Trirani Industries Private ... vs West Bengal Financial ...
2021 Latest Caselaw 665 Cal

                       In the High Court at Calcutta
                      Constitutional Writ Jurisdiction
                               Appellate Side

The Hon'ble Justice Sabyasachi Bhattacharyya

                             WPA No. 1371 of 2021
              Trirani Industries Private Limited and others
                                    Vs.
                   West Bengal Financial Corporation


For the petitioners      :      Mr.   Saptangsu Basu,
                                Mr.   Rupak Ghosh,
                                Mr.   Chayan Gupta,
                                Mr.   S.M. Obaidullah,
                                Mr.   Nikhil Kumar Roy,
                                Mr.   N. Bhattacharya

For the respondent       :      Mr.   Jishnu Chowdhury,

Mr. Aritra Basu, Mr. Abhijit Sarkar, Mr. Abhikchitta Kundu

Hearing concluded on : 25.01.2021

Judgment on : 28.01.2021

Sabyasachi Bhattacharyya, J:-

1. Petitioner No. 1-company is engaged in rice mill business. Petitioner

No.2 is a promoter director and petitioner no. 3 an incoming director

and shareholder of the company. The respondent, a statutory

financial corporation, granted a term loan of Rs. 300 lakh and working

capital term loan of Rs. 245.10 lakh to the petitioner no. 1-company

on certain conditions, as per a sanction letter dated April 22, 2015.

2. Petitioner no. 1 set up a rice mill, but subsequently failed to repay

periodical instalments of the loan, prompting the respondent to issue

a notice under Section 29(1), read with Section 30, of the State

Financial Corporation Act, 1951 (hereinafter referred to as "the 1951

Act") for recovery of the loan. As evinced from the minutes of a

meeting held at the factory premises on February 12, 2020 (Annexure

P-8 at page 51 of the writ petition), officials of the respondent-

corporation, upon taking an inventory, took over possession of the

fixed assets of the unit of petitioner no.1 on as-is-where-is basis,

without management and liabilities. Since the unit was found in

running condition, physical possession was not taken by affixing

padlocks. Officials of petitioner no. 1 were appointed as custodians of

the mortgaged/hypothecated assets till any alternative arrangement

was made.

3. Meanwhile, petitioner no. 1, by a letter dated February 7, 2020,

agreed to pay Rs. 25 lakh within February 10, 2020, a further sum of

Rs. 25 lakh within March 15, 2020 and another Rs. 25 lakh within

March 31, 2020, totalling Rs. 75 lakh. It was also indicated that

petitioner no. 3 would come in as a director of the petitioner no.1-

company and will hold 60 per cent share, while the other existing

directors will hold the rest 40 per cent shares. Acceptance by the

respondent of such induction of petitioner no. 3 was also sought in

the letter.

4. However, the payment schedule, as per the letter dated February 7,

2020, could not be adhered to by petitioner no. 1, which paid only Rs.

60 lakh out of the promised Rs. 75 lakh, in the following staggered

manner: Rs. 20 lakh on February 11, 2020, Rs. 10 lakh on February

29, 2020 and Rs. 30 lakh on March 31, 2020.

5. On January 7, 2021, e-auction sale notice was published, in respect

of various units including the petitioners', by the respondent in

newspapers, out of which a Bengali daily having circulation in Kolkata

and West Bengal caught the notice of the petitioners. The auction was

to be held from January 27, 2021 till January 29, 2021. The specific

auction for the unit of petitioner no. 1, which appeared as Lot No. 33

in the list of units to be sold, was to be held on January 29, 2021 (11

am to 3 pm).

6. Being thus aggrieved, the petitioners have challenged the e-auction

sale notice by way of the instant writ petition.

7. Learned senior counsel for the petitioners contends that the 1951 Act

is a beneficial piece of legislation and ought to be construed leniently

in favour of the borrower. Placing reliance on Kerala Financial

Corporation v. Vincent Paul and Another [ (2011) 4 SCC 171 ], counsel

submits that, in the said case, the Supreme Court issued certain

guidelines for sale of properties in the absence of executive

instructions of the State in that regard. Those guidelines, it is argued,

ought to be adhered to by the present respondent too, in the absence

of similar guidelines being issued by the State of West Bengal.

8. Particular reliance is placed on directions (ii), (iii) and (viii), as

appearing in paragraph no. 20 of the report. Those are as follows:

(ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation of the property from an approved

valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:

(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or

(b) by inviting tenders from the public; or

(c) by holding public auction; or

(d) by private treaty.

Among the above modes, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State.

