State Of U.P. & Ors vs M/S. Swadeshi Plytex Ltd. & Ors

CIVIL APPEAL No.......................OF 2008

(arising out of SLP (Civil) No. 21002 of 2006)

State of U.P. & Ors. ......Appellants

Vs.

M/s. Swadeshi Polytex Ltd. & Ors. .....Respondents

WITH

C.A.No............/2008 @ SLP (C) No.3272/2006

JUDGMENT

HARJIT SINGH BEDI,J.

1. Leave granted.

2. Respondent No.1, M/s. Swadeshi Polytex Limited

(hereinafter referred to as "SPL") a company registered

under the Companies Act, 1956 and presently a sick unit

has its registered Office at Kavi Nagar, Industrial Area, 2

Ghaziabad. Concededly approximately 33% of the shares

of the SPL are held by Swadeshi Cotton Mills Limited,

Kanpur (a unit of the National Textile Corporation, a

Government Enterprise) about 28% and 15% by M/s.

Paharpur Cooling Towers Limited and some financial

institutions respectively, and the remaining 23% or so by

the general public. It is on record that the CMD of the

National Textile Corporation Ltd. is holding the charge of

SPL and steps are underway for the rehabilitation of the

company. It appears that till year 1996-97, SPL was

doing reasonably well whereafter a financial crisis seems

to have set in, forcing its closure on 30th September

1998. As SPL was unable to pay the wages due to its

employees, several applications were filed by its

workmen under the provisions of the Uttar Pradesh

Industrial Peace (Timely Payment of Wages) Act, 1978

(hereinafter called the 1978 Act). A recovery certificate

was thereafter issued under sub-section (1) of Section 3

of the 1978 Act and pursuant thereto, the Company was

called upon to make good the wages due to the workmen 3

and on its inability to do so, the authorities proceeded to

recover the amounts due as arrears of land revenue. A

report was thereafter submitted by the Amin on 7th

January 2005 which was endorsed by the Sub-Divisional

Magistrate, Ghaziabad in his communication dated 10th

February 2005, whereupon an attachment notice in

Form 73-D was issued and a proclamation for the sale of

the property on 23rd February 2005 was also ordered.

The proclamation was however cancelled by the SDM,

Ghaziabad and on re-consideration, an order dated 1st

April 2005 was passed and the Tehsildar, Ghaziabad was

directed to hold the auction on 2nd May 2005 after giving

wide publicity and after the properties had been properly

valued. A fresh proclamation was accordingly issued by

the Sub-Divisional Magistrate, Ghaziabad on 1st April

2005 itself, without disclosing the details of the

properties or their estimated value as also the date of the

auction. An auction notice was, however, published in

"Amar Ujala" on the 22nd April 2005 indicating that the

estimate value of the properties was about 27 Crores and 4

that the transfer of the property pursuant to the auction

would be made on the terms and conditions stipulated

by the U.P. State Industrial Development Corporation

(hereinafter called the UPSIDC) the present appellant. It

is also the case of the appellant herein that the personal

service of the sale proclamation was also made on the

Chowkidar of the SPL on 21st April 2005. The auction

was in fact held on the stipulated day i.e. 2nd May 2005

and the UPSIDC was found to be the highest bidder. The

recovery certificate issued by the Deputy Labour

Commissioner and the auction notice dated 22nd April

2005 was challenged by SPL by way of Writ Petition No.

35005 of 2005 referring to the irregularities in the

issuance of the sale proclamation and the auction notice

and it was prayed that the proceedings be quashed. A

reply was filed in response to the Writ Petition but the

petition was ultimately dismissed with the observation

that repeated attempts to recover the dues had failed on

account of the recalcitrant attitude of SPL and that the

procedural defects which had been pointed out could be 5

challenged by filing objections under Rule 285 (i) of the

Uttar Pradesh Zamindari Abolition & Land Reforms

Rules, 1952 (hereinafter called the "Rules"). Several

objections were accordingly filed with respect to the

auction and the preceding events, but the Commissioner,

Meerut Division, in his order dated 24th June 2005

dismissed the objections. Aggrieved by the order dated

24th June 2005, SPL preferred a revision petition before

the Board of Revenue under section 293 of the U.P.

