Orissa Alloys Ltd. Vs. Secretary, Department of Industries and ors. - Court Judgment

Excerpt:
banking - benefit of scheme - section 29 of state financial corporations act, 1951 - petitioner submitted proposal to opposite parties for settlement of loan amount under one time settlement scheme - respondents did not consider it and petitioner's assets unit was sold out in auction at very low price - petitioner challenge said decision, taken in a hasty manner - hence, present petition - whether action of authority, not considering appellant for on time settlement is fair - held, if loanee deserves scheme of one time settlement under statute, authority has no option but to extend benefits of scheme to loanee - power vested under act must be exercised bonafide and fairly - whether auction sale of petitioner's unit is valid - reasons for conducting sale at price less than amount due from petitioner unit do not reveal that it is maximum price of unit - for best price of pledged property, reasonableness to be tested against dominant consideration - unless immediate sale, adequate publicity must be given to ensure maximum effective participation by bidders, by giving them fair and practical period of time -authority has not explained circumstances properly - auction sale of petitioner's unit set aside - petition allowed - state financial corporations act, 1951 [63/1951]. section 29; [p.k. tripathy, a.k. parichha & n.prusty, jj] discharge of loan orissa forest act (14 of 1972), section 56 confiscation of vehicle - held, the authorities under section 56 of the orissa forest act, 1972 are not obliged to release the vehicle from the confiscation proceeding or to pay the sale proceeds of the vehicle after the order of confiscation in favour of orissa state financial corporation when such vehicles were purchased on being financed by the orissa state financial corporation and the loan had not been liquidated by the date of the seizure/confiscation of the vehicle. concept of first charge or second charge has no applicability when the vehicle is not otherwise disposed of to determine the liabilities of the loanee. on the other hand the vehicle having been found indulged in forest offences was made subject matter of a confiscation proceedings, and therefore, the procedure followed for confiscation of the vehicle and for its sale is punitive in nature and not with a view to give benefit to anybody including the department which initiated the confiscation proceeding. apart from that, the claim of the orissa state financial corporation as against its loanee (who had taken the vehicle on hire- purchase agreement) brings the loanee and the sureties within the default clause under the state financial corporation act, 1951 or the heirs and successors of such persons. procedure is provided in the act, 1951 and the rules thereof about the manner in which such loan is to be recovered, and in that context only the vehicle under the hire-purchase agreement is placed as the first charge. if such property is not available for any reason, then the loan is not automatically waived or the loanee and his sureties are not automatically redeemed of the liabilities to repay. the financial corporation is concerned with repayment of loan either from the property or persons offered as surety. thus, a vehicle, which is subject matter of confiscation proceeding under the act, 1872, being not available to the orissa state financial corporation for adjustment of the unpaid loan, that does not at all bring out an anomalous situation so as to defeat the right of the orissa state financial corporation. agreement between the orissa state financial corporation and the loanee is a pure and simple contract governed by the provisions of the contract act, 1872 read with the provisions in the act, 1951 and its rules. on the other hand, a confiscation proceeding under the act, 1972 is punitive in nature for commission of a forest offence. thus, by virtue of the provision in section 56 read with section 64 (2) of the act, 1972, the action taken for confiscation of the vehicle cannot be extended to grant protection of the loan advanced by orissa state financial corporation. by doing that it amounts to grant premium to the pick-pockets in as much as, by making payment of the confiscation amount in favour of the orissa state financial corporation the loan burden of the accused of the forest offence is reduced to the extent of the sale proceeds of the vehicle. in other words, on payment of the sale proceeds of the confiscation proceeding to the orissa state financial corporation towards discharge of the loan account of the accused of a forest offence, it would lead to a system to reward him by repayment of his loan. then it does not become a penalty nor the action become