(iii) The authority concerned shall serve to the borrower a notice of 30 days for sale of immovable secured assets.

(viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale would suffer from material irregularity where the debtor suffers substantial injury by the sale.

9. Learned senior counsel for the petitioners submits that none of the

above directions were complied with by the respondent in the present

case.

10. The petitioners rely on the statement of accounts of petitioner no. 3,

the proposed incoming director of the petitioner no. 1-company, and

receipts issued by the respondent, copies of which have been annexed

collectively to the writ petition as Annexure P-9, to show the total

payment of Rs. 60 lakh made on behalf of the company by the third

petitioner.

11. Over and above the aforementioned payments, the petitioners rely on

Annexure P-12 to the writ petition, which are copies of extracts of the

accounts of the petitioner nos. 1 and 2 and Keya Bhattacharjee,

another director of the petitioner no.1-company. Such extracts

indicate cheque withdrawals in favour of the respondent from the said

accounts. Learned senior counsel submits that in view of such

withdrawals being made by the respondent from the accounts of the

petitioner no.1-company and its directors without intimation to the

account-holders, those should be taken into account as payments

made by the petitioners, taking the aggregate of such payments much

above the agreed payment schedule. Thus, it is argued, the

respondent acted illegally and in contravention of its agreement with

the petitioners in putting up the unit of petitioner no. 1 for auction

sale.

12. In reply, learned counsel for the respondent submits that, even as per

paragraph no. 26 of the writ petition, the payments made by the

petitioners were inadequate and late in the context of the letter dated

February 7, 2020 given by petitioner no. 1. Not only were the amounts

of payment deficient in quantum as per the schedule given in the said

letter, those were beyond the fixed time schedule as well.

13. Learned counsel further argues that the letter dated February 7, 2020

did not comprise a concluded agreement at all, being only the

petitioners' version of the decisions taken at the meeting referred to

there. In this context, counsel refers to the transcriptions of

communications annexed at pages 4 to 6 of the Supplementary

Affidavit affirmed on behalf by the petitioners.

14. The first one, an email sent on behalf of the respondent on January

13, 2021, mentioned that the petitioners' proposal for induction of

new directors would be considered by the appropriate authority of the

respondent-corporation on merit basis, subject to making the full

committed payment first and submission of a concrete repayment

programme for the rest amount of loan dues from the petitioners' end,

as discussed on February 7, 2020.

15. The next letter dated January 14, 2021, sent via speed post by the

respondent to the advocate of petitioner no. 1, reiterated that it was

agreed upon in the meeting held on February 7, 2020 that at first the

unit would clear the entire defaulted amount within a stipulated time

(March, 2020) and then induction of new director might be allowed by

the respondent-corporation on merit basis. The unit subsequently

made a part payment of the committed amount but not the full

defaulted amount, for which the corporation did not extend its

permission for induction of new director, which decision was already

informed to the unit at the meeting and recently through e-mail, it

was further mentioned. Since, even after several months elapsed from

the date of commitment, the full committed amount, that is, the

defaulted amount in the loan accounts was not paid, the corporation,

it was stated, had no other alternative but to publish the sale notice.

16. A further e-mail from the respondent dated January 14, 2021

clarified that the previous e-mail dated January 13, 2021 was sent

inadvertently and the same stood cancelled and withdrawn on the

grounds given therein. Such grounds included the failure on the part

of petitioner no. 1 to keep its commitment given at the meeting held

on February 7, 2020.

17. Learned counsel for the respondents submits that the withdrawal

entries of the extracts of bank accounts, annexed at pages 64 to 68 of

the writ petition, were merely adjustments of security deposits on the

failure of petitioner no. 1 to clear off its dues, and cannot be

construed as any payment being made by the petitioners in terms of

the meeting dated February 7, 2020. In fact, it is submitted, the

petitioners have not repaid any amount to the respondent for almost a

year since.

18. Dealing with Kerala Financial Corporation (supra), learned counsel

submits that direction (ii) incorporated in paragraph 20 of the report

has been adhered to in the present case, since the respondent

obtained appropriate valuation of the property from an approved

valuer and consulted with the secured creditor before fixing the

reserve price. Public auction, which is one of the best modes

stipulated in the direction, is being resorted to by the respondent in

the present case.

19. Directions (iii) and (viii), it is contended, would only come into play

after the e-auction was complete and the highest bid came in. Only

then would the respondent-authority be required to serve to the

borrower a notice of 30 days for sale. Reasonable opportunity in

regard to the valuation of the property can only be given once the

highest bid is made, and not on the reserve price, since the sale, and

consequent valuation for such purpose, would depend entirely on the

actual best bid received. Thus, the petitioners' arguments on such

score are premature, the respondent argues.

