M/S. Aurum Electricals India Ltd. vs Madhya Pradesh State Industrial ...
2010 Latest Caselaw 1125 Del

W.P. (C) No. 3275/1998                  1




*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  WRIT PETITION (CIVIL) NO. 3275 OF 1998


                                Reserved on : 13th November, 2009.
%                               Date of Decision : 26th February, 2010.


M/S AURUM ELECTRICALS INDIA LTD.              ..... Petitioner.
             Through Mr.V.P. Chaudhary, Sr. Advocate with Mr.
             Nitinjya Chaudhary, Advocate.

                        VERSUS
MADHYA PRADESH STATE INDUSTRIAL
DEVELOPMENT CORPORATION LTD. & ORS.          ...Respondents.

Through Mr. Naveen Sharma & Ms. Swati Bhusan, Advocates for respondent No. 1.

Mr. R.D. Makheeja & Mr. Manoj Gera, Advocates for respondent No. 2.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in the Digest ?

SANJIV KHANNA, J.:

1. M/s Aurum Electricals India Limited through its Director Mr. Naresh Chand Jain have filed the present writ petition for quashing sale of plant and machinery by the respondent No. 1, Madhya Pradesh State Industrial Development Corporation Limited in favour of M/s Tefco Enterprises, respondent No. 3 in collusion with Madhya Pradesh Financial Corporation, respondent No. 2 and Canara Bank, respondent

No. 4. The petitioners have prayed for a direction that the respondent No. 1 should immediately resume possession of the sold assets. The second prayer made in the writ petition is for direction that the respondent No. 1 should not proceed with the sale of land and building and other properties except and after strictly observing the guidelines laid down by the Supreme Court in Mahesh Chandra versus Regional Manager, U.P. Financial Corporation and Others, AIR 1993 SC 935.

2. The Court while issuing notice by interim order dated 17 th July, 1998 had permitted the respondent No. 1 to invite tenders for the sale of immovable property, but it was directed that the sale would not be finalized. Respondent No. 3 was also restrained from selling, alienating or parting with possession of the machinery sold to them. This interim order was confirmed and directed to continue till the disposal of the writ petition by order dated 28th January, 2003. On the same day Rule was issued and the matter was directed to be shown in the category of regular matters. The writ petition was dismissed for non prosecution on 21st April, 2003 but this order was subsequently recalled on 4th June, 2003 and the writ petition and the interim orders were restored.

3. The guidelines laid down by the Supreme Court in the case of Mahesh Chandra (supra) were overruled and were held to be too widely expressed. In Haryana Financial Corporation and Another versus M/s Jagdamba Oil Mills and Another, JT 2002 (1) SC 482, the Supreme Court examined the provisions of State Financial Corporation Act, 1951 (Act, for short) and Section 29 thereof. It was observed that the financial

corporations are instrumentalities of State dealing with public money and are expected to act fairly but at the same time they are required to recover their dues and when debtors fail to make payment within the scheduled time frame, they are entitled to take action to safeguard their interest. The

financial corporations must act fairly but this doctrine cannot be extended to the

extent of disabling them from recovering what is due and they are not supposed to keep quiet and right off their bad debts or pump in more money at the cost of public exchequer. Decision of the State Financial Corporations can be set aside only if it is in violation of the statute or the Corporation has acted unreasonably. The ratio of the said decision is reiterated in S.J.S. Business Enterprises Private Limited versus State of Bihar and Others, (2004) 3 Scale 374 and Gajraj Jain versus State of Bihar and Others, AIR 2004 SC 3392, where it has been observed that the statutory powers vested in the State financial corporation must be exercised bona fidely and whenever the State Financial Corporation sells property, the object should be to get the highest price after giving adequate publicity which ensures participation of every person who is interested in purchasing the assets. The aforesaid legal principles are fairly well established and in these circumstances I am not specifically referring to and examining other decisions mentioned by the learned counsel for the petitioner in his written submissions.

4. The question raised is whether there has been a violation of the aforesaid principles in the present case. Learned counsel for the petitioner has submitted that the sale of movable assets made by the respondent No. 1 should be set aside for two reasons. Firstly, the unit of the petitioner was taken over without intimation and in violation of principles of natural justice. Secondly, the plant and machinery, i.e., moveable assets worth more than Rs.6 crores, which were in new condition, were sold for only Rs.6 lacs without notice to the petitioner company. No valuation report etc. was called for. Lastly, it was submitted that the respondents should not sell the immovable assets which were worth more than Rs.50 lacs for merely Rs.3.61 lacs as proposed.