Zamindari Abolition and Land Reforms Act, 1950

(hereinafter called the "Act") read with Section 219 of the

Land Revenue Act but this petition too was rejected by

order dated 9th September 2005. This order was

challenged before the Lucknow Bench of the Allahabad

High Court in Writ Petition No.5160/2005 and it was

prayed, inter-alia, that the aforesaid order and the order

dated 24th June 2005 be set aside and that the entire

auction proceedings dated 2nd May 2005 be quashed.

The High Court in its interim order dated 20th September

2005 directed the SPL to deposit a sum of Rs.50 Lacs 6

within a period of 30 days and in the meanwhile, directed

that the sale be not confirmed. Aggrieved by the order

dated 20th September 2005, the employees of the SPL

filed a Special Leave Petition and in its order dated 5th

December 2005, this Court directed that if the writ

petition was not disposed of in the course of the week,

the interim order passed by the High Court would stand

vacated. The High Court, however, in its judgment dated

3rd January 2006 allowed the writ petition with costs of

Rs.50,000/- and also passed strictures against the

officers of the State Government who had been

instrumental in arranging the auction. It is against this

order that three Special Leave Petitions have been filed

which are SLP (Civil) No.3272/2006 (U.P. State

Industrial Development Corporation & Anr. Vs. M/s.

Swadeshi Plytex Ltd. & Ors.), SLP (Civil) No.2858/2006

(M/s. Swadeshi Polytex Ltd. Karamchari Kalyan Sangh

vs. M/s. Swadeshi Polytex Ltd. & Ors.) and SLP (Civil)

No.21002/2006 (State of U.P. & Ors. Vs. M/s Swadeshi

Polytex Ltd. & Ors). All these matters are being disposed 7

of by this judgment with the basic facts being taken from

the first mentioned appeal.

3. The learned Single Judge, at the very first instance, dealt

with the preliminary objections raised during the course

of the hearing that in view of the Division Bench

judgments of the High Court dated 13th January 2005,

4th May 2005 and 26th May 2005, it was not open to the

SPL to contend at this stage that the recovery

proceedings including the procedure adopted was not

maintainable in law. The Court observed that W.P.

No.50571/2002 had been filed by M/s. Paharpur Cooling

Towers Pvt. Ltd. and Ors. in which SPL had been arrayed

as respondent No.6 and the proceedings relating to the

issuance of the recovery certificates by the Deputy

Labour Commissioner under sub-section (1) of Section 3

of the 1978 Act had been questioned, but the Division

Bench had dismissed the Writ Petition observing that as

the petitioner therein i.e. M/s. Paharpur Cooling Tower

Pvt. Ltd. was pursuing the matter with the Company

Law Board and had availed of an alternative remedy, the 8

writ petition was not maintainable. The Court also

observed that the matter had been taken by M/s.