punitive, but it remains as a reward to the accused of forest offence. such a concept is totally not conceivable from any provision in the act, 1972 or the act, 1951. [air 2002 orissa 130 overruled]. -- state financial corporations act, 1951. section 29; discharge of loan orissa forest act (14 of 1972), section 56 confiscation of vehicle - held, the authorities under section 56 of the orissa forest act, 1972 are not obliged to release the vehicle from the confiscation proceeding or to pay the sale proceeds of the vehicle after the order of confiscation in favour of orissa state financial corporation when such vehicles were purchased on being financed by the orissa state financial corporation and the loan had not been liquidated by the date of the seizure/confiscation of the vehicle. concept of first charge or second charge has no applicability when the vehicle is not otherwise disposed of to determine the liabilities of the loanee. on the other hand the vehicle having been found indulged in forest offences was made subject matter of a confiscation proceedings, and therefore, the procedure followed for confiscation of the vehicle and for its sale is punitive in nature and not with a view to give benefit to anybody including the department which initiated the confiscation proceeding. apart from that, the claim of the orissa state financial corporation as against its loanee (who had taken the vehicle on hire- purchase agreement) brings the loanee and the sureties within the default clause under the state financial corporation act, 1951 or the heirs and successors of such persons. procedure is provided in the act, 1951 and the rules thereof about the manner in which such loan is to be recovered, and in that context only the vehicle under the hire-purchase agreement is placed as the first charge. if such property is not available for any reason, then the loan is not automatically waived or the loanee and his sureties are not automatically redeemed of the liabilities to repay. the financial corporation is concerned with repayment of loan either from the property or persons offered as surety. thus, a vehicle, which is subject matter of confiscation proceeding under the act, 1872, being not available to the orissa state financial corporation for adjustment of the unpaid loan, that does not at all bring out an anomalous situation so as to defeat the right of the orissa state financial corporation. agreement between the orissa state financial corporation and the loanee is a pure and simple contract governed by the provisions of the contract act, 1872 read with the provisions in the act, 1951 and its rules. on the other hand, a confiscation proceeding under the act, 1972 is punitive in nature for commission of a forest offence. thus, by virtue of the provision in section 56 read with section 64 (2) of the act, 1972, the action taken for confiscation of the vehicle cannot be extended to grant protection of the loan advanced by orissa state financial corporation. by doing that it amounts to grant premium to the pick-pockets in as much as, by making payment of the confiscation amount in favour of the orissa state financial corporation the loan burden of the accused of the forest offence is reduced to the extent of the sale proceeds of the vehicle. in other words, on payment of the sale proceeds of the confiscation proceeding to the orissa state financial corporation towards discharge of the loan account of the accused of a forest offence, it would lead to a system to reward him by repayment of his loan. then it does not become a penalty nor the action become punitive, but it remains as a reward to the accused of forest offence. such a concept is totally not conceivable from any provision in the act, 1972 or the act, 1951. [air 2002 orissa 130 overruled]. - reasonableness to be tested against dominant consideration to secure the best price for the pledged property. to secure the best price, adequate publicity must be given to ensure maximum effective participation by bidders by giving them fair and practical period of time unless immediate sale is imperative.sanju panda, j.1. aggrieved by non-consideration of the proposal submitted by the petitioner to the opposite parties for settlement of the loan amount under one time settlement scheme and challenging the action of the orissa state financial corporation (in short, 'o.s.f.c.') under section 29 of the state financial corporation act (hereinafter referred to as 'the act') on the ground that the assets of the unit has been valued at a very low price taking the said decision in a hasty manner, the petitioner has filed two writ petitions praying for a direction to the opposite parties to return possession of the unit to the original owner as the game has been seized without following