M/S Royal Star Trading Company vs Ifci Ltd. & Anr
2011 Latest Caselaw 3361 Del

            *IN THE HIGH COURT OF DELHI AT NEW DELHI

                                             Date of decision: 15th July, 2011
+                  W.P.(C) 4944/2011 & CM No.10007/2011 (for stay)

         M/S ROYAL STAR TRADING COMPANY           ..... Petitioner
                      Through: Mr. N.K. Kaul, Sr. Adv. with Mr.
                               Vikram Mehta, Adv.

                                   Versus

         IFCI LTD. & ANR                                   ..... Respondents
                       Through:           Mr. Suresh Dutt Dobhal & Mr.
                                          Rahul Tyagi, Advocates for R-1.

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1.       Whether reporters of Local papers may                     No
         be allowed to see the judgment?

2.       To be referred to the reporter or not?             No

3.       Whether the judgment should be reported            No
         in the Digest?

RAJIV SAHAI ENDLAW, J.

1. The respondent no.1 IFCI in the months of January/February invited

tenders for the sale of land, building, plant and machinery including

miscellaneous and other assets of Telephone Cables Ltd. (TCL). It was

represented in the Notice Inviting Tender (NIT) that respondent no.1 IFCI

was the secured creditor of TCL and having right/power to sell the assets

of TCL after acquisition under the provisions of Securitization and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 (SARFAESI Act). The NIT mentioned the reserve price of

various lots and required 10% of the reserve price to be deposited by way

of earnest money along with tender, 25% of the bid amount to be paid on

acceptance of the offer and remaining 75% of the sale price to be paid on

or before 15th day of issuance of letter of acceptance of highest bid. The

possession of the assets was promised to be delivered within 30 days from

the date of receipt of full sale consideration.

2. The petitioner in February, 2011 submitted its bid of `222 lacs for

the lot of plant and machinery and other assets, the reserve price whereof

was `217 lacs.

3. The bid aforesaid of the petitioner was accepted and the petitioner in

accordance with the terms aforesaid of NIT, by 9 th March, 2011 deposited

the entire sale consideration of `222 lacs with respondent no.1 IFCI.

4. The grievance of the petitioner is that notwithstanding payment of

the entire sale consideration, neither Certificate of Sale nor possession as

promised was delivered to it leading the petitioner to cancel its bid. Letters

dated 5th April, 2011 and 19th April, 2011 were written by the petitioner to

respondent no.1 IFCI seeking refund of the entire sale consideration.

5. It is the case of the petitioner that it subsequently learnt that TCL

had filed an application before the Debt Recovery Tribunal (DRT)

challenging the action of respondent no.1 IFCI under the SARFAESI Act;

the said application was pending on the date of the NIT; the petitioner

claims to have further learnt that TCL had also preferred a writ petition in

the Punjab & Haryana High Court and vide order dated 15th February,

2011 i.e. prior to the opening of the bids on 18 th February, 2011 and

demand for 25% of the bid amount, respondent no.1 IFCI had been

restrained from confirming the sale. The petitioner claims to have also

learnt that respondent no.1 IFCI on 19th April, 2011 filed an application

before the DRT seeking permission to confirm the sale in favour of the

petitioner and which application is still pending consideration and listed

next on 19th July, 2011. The petitioner claims that neither were the said

facts disclosed in the NIT nor at the time of acceptance of the bid nor at the

time of receipt of entire sale consideration from the petitioner; that had all

the said facts been disclosed, the petitioner would not have bid and/or

deposited amounts in terms of NIT.

6. The petition also discloses that the respondent no.1 IFCI also got

filed from the petitioner in April, 2011 through a lawyer engaged by the

respondent no.1 IFCI only an application before the DRT seeking

appropriate directions. The senior counsel for the petitioner has contended

that the petitioner having deposited the entire sale consideration and upon

being told that filing of the said application would expedite the matter, had

without seeking independent legal advice acted at the behest of the

respondent no.1 IFCI; however subsequently when it obtained legal advice

it was advised that the confirmation of sale and the delivery of the goods

for which entire sale consideration has been paid may take considerable

time.

7. Hence the present writ petition has been filed seeking mandamus to

respondent no.1 IFCI to refund the amount of `222 lacs together with

interest at 18% per annum from the date of deposit till the date of payment.

Mandamus is also sought against the respondent no.2 Reserve Bank of

India (RBI) to take stringent action against the respondent no.1 IFCI for

the malpractices practiced by it.