Paharpur Cooling Towers Ltd to the Supreme Court and

an interim order dated 7th February 2005 had been made

directing the petitioner to deposit a sum of Rs.5/- Crore

in favour of the Registrar General of this Court, but this

amount had not been deposited and the Special Leave

Petition had been dismissed on 24th February 2005. The

Court accordingly held that in this view of the matter, it

was clear that no order against SPL had been made by

this Court in the above mentioned SLP. The learned

Judge then went into the scope and effect of

W.P.No.35005/2005 filed by SPL impugning the auction

notice dated 22nd April 2005 and observed that this

petition had been dismissed with the observation that it

would be open to SPL to avail of the alternative remedy

available under rule 285(i) of the Rules. The Bench also

noted that the third writ petition, filed by one Jitendra

Khaitan (Writ Petition No.36736/2005) once again

challenging the validity of the auction notice dated 22nd 9

April 2005 had been filed and this writ petition too had

been dismissed with the observation, inter-alia, that in

the light of the order in Writ Petition No.35005/2005, the

petitioner herein could also avail the alternative remedy

by filing objections under rule 285(i) of the Rules. The

Court accordingly rejected the prayer of the respondents

before it that in view of the aforesaid writ petitions, the

writ petition was not maintainable. The Court then

examined the submission as to whether the procedure

envisaged for recovery of arrears under the Act and the

Rules had been observed and in case they had been

breached, the effect thereof and after examining the

various provisions threadbare, held that the Act and

Rules prescribed a procedure for the recovery of arrears

of land revenue and that before a recovery certificate

could be issued, the defaulter was required to be

effectively served, that the Rules in question were

mandatory and required strict compliance and in

conclusion highlighted that there was no material on

record to show that any attempt had been made to serve 10

the demand notice on SPL, and service on the Chowkidar

was clearly not proper service on the defaulter. The

Court also observed that auction sale was liable to set

aside for the additional reason that a clear 30 days notice

of the proposed auction had not been given even if the

service on the Chowkidar was held to be appropriate.

The Court also held that the sale proclamation issued on

2nd May 2005 was not valid and did not comply with the

provisions of rule 285, 286 and 283 of the Rules and that

the proclamation that had been issued was only of

Rs.1.10 Crores and did not provide for the full amount as

envisaged under rule 245, which provided an

opportunity to the defaulter to make good the payment

so as to avoid the sale of the property. The Court also

held that on facts, it was impossible for the auction-

purchaser i.e., the UPSIDC to have procured the Bank

Drafts from the Punjab National Bank, Kanpur on the

day of the auction so as to make the deposit of the 25%

of the sale price at the fall of the hammer as the auction

had been conducted at Meerut, about 460 Kms. away 11

from Kanpur and that the balance 75% of the amount

due on the auction had also been deposited late i.e. on

18th May 2005 which again was contrary to rule 285-D of

the rules. The Court also observed that it appeared that

the property had been sold at a price far below its market

price and in conclusion, passed strictures against the

district authorities which had conducted the auction and

sale of the property in question thus quashing the order

dated 9th September 2005 passed by the Board of

Revenue, the order dated 24th June 2005 of the

Commissioner as well as the auction sale proceedings

dated 2nd May 2005 conducted by the Tehsildar,

Ghaziabad with costs of Rs.50,000 and all consequential

relief, and a direction that it would be open for the State

Government to recover the costs from the salary of the

officers who were responsible "for the auction of the

property in question in such unruly manner" by holding

an enquiry and that the Chief Secretary was advised to

take appropriate action against the defaulting officers. 12

4. Before we embark on an examination of the contentions

raised by the learned counsel for the parties, we deem it

appropriate to refer to certain supervening and material

factors. It is the admitted position that the workmen at

whose instance the initial process of sale of the property

had been initiated, have entered into an agreement dated

3rd January 2008 with SPL and the entire due amount

due to them and something more has since been paid. It

is also clear that the auction-purchaser is the UPSIDC,

which is a Government agency and is the owner of the

land over which the super-structure of SPL has been

built.