20. The cardinal question which arises in the instant case is whether the

respondent acted illegally and without jurisdiction in publishing the

impugned e-auction notice.

21. Section 29 of the 1951 Act empowers the State Financial Corporation,

in case of default in repayment of any loan or advance or any

instalment by an industrial concern, to take over the management or

possession or both of the industrial concern, as well as to transfer by

way of lease or sale and realise the property pledged, mortgaged,

hypothecated or assigned to the Financial Corporation. The Financial

Corporation shall have the same rights and powers with respect to

goods manufactured or produced wholly or partly from goods forming

part of the security held by it as it had with respect to the original

goods. Where the Financial Corporation has taken any action against

an industrial concern under the provisions of sub-section (1) of

Section 29, the corporation shall be deemed to be the owner of such

concern, for the purpose of suits by or against the concern, and shall

sue and be sued in the name of the concern.

22. Additionally, Section 30 of the 1951 Act empowers the Financial

Corporation to require any industrial concern to which it has granted

any loan or advance to discharge forthwith in full its liabilities to the

Financial Corporation, inter alia if the industrial concern has failed to

comply with the terms of its contract with the Financial Corporation

in the matter of the loan or advance or if there is a reasonable

apprehension that the industrial concern is unable to pay its debts or

that proceedings for liquidation may be commenced in respect thereof,

or even if for any reason it is necessary to protect the interests of the

Financial Corporation.

23. In the case at hand, the respondent acted fully within its authority, as

conferred by Sections 29 and 30 of the 1951 Act, to issue the notice

under Section 29 (1), read with Section 30, of the 1951 Act. The

impugned publication of e-auction notice was a mere follow-up action.

24. It is admitted by the petitioners that they failed to repay the loan

instalments in time, thereby exposing them to action under Section 29

of the 1951 Act.

25. The petitioners argue that there was an 'agreement' between the

parties in the meeting dated February 7, 2020. However, the version of

the 'agreement', as projected by the petitioners, is contradicted by the

respondent in its communications, via e-mail and speed post, dated

January 13 and January 14, 2021. The said communications

categorically iterate that even the petitioners' request for permission to

induct additional director was to be considered on merit basis, that

too after full payment of the committed amount by the petitioners.

Such full payment, in the respondent's narrative, was to be payment

of the entire 'defaulted amount'.

26. Even if it is assumed that the petitioners' letter dated February 7,

2020 correctly depicted the agreement reached between the parties,

the admitted break-up of payments made by the petitioner no. 1, as

reflected in paragraph no. 26 of the writ petition, was in contravention

of the 'agreement' mentioned in the said letter dated February 7,

2020, both in terms of quantum and time. Whereas the petitioner paid

three instalments of Rs. 20 lakh (on February 11, 2020), Rs. 10 lakh

(on February 29, 2020) and Rs. 30 lakh (on March 31, 2020), the

petitioners' own letter indicated that petitioner no. 1 had to pay three

instalments of Rs. 25 lakh each within February 10, March 15 and

March 31 of the year 2020 respectively. In view of such admitted

default, the respondent cannot be faulted for proceeding with the e-

auction.

27. Let us now consider the petitioners' argument that the withdrawals

made by the respondent from the bank accounts of the petitioner no.

1 and its directors amounted to compliance of the 'agreement' as

mentioned in the letter dated February 7, 2020. Photocopies of the

relevant extracts of accounts have been annexed at pages 64 to 68,

being Annexure P-12, collectively, to the writ petition. The relevant

pleadings in respect of Annexure P-12 are found in paragraph nos. 43

and 44 of the writ petitioner.

28. Paragraph no. 43 contends that the respondent had also encashed the

security deposits pledged by the petitioners in terms of the loan

sanction letter dated April 22, 2015, amounting to Rs. 59,13,630 /-

without caring to take recourse to Section 31 of the 1951 Act.

29. Paragraph no. 44 of the writ petition states that the pledged fixed

deposits were encashed on or about March, 2020 without informing

the petitioners. In that regard, account statements of the petitioner

no. 1 showing encashment of the fixed deposits and due credit being

given to the respondent are said to be annexed and collectively

marked as Annexure "P-12".

30. The above argument is neither here nor there. If Section 31 of the

1951 Act is looked into, the action taken by any officer of the

Financial Corporation thereunder, the section stipulates, is "without

prejudice to the provisions of Section 29" of the Act. Hence the powers

given to Financial Corporations under Section 31 are in addition to,

and not in the alternative for, the rights conferred by Section 29 of the

1951 Act. Hence, even if the respondent has taken any action under

Section 31 (sufficient material is absent on record, though, to

establish such proposition), the same is independent and irrespective

of the e-auction sale pursuant to the notice under Section 29. The

former exercise of power cannot vitiate the latter, since the two

provisions operate separately and independently of each other.