due procedure.2. the brief facts of the case are as follows:the petitioner-unit is an alloy plant situated within the state of orissa. it was built up being encouraged by the boom in the industrial sector in the state and as the demand for alloy was increasing day by day. initially, the unit approached the o.s.f.c. for financial assistance. after making due investigation and enquiry, the o.s.f.c. sanctioned loan of rs. 45,35,000/- to the petitioner-unit. the petitioner-unit was framed as a public limited company named and styled as orissa alloys limited. a sum of rs. 27,14,400/- was disbursed in favour of the petitioner-unit initially out of the sanctioned loan in the year 1990. the balance additional term loan of rs. 16,20,600/- was sanctioned at a very late stage. out of the loan sanctioned, the o.s.f.c. also deducted 10% towards commitment charges. after the unit started production, payments were made by the petitioner regularly to the o.s.f.c. the unit sustained heavy loss in the year 1998 which resulted in irregularity in making payment to the o.s.f.c. at that time, the o.s.f.c. came up with the o.t.s. proposal and the petitioner-unit immediately wanted to avail the said offer and wrote a letter dated 26.11.1998 for settling their dues under the o.t.s. scheme. the initial deposit for consideration of the o.t.s. scheme was fixed at rs. 50,000/- and the same amount was deposited by the petitioner-unit on 9.2.1999. in the super-cyclone of the year 1999, the petitioner-unit was severely damaged. since there was no insurance coverage, no compensation was made available to the petitioner-unit. the loss of the unit was assessed at rs. 35,00,000/- and the small industries development bank of india (in short, 'sidbi') agreed to fund the company for renovation work. however, the osfc with an ulterior motive estimated the damages to the tune of rs. 9,90,000/- and the entire amount was adjusted towards the outstanding dues of the company and nothing was disbursed for renovation of the unit. though the main objective of the sidbi was to help the industry revive itself and start payment, the o.s.f.c. was more interested in adjusting their dues rather than allowing a unit to revive. despite the loss sustained by the unit in the super-cyclone, it tried to reconcile the account. the unit on 9.9.2002 informed the o.s.f.c. to charge simple rate of interest and deduct the interest levied on account of subsidy and disburse the balance amount. it may be noted here that irregular power supply was one of the reasons of sickness of the unit. as the o.s.f.c. did not take any step, the petitioner-unit again ventilated its grievance and in the year 2003 submitted a proposal for one time settlement under the o.t.s. scheme 2000. as per the said scheme, simple interest will be charged on the defaulted amount. however, on the contrary, the opposite parties in complete violation of the scheme went on charging compound interest. the o.s.f.c. rejected the said proposal on 9.12.2003. again the petitioner-unit made correspondences to the o.s.f.c. regarding adjustment of a sum of rs. 9,90,000/-, which was sanctioned towards super-cyclone loan for initial deposit under the o.t.s. scheme and for allowing the unit's proposal under the said scheme which was rejected. thereafter, again in the year 2006, the petitioner-unit applied for one time settlement and its application was rejected as no initial deposit was made though initial deposit of rs. 50,000/- and the super-cyclone loan amount of rs. 9,90,000/- were with the unit. the petitioner-unit also after due calculation of the entire loan amount came to know that against a loan of rs. 44,89,000/-, a sum of rs. 69,40,000/- had already been paid back to the o.s.f.c. therefore, the petitioner requested the o.s.f.c. to reconsider its proposal again and intimate the unit so that it will take steps to make the repayment. the o.s.f.c. vide its letter dated 15.5.2006 called upon the petitioner-unit to make deposit as mentioned in its letter dated 31.1.2006. a high level committee took a decision for conversion of the cyclone loan into grant and the industries department communicated the said decision to the o.s.f.c. vide letter dated 6.6.2006. but contrary to the decision taken by the high level committee for adjusting the cyclone loan towards unpaid dues, the o.s.f.c. did not allow the unit to revive.3. while the matter stood thus, the o.s.f.c. issued notice under section 29 of the act. the state financial corporation as an instrumentality of the state deals with public money and their approach should be public oriented. though sale notice was issued, possession of the unit was not handed over to any one after the proposal. therefore, the petitioner-unit has filed w.p.