5. In this background, the learned counsel for the

appellants has submitted that the findings recorded by

the High Court were erroneous as it was clear from the

record that despite numerous opportunities given to SPL

to make the payments due to their own workmen, no

serious attempt had been made to do so and that on the

contrary, every attempt had been to forestall the

payment. It has been pointed out that the had suddenly 13

woken up to its obligations and made full payment after

the decision in the writ petition to take advantage of the

huge spurt in the price of real estate in Ghaziabad and

the surrounding areas. It has been pleaded that there

was absolutely no irregularity in the procedure relating

to the auction and the finding of the High Court that the

sale price appeared to be undervalued was also not

based on any relevant material. It has also been pleaded

that no substantial injury had been caused to SPL, as

the recovery certificate initially had been issued in the

year 2002 and had been challenged by the associates of

SPL or by SPL itself and despite the fact that in the case

of the SLP filed by M/s. Paharpur Cooling Towers Ltd.,

this Court had directed that a sum of Rs.5 Crore be

deposited before the Registrar General, the order had not

been complied with and the SLP had been dismissed

proving a lack of intention on the part of the SPL or its

associates to make the payment. It has finally been

pleaded that the UPSIDC had deposited a sum of

Rs.32.20 Crores in May 2005 and the sale had thereafter 14

been confirmed in its favour and the possession

transferred, and that if this amount plus interest of 18%

was taken into account, the amount now due to the

appellant would be almost 48 Crores, in case the order

was to be set aside.

6. The learned counsel for the respondents have, however,

supported the judgment of the High Court. It has been

especially emphasized that the workers due having been

discharged by SPL, it did not lie on the State Government

or a State Government undertaking, the appellant

herein, to still pursue the matter doggedly in this Court.

It has been reiterated that the property in question had

not been properly valued, as provided by rule 283 of the

Rules and that the notice of the proclamation has also

not been served on the SPL or on any of its functionaries

and had in fact been served to the Chowkidar and that

too, about a week before the auction whereas a minimum

notice period of 30 days ought to have been given. It has

further been pleaded that the auction purchaser i.e., the

UPSIDC had not deposited 25% of the sale price and/or 15

the balance of 75% of the amount within 15 days, as

required under rule 245 of the Rules and this too was a

ground which was relevant in determining the propriety

of the sale of the auction.

7. As would be clear, the arguments pressed by the learned

counsel for both the sides pertain to the procedure

adopted for the auction. Sub-section (1) of Section 3 of

the 1978 Act provides that in case the occupier of an

industrial establishment is in default of payment of

wages in excess of Rs.50,000/-, the Labour

Commissioner may forward to the Collector a certificate

under his signatures specifying the wages due from the

establishment concerned and that the Collector shall

accordingly proceed to realize the amounts due as

arrears of land revenue. Admittedly the recovery

certificate had been issued and sent to the Collector,

Ghaziabad by the Labour Commissioner under section 3

(1) and it is in this situation that the proceedings against

the SPL had been set in motion. Section 279 of the Act

provides for the recovery of arrears of land revenue by 16

various methods including an attachment and sale of the

immovable property of the defaulter in respect of the

arrears due. Section 280 stipulates that as soon as the

land revenue had become due, a writ of demand may be

issued by the Tehsildar calling upon the defaulter to pay

the amount within a specified time and under section

284, the property of the defaulter may also be attached.

Section 327 provides for the modes of service of the

notice on the defaulter and reads as under:

"327. Mode of service of notice.- Any notice or other document required or authorised to be served under this Act may be served either -

(a) by delivering it to the person on whom it is to be served, or

(b) by leaving it at the usual or last known place of abode of that person, or

(c) by sending it in a registered letter addressed to that person at his usual or last known place of abode, or

(d) in case of an incorporated company or body by delivering it or sending it in a registered letter addressed to the Secretary or other principal 17

functionary of the company or body at its principal office, or

(e) in such other manner as may be laid down in the Code of Civil Procedure, 1908.

8. Section F of Chapter 10 of the Rules deals with the

coercive procedure which can be adopted by the Collector to

recover the amounts as arrears of land revenue.