31. That apart, by no stretch of imagination can the encashment of

security, pledged by the petitioners, by the respondents be equated

with payments being made by the petitioners in terms of their own

letter dated February 7, 2020. The encashment of security was in view

of the default committed in repayment of loan on the part of the

petitioners from the respondent's end, and could not be construed as

a 'payment' from the end of the petitioners.

32. On a more basic level, even if the petitioners had satisfied the

payment scheme as reflected in their letter dated February 7, 2020,

the same would not tantamount to clearing off the entire dues on the

loan and hence, could not have precluded the respondent from

proceeding with the e-auction and ensuing sale in any event. The

entire scope of the said letter was that the petitioners requested an

opportunity to induct additional directors and asked the respondent

not to take any adverse action against the factory of petitioner no. 1 as

per the notice under Section 29. The respondent had reiterated that,

for it even to consider the request of induction of new directors, the

petitioner had to clear the entire defaulted amount. In the absence of

any full and final settlement (one time or otherwise) between the

parties with regard to the liabilities of the petitioners on the

repayment of loan, the respondent was free to invoke the provisions of

Sections 29 and 30 of the 1951 Act at any point of time, which they

did.

33. The total amount due and payable by petitioner no.1 was

Rs. 7,29,13,648.98 p. as on January 22, 2020, as per the notice

issued on even date by the respondent to petitioner no. 1 under

Section 29 (1) read with Section 30 of the 1951 Act. Possession of the

unit of petitioner no. 1 was duly taken by the respondent under

Section 29 on February 12, 2020 in the presence of officials of the

petitioner no. 1-company, who were appointed as custodians of the

mortgaged/hypothecated assets "till any other alternative

arrangement is made". Putting up the said assets for sale to realise

the property pledged, mortgaged, hypothecated or assigned, as a

logical conclusion of the process of taking possession, was well within

the rights of the respondent-corporation, as conferred under Section

29 (1) of the 1951 Act itself. After having defaulted in repayment of the

entire loan amount as well as the amount of Rs. 75 lakh, allegedly

agreed by the petitioners to be paid by them, and in view of petitioner

no. 1, through its officials, having participated in the taking over of

possession of the unit-in-question, it does not now lie in the mouth of

the petitioners to challenge the ensuing sale, which is but a logical

corollary of such action of the respondent.

34. As far as the directions issued by the Supreme Court in Kerala

Financial Corporation (supra), the petitioners have no locus standi to

allege violation of direction (ii), which could only be challenged by the

secured creditors, if any. Moreover, no materials have been placed

before court by the petitioners to show contravention of the said

direction.

35. In so far as direction (iii) is concerned, the contemplation of a notice to

the borrower can only happen 30 days prior to the actual sale of

immovable secured assets, and not at the premature stage of

conducting an e-auction. Likewise, direction (viii) of the said report

can only be attracted when the highest bid comes in and the sale is

sought to be made. Such "reasonable opportunity in regard to the

valuation of the property" cannot take place unless the successful

bidder is chosen as a prospective purchaser on a particular valuation.

The reserve price fixed in the sale notice cannot be an indicator of the

actual valuation on which the property will be sold ultimately. The

absence of such an opportunity would vitiate the actual sale, that too

only if the debtor can establish to have suffered substantial injury by

the sale. Hence, the said objection to the sale notice at the e-auction

stage is rather premature.

36. In any event, the petitioners have proved themselves to be habitual

defaulters by resorting to multiple correspondences without disbursal

of any substantial amount even after the alleged agreement dated

February 7, 2020, apart from Rs. 60 lakh, which was paid in three

instalments, the last of which was on March 31, 2020. Thus, the

petitioners cannot qualify for sympathy from the respondent,

particularly since the latter is dealing with public money and

misplaced commiseration on the respondent's part would dent the

public exchequer for an undeserving cause.

37. It can, thus, be safely concluded that there was no illegality or lack of

jurisdiction on the part of the respondent in publishing the impugned

e-auction sale notice dated January 7, 2021.

38. Accordingly, WPA No. 1371 of 2021 is dismissed on contest without,

however, any order as to costs.

39. Urgent certified copies of this order shall be supplied to the parties

applying for the same, upon due compliance of all requisite

formalities.

( Sabyasachi Bhattacharyya, J. )