M/S. Ashoka Industries Ltd vs Orissa State Financial ...
2022 Latest Caselaw 1683 Ori

                   IN THE HIGH COURT OF ORISSA AT CUTTACK
                                    W.P.(C) No.8927 of 2007

            M/s.   Ashoka         Industries      Ltd., ....               Petitioner
            Bhubaneswar
                                                     Mr. S. K. Sarangi, Advocate
                                    -versus-
            Orissa State Financial Corporation, ....       Opposite Party
            Cuttack
                                               Mr. A. Patnaik, Advocate

                       CORAM:
                       THE CHIEF JUSTICE
                       JUSTICE B. P. ROUTRAY

                                         ORDER

07.03.2022 Order No.

05. 1. Aggrieved by the Orissa State Financial Corporation (OSFC) holding on to the possession of a property mortgaged with it by the Petitioner, despite the Petitioner discharging all its liabilities owed to the OSFC, the Petitioner has filed the present petition.

2. Notice was issued in this petition way back on 28th September, 2007 i.e. more than 14 years ago. A last opportunity was granted to the OSFC to file a reply on 5th January, 2018. Despite this, till date no reply has been filed by the OSFC.

3. Resultantly, the facts averred in the present petition, which will be narrated hereafter, has remained uncontroverted.

4. The Petitioner, intending to set up a hotel industry in Goutam Nagar, Bhubaneswar, approached the OSFC for a term loan of Rs.30 lakhs. This was sanctioned to it by the OSFC on or about 18th March, 1981. As a security for repayment of the loan, the hotel

properties were mortgaged in favour of the OSFC on 23rd June, 1981. For completion of the project, the Petitioner had to borrow loans from certain other financial institutions and banks. Separate mortgages were created in favour of such institutions over the land and building on different dates. All the financiers entered into a pari passu agreement with the consent of the Petitioner on 21st March, 1987.

5. Admittedly, the Petitioner was in default of repayment of the loan to OSFC which then invoked Section 29 of the State Financial Corporations Act, 1951 (SFC Act) and took over possession of the hotel on 12th February, 1988. According to the Petitioner, without calling for public offers, the hotel was handed over by OSFC to M/s. New Kenilworth Hotels Pvt. Ltd. (NKHPL), fixing the period of licence as 10 years at an annual licence fee of Rs.27 lakhs.

6. Aggrieved by the above action, the Petitioner filed OJC No.859 of 1988 in this Court. In reply to the said petition, OSFC stated on affidavit that under a leave and licence agreement, the hotel had been handed over to NKHPL for a period of 10 years and that it was a purely interim arrangement not amounting to a transfer by way of sale or lease. The aforementioned writ petition was disposed of on 12th May, 1989 upholding the action of the OSFC. However, the handing over of the hotel under leave and licence agreement was quashed. A direction was issued to OSFC to hand over the vacant premises to the Petitioner on the same terms and conditions for one year subject to Petitioner paying Rs.30 lakhs per annum as against the agreed licence fee of Rs.27 lakhs per annum.

7. OSFC then filed Civil Appeal No.3781 and 3782 of 1989 in the Supreme Court of India. The appeals were disposed of on 6th September, 1989 upholding the contention of OSFC and setting aside the order of the High Court quashing the leave and licence agreement. The case of the Petitioner is that despite it being subsequently ready to discharge its entire liability owed to the OSFC and redeem the mortgage, OSFC advertised the assets for sale. This was challenged in this Court by the Petitioner by filing OJC No.4047 of 1989.

8. The said writ petition was disposed by this Court of on 16th September, 1991 holding that the action under Section 29 of the SFCs Act does not put an end to the mortgage. The right of the mortgager to redeem the mortgage also was held to survive. Civil Appeals 7379 and 7381 of 1994 filed by NKHPL against the aforementioned judgment was disposed of by the Supreme Court by holding that the fiction of law under Section 29 of the SFC Act does not have the effect of wiping out the statutory right of redemption under Section 60 of Transfer of Property Act (TP Act). It was held that the right of the mortgager to redeem the mortgage subsists.

9. It is contended by the Petitioner that despite the above orders, OSFC refused to accept the Petitioner's offer to clear the dues. A joint meeting was convened by the financiers on 20th July, 1994 and in partial modification of the pari passu agreement dated 21st March, 1987, it was agreed that the Petitioner would settle the dues of each individual financial institution separately and deposit the amount settled with IPICOL and OSFC in the shape of Demand

Drafts in a separate no lien account. The Petitioner also had agreed to pay the Allahabad Bank and the Vijaya Bank separately.