9. Rules 235 and 236 authorize the Tehsildar to issue

citations, writs and warrants etc. as per the prescribed form

whereas Rules 241 and 245 provide as to how the citation is

to be issued and writ of demand for the purpose of land

revenue. Rule 246 provides for the service of the writ or

citation shall, if possible, be made on the defaulter personally,

but if service cannot be made on the defaulter, it can be made

on the agent and sub-rule thereof further postulates that

personal service shall be made by delivery to the defaulter or

the agent of the foil of the writ of citation and with the

sanction of the Collector such writs of demand may also be

served as registered post. Rule 247-A also refers to a warrant

of arrest which may be executed by a duly authorized person 18

for the recovery of the arrears and Rule 247-B (1) deals with

the situation that where a defaulter at the time of his arrest

pays the entire amount of arrears specified in the warrant of

arrest to the process-server or to authorized officer, the

defaulter will not be arrested. Rules 272, 272-A, 272-B, 273,

273-A, 278 and 285-C deal with the procedure for the

attachment of the land which is proposed to be sold and Rule

273-A postulates that the procedure envisaged in Order XXI,

Rule 54 of the Code of Civil Procedure must be followed at the

time of attachment. Rule 285-C also provides that in case the

defaulter pays the arrears of land revenue in respect of the

land proposed to be sold on any day before the fixed day of

the sale, the sale officer on being satisfied shall stay the sale.

Rules 282 and 283 when read together provide that in the

proclamation of sale to be issued in Form Z.A. 74, it will be

incumbent on the Collector to give the estimated value of the

property calculated in accordance with the rules in Chapter

XV of the Revenue Manual.

10. We now examine the primary

arguments in the background of the above provisions. The 19

question arises as to whether the provisions for the

attachment and sale of the property had been followed

scrupulously, as would be necessary in such a case. We

notice that the learned Single Judge has examined the matter

and has concluded that there was no material on record to

show that proper procedures had been adopted. A positive

finding has been arrived at on facts that the Tehsildar or the

Collector had even attempted to serve the demand notice

personally or by registered post on SPL, as called upon under

Section 327 of the Act and Rule 246, as the notice had been

served on the Chowkidar who could not be said to be an agent

of SPL. It must also be noticed from a bare reading of the

Rule 246 that the notice can be served on the agent only if it

is not possible to serve it on the actual defaulter. In the

present case, we find that no attempt whatever had been

made to serve the notice to the actual defaulter and had been

served on the Chowkidar at the very initial stage.

11. There is yet another circumstance which indicates that

the procedure for sale had not been followed. It appears from

the record that the notice of citations for appearance and 20

demand had been issued on 11th January 2005 and on 1st

April 2005, the Sub-Divisional Magistrate had passed an order

for the valuation of the properties as well as for wide publicity

of the auction and sale of the property in question and the

Tehsildar, Ghaziabad had been appointed as the auction

officer and the auction had been fixed for the 2nd May 2005. It

is clear from the record that the sale proclamation had been

issued on 1st April 2005 without any valuation of the

properties and only the area of the vacant land had been

specified therein and it was this notice that had been served

on the Chowkidar on the 21st April 2005 and publication had

been made in the newspaper "Amar Ujala" on the 22nd April

2005. There has, thus, been a clear violation of the Rules 283

and 285 ibid. Rule 283 provides for the estimated value of the

property to be determined under the provisions contained in

Chapter XV of the Revenue Manual. The said Chapter

specifies the procedure for valuation of the property in terms

of other similar properties. It is, however, clear from the

record that the figure 27 Crores, the value of the property

which is mentioned in the advertisement in the "Amar Ujala", 21

appears to have picked up without any basis as it is not the

case of the UPSIDC that the property had been valued in

accordance with the provisions of the Revenue Manual or by a

valuer or expert in the field.