5. As far as the last contention is concerned, in view of the interim order passed by the Court, sale of the immovable assets including building has not materialized. The respondent No. 1 will have to re- process the case for sale of immovable land and building. The unit of the petitioner is located on land measuring 5 acres on which the factory building has been constructed. The petitioner claims that it is valued more than Rs.50 lacs but during the course of arguments it was admitted by the counsel for the petitioner that its present market value may not be substantial. However, I need not go into the said aspect as the respondent No. 1 will have to re-process the case for sale of immovable assets. It is open to the petitioner to ask and call upon interested parties to participate and purchase the said assets.

6. Pursuant to agreement dated 24th May, 1988 amongst the petitioner, respondent Nos. 1, 2 and 4, credit facilities were advanced by respondent Nos. 1and 2 to the petitioner. Respondent Nos. 1 and 2 partially agreed to re-pay the finance granted by the respondent No. 4 bank to the extent of Rs.26.79 lacs and till the time of said repayment, the respondent Nos. 1 and 2 had pari passu charge with the bank over some of the hypothecated and other secured assets. After reimbursement of Rs.26.79 lacs, the bank's charge over the machine in the schedule was deemed to be vacated and the machinery treated as hypothecated and charged with the respondent No. 1.

7. In 1990, respondent No. 4 bank filed Suit No. 2801/1990 for recovery of Rs.18,51,548.55 against the petitioner, Mr. Naresh Chand Jain and others as guarantors, alleging default in re-payment of the loan amount and failure to repay amounts advanced pursuant to foreign letter of credit. This suit was subsequently transferred to Debt Recovery Tribunal.

8. The respondent No. 1 had sanctioned a term loan of Rs.86 lacs to the petitioner out of which Rs.80.26 lacs was advanced/released to the petitioner. There was default in repayment of the said loan. Accordingly, the respondent No. 1 through their lawyer had sent written notice dated 21st June, 1993 to Mr. Naresh Chand Jain, Smt. Raj Kumari Shankhwar, Mr. Anil Kumar Dubey and Mr. R.C Mittal and this was followed by another noticed dated 1st August, 1993. In this letter/notice dated 1st August, 1993 it was stated that Rs.1,78,75,283.98 including principal amount of Rs.80,29,000/- was due and payable and the same should be deposited. It was further stated that the respondent No. 1 had decided to recall the loan in view of the said default. Reference was made to the earlier notice dated 21st June, 1993 and some errors were pointed out. This earlier letter dated 21st June, 1993 specifically states that there was a failure to comply with the terms of the agreement and make re-payments and, therefore, respondent No. 1 shall take legal action by taking over and selling the unit under Section 29 of the Act. Admittedly, both these letters were sent by registered post to the registered office of the petitioner company at Village Raipur Karchulian, Rewa (M.P) and also to head office at M-95 IInd Floor, Connaught Circus, New Delhi. Thus, in view of Section 51 of the Companies Act, 1956, the letters are deemed to be served. Reliance can also be placed on Section 28 of General Clauses Act, 1897 and Section 114 of the Evidence Act, 1872.

9. Thereafter, on 14th June, 1994, possession of the unit of the petitioner in district Rewa, Madhya Pradesh was taken over. The panchnama available on the original file shows that the unit was closed and the security guards appointed by the petitioner company were present and had duly signed the panchnama. Photographs of the unit are also

available in the original file along with photographs of the guards posted by the petitioner. Obviously, the petitioner had come to know about taking over of unit at district Rewa, Madhya Pradesh. It is difficult to accept the contention of the petitioner that they were not aware about the action of the respondent No.1 to take over the unit under Section 29 of the Act on 14th June, 1994. The petitioner did not immediately question and challenge the said take over under Section 29 of the Act on 14 th June, 1994. The present writ petition was filed as stated above in 1998. In these circumstances, I reject the first contention of the petitioner that the unit was taken over by the respondent No. 1 on 14 th June, 1994 without notice to the petitioner. In any case, the petitioner did not question and challenge the said taking over and by his conduct has impliedly accepted that the unit was rightly taken over in accordance with law. The petitioner cannot be permitted and allowed to challenge and question the take over after great delay and laches.