10. The Petitioner states that OSFC demanded from it Rs.26,24,026.37 consequent to a Board meeting of the OSFC. The said amount was deposited with the OSFC by the Petitioner on 29th July, 1994. Despite this, the property was still not handed over to the Petitioner. On 28th February, 1995, the said amount was returned without interest by the OSFC stating that it was not able to return the possession of the property.

11. The Petitioner states in para 30 of the petition that it deposited Rs.25 lakhs by way of post dated cheque and cash on 10th June, 1998 and possession was handed over by OSFC to the Petitioner after taking possession from NKHPL. A copy of the said ledger showing the full clearance of the loan has been enclosed as Annexure-13.

12. It is stated that despite this, the OSFC did not grant a No Dues Certificate. On 7th August, 2004, OSFC is stated to have re-cast the loan ledger and calculated the amount receivable from the Petitioner as Rs.11,55,303.53. The Petitioner protested against this recalculation on 14th August, 2004 and asked OSFC to properly recast the ledger if necessary with the assistance of an independent audit firm. According to the Petitioner, at a meeting held on 18th March, 2005 in the office of the Commissioner-cum-Secretary, Industries Department, Government of Orissa, it was revealed that OSFC had arrived at a sum of Rs.35,19,831.19 as owing to the

Petitioner as on 31st October, 2004. OSFC had decided to freeze the interest as on 31st October, 2004.

13. The Petitioner again challenged the correctness of the above decision by pointing out that Rs.3 Crores was an accepted liability of the OSFC to the Petitioner on account of wrongful deprivation of the possession of the hotel. On 15th March 2007, the OSFC forwarded to the Petitioner a No Dues Certificate. According to the Petitioner, "the license fee being Rs.27,00,000/- p.a. the entire outstanding of Rs.38,99,209.04 paisa as on 31.12.1987 and simple interest @ 14 % on the principal outstanding of Rs.30,00,000/- for the period from 01.01.1988 till 30.09.1990 would have been fully satisfied by 30.09.1990." It is stated by the Petitioner that only to bestow unlawful gain on NKHPL, OSFC distributed the license fee received to IPICOL, Allahabad Bank and Vijaya Bank in the garb of the pari passu arrangement thereby prolonging the possession of itself and its agent NKHPL beyond the period of the leave and licence.

14. Invoking Section 76 (h) of the TP Act, which talks of the liabilities of a mortgagee in possession, the Petitioner contends that OSFC as mortgagee "was in possession personally by itself through its agent and as such a fair occupation rent which is equal to Rs.27.00 lakh per year is liable to be appropriated in terms of clause (h) of Section 76 of Transfer of Property act and the surplus shall be refunded to the mortgagor, i.e. the Petitioner with interest."

15. It is then contended that "the fair rent which could be quantified due to self occupation of the mortgagee Corporation through its

agent is not an income on enforcement of security as envisaged in the pari passu agreement as the property was not converted to cash either by sale or lease as provided u/s 29 (1) of the SFCs Act and hence the same is not distributable to other co-financiers either under sub-section (4) of Section 29 nor under the paripassu agreement."

16. Accordingly, it is contended that OSFC "is liable to refund the interest charged from 1.10.1990 to 10.06.1998 along with interest at 18% p.a. from 1.10.1990 till refund of the said amount in addition to refund of the fair rent ascertainable due to self occupation of the mortgaged premises through its agent amounting to Rs.3,11,81,740.29p as on 30.06.1999 and interest there on @ 18 % p.a. till full refund."

17. As pointed out earlier, during the 14 years of pendency of the present petition, no reply has been filed by the OSFC to counter any of the above assertions. There has also been no reply by the OSFC to the notice sent by the Petitioner to it on 18th June, 2007 claiming the above amount of Rs.3,11,81,740.29.

18. Mr. S. K. Sarangi, learned counsel for the Petitioner states that the Petitioner would be satisfied if a direction is issued to the OSFC to refund the above amount together with whatever reasonable interest as may be ordered by this Court.

19. With none of the above averments being contradicted by the OSFC, the Court issues a direction that OSFC will pay the Petitioner the aforementioned sum of Rs.3,11,81,740.29 together with simple interest @ 6% per annum from the date of filing of the

petition i.e. 20th July, 2007 till the date of payment, which in any event shall not be later than 9th May, 2022. If the payment is not made by that date, the Petitioner will be entitled to simple interest @9% per annum on the aforementioned sum for the period of delay.

20. The petition is disposed of in the above terms with no orders as to costs.

(Dr. S. Muralidhar) Chief Justice

(B. P. Routray) Judge M. Panda