12. Moreover, Rule 273-A makes the provision under Order

XXI, Rule 54 of the CPC applicable to proceedings for

attachment and Rule 1-A of Rule 54 specifically provides for

the judgment-debtor to attend court on a specified date to

take notice of the date which is fixed for setting the

proclamation of the sale. Concededly, this procedure had not

been followed. The learned counsel for the respondent has

also disputed the valuation of the property by the UPSIDC and

has referred us to the pleadings in the writ petition and in

particular to paragraphs 26 and 30 thereof. These paragraphs

are reproduced below:

"That the auction was held on 2.5.2005 but in the furd neelam no time of auction was provided. Even the description of the land sought to be auctioned, has not been provided in the furd neelam. Six bidders, had participated in the auction, out of which only U.P. State Industrial Development Corporation was the major bidder in competition with one M/s. Suder Steel Pvt. Ltd. The property worth 22

Rs.56.00 Crores as per the rate list issued by the U.P. State Industrial Development Corporation has been auctioned for petty amount of Rs.32.00 Crores and odd. In the open market, rate of the property in question could fetch atleast Rs.100 Crores. This is apparent from the letter dated 26.4.2005 issued by Shri Mahak Singh, District Manager, UPSIDC. The circle rate of the land of the area fixed by UPSIDC is effective from 9.4.2005 is Rs.3000/- per sq.meter, by which calculation, cost of the land in question comes to Rs.56.42 Crores approx., whereas the same has been sold only @ Rs.1700/- per sq.meter, amounting to Rs. 32.20 Crores, to the UPSIDC. A true copy of the furd neelam letter dated 26.4.2005 issued by District Manager, UPSIDC are annexed herewith as Annexure No.23A & 24 to this Writ Petition.

That as per the newspaper clipping published in The Times of India property section, New Delhi edition dated 25.6.2005, the land price in Kavi Nagar, Ghaziabad is Rs. 11,000/- per sq.mt. The petitioner has suffered a substantial injury and loss in the auction held by the District Administration of a prime property situated at Kavi Nagar, Ghaziabad Industrial Area, Ghaziabad @ Rs.1700/- per sq.mt. a true copy of the newspaper clipping dated 25.6.2005 is annexed herewith as Annexure No.27 to this Writ Petition."

The replies to the paragraphs are given in SLP(C)

No.3272 of 2006:

23

"That in reply to the contents of paras 23 to 25 of the writ petition which are not correct, hence denied. It is submitted that the petitioner had full knowledge about the auction, and the auction has not held much higher to the present circle rate. It is further submitted that the rate offered and accepted by the deponent is of developed land whereas, the present land is a lease land on 99 years of which already 35 years had expired and it is undeveloped area for which maximum rate has been got in the auction held on 2.5.2005."

13. Shri Nariman, the learned senior counsel for the

respondents, therefore, appears to be right in contending that

the specific averments made by SPL in the writ petition have

not been denied by the respondent and it was therefore open

to SPL to contend that the property had not been properly

valued and that the sum of Rs.27 crores represents not even

half the market price. In Gajraj Jain vs. State of Bihar

(2004) 7 SCC 151 while dealing with a case under the State

Financial Corporations Act, this is was what this Court had to

say:

"In the light of the aforesaid judgment of this Court, the issue which arises for determination is - whether Respondent 2 Corporation acted reasonably and in accordance with Section 24 29 of the 1951 Act in transferring the assets of the Company on 19.3.2002 and in entering into agreement for sale with Respondent 4 on 26.4.2002. As stated above, Respondent 2 Corporation had a paramount first charge on the assets of the flour mill whereas Central Bank of India had the second charge thereon. There is a difference between a charge and a mortgage. In the case of a charge under Section 100 of the TP Act, there is no transfer of interest in the property. A charge is not a jus in rem. It is jus ad rem. It creates a right of payment out of the property/fund charged with the debt or out of proceeds of the realization of such property, a phrase used in Section 29(1) of the 1951 Act. A charge as defined under Section 100 of the TP Act may be enforced by sale [See Mulla: Civil Procedure Code (15th Edn.), p.2420]. We have discussed the concept of charge as it has a direct bearing on the interpretation of Section 29 of the 1951 Act.