10. The second contention raised by the petitioner is in respect of the sale of the plant and machinery for Rs.6 lacs. In the writ petition, the petitioner has alleged that the petitioner had spent about Rs.180 lacs on acquisition of plant and machinery and the present market value, i.e., market value of 1998 would not be less than Rs.2 crores. In the rejoinder affidavit filed by the petitioner, it is stated that the book value of the plant and machinery was Rs.2 crores and the market value on the date when the rejoinder affidavit was filed in the year 2000 would be about Rs.6 crores. Thus, there is a variation in the figures given by the petitioner himself and there is desire to enhance and increase the alleged market value of the plant and machinery. The unit of the petitioner at district Rewa, Madhya Pradesh was closed in 1992 after some labour problem. It is not in operation since 1992. (It is alleged that the unit was closed in

1990). The sale of the machinery was made in April-May, 1998, i.e., after nearly six years of closure. The figures, therefore, given by the petitioner in the writ petition and the rejoinder affidavit are not only contradictory but also highly exaggerated. The petitioner has not filed on record any valuation report or given any basis for making the said valuation. The original file of the respondent No. 1 reveals that after taking possession of the unit, inventory of the entire plant and machinery was prepared. The respondent No. 1 had also sent telegram as well as a letter dated 26th May, 1995 by courier stating, inter alia, that during inspection two imported vitriating and rivitting machines were not available and found in the factory. The petitioner was asked to give whereabouts of the said machines. Along with the counter affidavit, the respondent No. 1 has filed letter dated 14th May, 1992 written by the petitioner admitting that two vitriating and two rivitting machines and a computer control system of transfer press were not found in the unit at the time of inspection and had been sent to Delhi for necessary repairs. It was stated that after repairs, these machines would be received back and commissioning would be done at the site. In the rejoinder, the petitioner has stated that these machines were received back within stipulated time and inspected. However, no document has been filed on record to establish and show that these machines were received back and were re-installed.

11. The respondents had also got the unit valued. As per the valuation report, the entire plant and machinery was valued at Rs.75 lacs. However, the valuer did not give specific valuation of each and every machine separately and has not given any break up of the same. It is an ad hoc valuation. This should have been undertaken but this factor alone cannot help the petitioner. The respondent No.1 has placed on record 14 advertisements taken out by them from 15th August, 1994 onwards to 15th

May, 1998 for sale of assets of the petitioner company. Thus, it is apparent that the respondent No.1 had repeatedly attempted to sell the assets of the petitioner not only once or twice but on 14 different occasions by taking out advertisements over a period of four years. These advertisements have been published in Dainik Bhasker, Nav Bharat, Economic Times, Hindustan Times and M.P. Chronicle. Thus, it cannot be said that the respondent No. 1 had acted in haste or in hurry and did not take care to invite bids and inform public or parties interested in purchase. On the other hand, the respondent No. 1 was too indulgent and took their own time to ensure that they get the best price. The petitioner and others during this period had sufficient time to secure bids and offers from others. Further, after highest bid of Rs.6 lacs was received, Mr. Naresh Chand Jain and four others were informed vide registered letter dated 26th April, 1998. The petitioners were given fifteen days time to make a better offer. By letter dated 11th May, 1998, Mr. Naresh Chand Jain wrote back stating that the machinery was under pari passu charge of Canara Bank and a stay order was passed by the High Court. The relevant portion of the reply reads as under:-

"Since my clients have already been restrained by the order of the Court, there is no question of purchasing the machinery by my client. However my client states that he has got better offer of the machines and plant but due to the order passed by the Hon'ble Court it is not possible to proceed with the sale or transfer or alienate in any manner."

12. The aforesaid reply is clearly vague and discloses intention to delay the sale. No firm or a better offer was made by the petitioner. This reply also does not state that the value of the machinery was much higher or Rs. 2 crores or Rs.6 crores as alleged in the writ petition or the

rejoinder. In case the market value of the plant and machinery was as high as claimed and difference was substantial as argued, the said averment would have been necessarily made in the reply and a counter offer would have been made. In fact, for nearly four years after the unit was taken over, no offer was made by the petitioner or the guarantors. Stay order passed by High Court did not prevent the petitioner or others from making offers for sale of moveable assets. The petitioner has alleged that the advertisements should have been published in newspapers having circulation in South. No such averment has been made in this letter dated 11th May, 1998.

13. I have also seen the photographs available on record at the time when the possession of the factory was taken over. The plant and machinery in the factory was in a bad shape and dust had accumulated.

14. In view of the above, I do not find any merit in the present writ petition and the same is dismissed with costs of Rs.10,000/-.

(SANJIV KHANNA) JUDGE FEBRUARY 26, 2010.

VKR