8. The senior counsel for the petitioner has contended that the

respondent no.1 IFCI in the NIT had represented that it was having

right/power to sell the assets and to issue the Sale Certificate and to deliver

possession thereof and concealed from the petitioner and other bidders that

the application of TCL was pending before the DRT or that the Punjab &

Haryana High Court had restrained respondent no.1 IFCI from confirming

the sale. It is urged that non-disclosure of such relevant facts goes to the

root of the matter and amounts to fraud on the part of respondent no.1 IFCI

rendering the entire tender process void at the instance of the petitioner. It

is argued that respondent no.1 IFCI ought not to have received the sale

consideration from the petitioner, to the prejudice of the petitioner and/or

in any case upon the petitioner demanding back the same, ought to have

immediately refunded the same and is withholding the same without any

valid justification. Reliance is placed on Capital Hotel and Developers

Ltd. Vs. DDA MANU/DE/0810/2004 where this Court held that the DDA

being a public authority, as respondent no.1 IFCI also is, owed a duty to

inform the auction bidders about the pendency of litigation and it was for

the bidders to consider whether the same was a cloud on the title or not;

that such information cannot be hidden. It was further held that if buying a

property means buying a law suit, the vendor cannot say to the purchaser

that the purchaser is bound to go forward with the transaction and it is open

to the purchaser to say that non-disclosure of the fact is a material defect

and that the bidder is entitled to annul the transaction. Reference in this

regard was made to Section 55 of the Transfer of Property Act, 1882 and it

was held that even if there was no impediment to the transfer, the cloud

arising from pendency of litigation entitled the purchaser for disclosure of

such information and non-disclosure would give a right to the purchaser to

back out of the transaction. Accordingly mandamus directing refund of the

amounts deposited by the bidder along with interest was issued.

9. The counsel for the respondent no.1 IFCI appears on advance notice.

The pleas/arguments aforesaid of the petitioner being all based on

documents and which are not disputed, the counsel for the respondent no.1

IFCI has been heard. It was felt that if the petition is expeditiously

disposed of and money refunded to the petitioner, the other prayer of the

petitioner for a direction to the respondent no.2 RBI or to any other

authority for investigation into the suppression and fraud practiced by the

respondent no.1 IFCI and its officials need not be looked into.

10. The counsel for the respondent no.1 IFCI with reference to the

application filed by the petitioner before the DRT has contended that the

petitioner is not entitled to the relief claimed in this petition. However a

perusal of the said application copy whereof has been filed by the

petitioner itself shows that all that the petitioner stated therein was that the

petitioner had paid the entire sale price to the respondent no.1 IFCI. The

petitioner in the said application no where admitted that it was aware of the

pendency of the application/objection of TCL or of stay by the Punjab &

Haryana High Court against confirmation of sale.

11. There is no dispute that the admitted facts aforesaid were not

disclosed in the NIT. Though the counsel for the respondent no.1 IFCI has

sought to argue that the petitioner had participated in the auction with

knowledge thereof but there is no document in that respect. Moreover, the

same does not affect the obligation of IFCI under Section 55 of Transfer of

Property Act as held in Capital Hotels and Developers Ltd. (supra) from

making the disclosure and which disclosure was not made. Not only so,

the respondent no.1 IFCI at least on the date of opening of the bid and on

the date of receipt of final installment of bid/sale consideration from the

petitioner was fully in the know that inspite of receipt of the same, it would

not be in a position to deliver Sale Certificate or possession of the

auctioned plant and machinery to the petitioner within 30 days as promised

in the NIT. The respondent no.1 IFCI ought not to have accepted the

balance sale consideration at least from the petitioner; acceptance of

balance sale consideration is clearly to undue enrichment of respondent

no.1 IFCI and to the prejudice of the petitioner. The petitioner was thus

fully justified in demanding back the money and the action of the

respondent no.1 IFCI in notwithstanding the said demand not refunding the

amounts to the petitioner cannot be justified.

12. In the circumstances, need is not felt to call for the counter affidavit

of respondent no.1 IFCI and respondent no.1 IFCI is held liable to

immediately refund the sum of `222 lacs to the petitioner.

13. The senior counsel for the petitioner has pressed for interest from the

date of deposit and till the date of refund. The said demand is also found

to be justified. Interest was so awarded in Capital Hotel and Developers

Ltd. (supra) also. However opportunity needs to be given to the

respondent no.1 IFCI to file counter affidavit on the aspect of interest.

14. It has been suggested to the senior counsel for the petitioner that

subject to the principal amount being refunded immediately, the petitioner

may consider giving up the claim for interest. The senior counsel for the

petitioner on instructions has fairly stated that subject to the entire

principal amount with legal costs being paid to the petitioner within ten

days of today, the petitioner would not press the claim for interest. It is

clarified that if amount and costs are not so paid, petitioner will press for

interest.

15. The aforesaid reasonable and fair stand of the petitioner is found to

be in the interest of respondent no.1 IFCI also.

16. The writ petition is accordingly disposed of with the following

directions:-

(i) Subject to the respondent no.1 IFCI refunding to the petitioner

the entire amount of `222 lacs received from the petitioner

within ten days from today i.e. on or before 26 th July, 2011

together with legal costs assessed at `50,000/-, the claim of

the petitioner for interest against respondent no.1 IFCI and for

investigation into the conduct aforesaid of IFCI and its

officials shall stand abandoned/waived;

(ii) However if respondent no.1 IFCI does not pay the aforesaid

amount within time as aforesaid to the petitioner, the

petitioner besides being entitled to seek action for violation of

the orders of this Court by respondent no.1 IFCI/its officers,

shall be entitled to also press for interest and for the relief of

investigation into the conduct aforesaid of respondent no.1

IFCI, by filing application for revival of this petition.

RAJIV SAHAI ENDLAW (JUDGE) JULY 15, 2011 bs