In the present case, it has been urged that absence of valuation report and the reserved bid does not vitiate the sale. We do not find met 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 25

reasonableness has been laid down in the above judgment in which it is held that reasonableness 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. This has not been done. There is no inventory of assets produced before us. The mortgaged assets of the Company could be sold on itemized basis or as a whole, whichever is found on valuation to be more profitable. No particulars in that regard have been produced before us. If publicity and maximum participation is to be attained then the bidders should know the details of the assets (or itemized value). In the absence of the proper mechanisam the auction-sale becomes only a pretence. Further, in this case, the Corporation advanced Rs.90 Lakh to the Company. At that time, it must have valued the assets. Nouch report has been produced. Lastly, in this case, the price of the assets is pegged to the dues of the Corporation and Central Bank of India. The assets are agreed to be sold to Respondent 4 not for the market price but against repayment of dues of the Corporation plus a promise to discharge the liability of Central Bank of India. Therefore, the Corporation, Respondent 2, has not acted reasonably. It has not taken any steps to secure the best price. In fact, it has failed to protect 26

the interest of Central Bank of India, which is having the second charge on the assets transferred to Respondent 4 as well as the mortgagor which would be entitled to the balance of the sale proceeds, if any. It was contended that as the bids were withdrawn, the offer of Respondent 4 was accepted. Even assuming for the sake of argument, that there were no offers except the offer of respondent 4, it shows that value of the assets was Rs.198.85 lakhs (i.e. Rs.28.85 lakhs + Rs.170 Lakhs). No reason has been given why Respondent 2 did not insist on downright payment of Rs.198.85 lakhs."

14. The question of valuation is to our mind of the utmost

importance as it is designed to ensure the best price for the

property and it is essential in this circumstance that wide

publication and notice of the proposed sale should be given as

per Rule 285-A which postulates a notice of 30 days between

the date of issuance of the sale proclamation and the date of

auction. It can hardly be over emphasized that the proper

valuation of the property and wide publicity of the proposed

auction is intimately linked with the price that the auction

fetches. As already mentioned above, the auction had been

held on 2nd May 2005. The sale proclamation had been issued 27

on the 1st April 2005, and served on the Chowkidar on the 21st

April 2005, the publication made in "Amar Ujala" on 22nd

April 2005 whereas rule 285 itself postulates a notice period of

30 days to be counted from the date of issuance of the sale

proclamation. While dealing with a similar situation, this is

was what this Court had to say in S.J.S.Business Enterprises

(P) Ltd. vs. State of Bihar (2004) 7 SCC 166:

"We are of the view that the sale effected in favour of Respondent 6 cannot be sustained. It is axiomatic that the statutory powers vested in State financial corporation under the State Financial Corporations Act, must be exercised bona fide. The presumption that public officials will discharge their duties honestly and in accordance with the law may be rebutted by establishing circumstances which reasonably probabilise the abuse of that power. In such event it is for the officer concerned to explain the circumstances which are set up against him. If there is no credible explanation forthcoming the court can assume that the impugned action was improper. (See Pannalal Binjraj v. Union of India, AIR at p.409.) Doubtless some of the restrictions placed on State financial corporations exercising their powers under section 29 of the State Financial Corporations Act, as prescribed in Mahesh Chandra v. Regional Manager, U.P.Financial Corpn. Are no longer in place in view of the subsequent decision in Haryana Financial Corpn. Vs. Jagdamba Oil Mills. However, in overruling the decision in 28

Mahesh Chandra this Court has affirmed the view taken in Chairman and managing Director, SIPCOT v. Contromic (P) Ltd. and said that in the matter of sale under section 29, State financial corporations must act in accordance with the statute and must not act unfairly i.e. unreasonably. If they do, their action can be called into question under Article 226. Reasonableness is to be tested against the dominant consideration to secure the best price for the property to be sold.

"This can be achieved only when there is a 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."

Adequate publicity to ensure maximum participation of bidders in turn requires that a fair and practical period of time must be given to purchasers to effectively participate in the sale. Unless the subject-matter of sale is of such a nature which requires immediate disposal, an opportunity must be given to the possible purchaser who is required to purchase the property on "as-is-where-is basis" to inspect it and to give a considered offer with the necessary financial support to deposit the earnest money and pay the offered amount, if required."

