum of ₹ 4,79,95,256/-is due from the appellant after adjusting the amount paid by the third respondent. Even according to the appellant, the value of the property has increased considerably and the third respondent was making attempt to sell the property for a sum of ₹ 10 crores. Therefore, there is no point in allowing the appellant to pay the amount deposited by the third respondent. 57. The learned counsel for the appellant while concluding his arguments submitted that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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