29

15. We must, therefore, repel Mr. Dwivedi's argument that as

SPL had suffered no prejudice in the auction proceedings, the

sale should not be interfered with.

16. There is yet another circumstance which vitiates sale.

Rule 285-D of the Rules that 25% of the amount of the

auction money shall be deposited at the fall of the hammer

and the remaining 75% within 15 days. The case of the

appellants is that the Bank draft for 7.80 Crores had been

deposited by the auction purchasers on 2nd May 2005 i.e., the

date of auction but the learned Single Judge has found that as

the auction had been completed at 1.30 p.m., it would not

have been possible to have received the Bank draft from

Kanpur 460 km. away on that date. This finding appears to

be correct. We also find that the balance 75% of the amount

that had been deposited by various Bank drafts on 18th May

2005 was also beyond the 15 days permissible and the finding

of the learned Single Judge based on the record is that though

the drafts were dated 14th May 2005 but they had, in fact, had

been handed over to the concerned authority only on the 18th 30

May 2005. This Court in M.M.Shah vs. S.S.A.S.Mahamad &

Anr. 1954 SCR 108 has held as under:

"Having examined the language of the relevant rules and the judicial decisions bearing upon the subject we are of opinion that the provisions of the rules requiring the deposit of 25% of the purchase-money immediately on the person being declared as a purchaser and the payment of the balance within 15 days of the sale are mandatory and upon non-compliance with these provisions there is no sale at all. The rules do not contemplate that there can be any sale in favour of a purchaser without depositing 25% of the purchase-money in the first instance and the balance within 15 days. When there is no sale within the contemplation of these rules, there can be no question, of material irregularity in the conduct of the sale. Non-payment of the price on the part of the defaulting purchaser renders the sale proceedings as a complete nullity. The very fact that the Court is bound to re-sell the property in the event of a default shows that the previous proceedings for sale are completely wiped out as if they do not exist in the eye of law. We hold, therefore, that in the circumstances of the present case there was no sale and purchasers acquired no rights at all."

17. For this additional reason as well, the auction sale

cannot be maintained.

31

18. In this view of the matter, we need not go into the

argument raised by Mr. R.F. Nariman that in the facts of the

case we should not entertain this matter in the exercise of the

discretionary jurisdiction under Article 136 of the Constitution

of India.

19. We also notice from the last paragraph of the judgment of

the learned Single Judge appears to have been extremely

annoyed with what he perceived to be gross irregularities on

the part of the officers of the State Government connected

with the sale of the property and he had accordingly directed

as under:

"Subject to above writ petition is allowed with cost quantifies to Rs.50,000/- Petitioner shall be entitled to withdraw Rs.25,000/- and rest of Rs.25,000/- shall be remitted to U.P. State Legal Services Authorities to utilize for providing legal aid to the litigants approaching Lucknow Bench of High Court. The cost shall be deposited within one month from today in this court by the District Magistrate, Ghaziabad. Registrar to ensure compliance. It shall be open for the State Government to recover the cost from the salary of the office/officers who are responsible to auction the property in question in such unruly manner by holding an inquiry.

32 The Chief Secretary Government of U.P. is further directed to take appropriate action against the officers or employees who had acted in arbitrary manner while proceeding with the auction and sale of the property in question.

Let a copy of the judgment be sent to the Chief Secretary, Govt. of U.P. by the office within a week for appropriate action."

20. We are of the opinion, however, that High Court's

direction that action should be initiated against the concerned

officers, is not justified and we accordingly expunge these

directions more particularly as SPL's conduct as well does it

no credit. We, however, maintain the directions in so far as

the costs are concerned. With this minor modification, the

appeals are dismissed.

........................................J. (TARUN CHATTERJEE)

.......................................J. (HARJIT SINGH BEDI) 33

New Delhi, Dated: May 16, 2008