(c) no. 11919 of 2007 to consider the proposal of the unit under the o.t.s. scheme and return the unit to the original owner. to show the bona fide of the unit, the petitioner deposited an amount of rs. 10,00,000/- by 9.10.2007 and another sum of rs. 10,00,000/- by 7.11.2007 and also stated that in the meantime o.t.s. scheme 2007 ad been introduced and the petitioner case may be considered under the said scheme. the petitioner also filed another writ application, i.e., w.p.(c) no. 2080 of 2008, specifically praying for a direction to the o.s.f.c. to accept the petitioner's proposal under the o.t.s. scheme 2007.4. after receiving notice, opposite parties 2 and 3 appeared and filed their counter affidavit denying the petitioner's allegations. they have specifically taken a stand that since the petitioner unit did not repay the loan amount, the o.s.f.c. take over the unit on 23.7.2005 and was forced to publish the sale notice in the month of february, 2006. again the unit was put to sale vide sale notice published in the month of july, 2006. it was sold to the purchaser (opposite party no. 4 in w.p.(c) no. 11919 of 2007) in the month of july, 2006 who had deposited the sale price. the petitioner unit though applied for one time settlement did not comply with the terms. as such, said proposal of the unit was rejected because proposals were not in accordance with the scheme and there was no ots scheme effective by that date. the petitioner unit availed the total disbursement of rs. 55,25,000/- (rs. 29,14,400/- term loan + rs. 16,20,000/- additional term loan and rs. 9,90,000/- cyclone loan) during the years 1991 to 2001. the cyclone loan of rs. 9,90,000/- though sanctioned, the petitioner unit instead of availing disbursement of the said loan sought an adjustment of the amount with the outstanding dues till that date as per letter dated 19.1.2001. therefore, the unit was put to sale and the sale was confirmed in favour of the purchaser and the petitioner unit has made repayment of rs. 64,99,127.31 and outstanding loan dues as on 10.10.2007 against the petitioner unit is rs. 1,53,82,670.53. as the unit was not able to pay any amount, they rightly put the unit to sale. as the petitioner has no merit, both the writ petitions are liable to be dismissed.5. an additional affidavit was also filed on behalf of opposite parties 2 and 3 stating therein that the unit in question was put to auction pursuant to the sale notice and the sale was confirmed in favour of the purchaser vide letter dated 14.9.2006. by way of additional affidavit, they have explained that the sale of the unit in question was confirmed by the disposal advisory committee on 13.9.2006. taking such confirmation into consideration, the sale was confirmed after the conveyance deed was made and delivery of possession was effected. but due to an. order of injunction/status quo passed by the civil court in civil suit no. 406 of 2006, the conveyance deed could not be completed. subsequently, on 3.10.2007 another interim order was passed by this court in w.p.(c) no. 11919 of 2007 with a direction that 'the unit in question of the petitioner shall not be transferred without leave of this court'. in view of the above, the sale was not confirmed and prior to that order, as it appears from the letter dated 21.9.2006 issued by the o.s.f.c., the sale was not confirmed in favour of the purchaser.6. one time settlement scheme was framed and formulated under the state financial corporation act, 1951. statutory powers vested in small industries development bank of india (sidbi) to inspect the books of account and assess the financial health of state financial corporations and make recommendation to the state government for remedying the situation. the state government in turn ratified the recommendation of sidbi and issued directions to the state financial corporations for implementing the said directions. accordingly, one time settlement, 2007 scheme was floated and it was obligatory on the part of the o.s.f.c. to implement the scheme in its letter and spirit. once a loanee qualifies within the frame-work of the scheme, the o.s.f.c. has no option but to extend the benefits of the scheme to the loanee. as the sale was not confirmed in favour of the purchaser, no right accrued in his favour. one time settlement, 2007 scheme is applicable to the cases where assets after seizure under section 29 of the sfc act, 1951 have been fully sold or partly sold or unsold. therefore, the said scheme is applicable to the petitioner unit and the petitioner unit has already deposited rs. 20 lakhs to show its bona fide. initially the loan disbursed in favour of the petitioner unit was rs. 45,35,000/-. the petitioner already repaid a sum of rs. 91,12 lakhs to the o.s.f.c. as per the petitioner's statement of account. the unit was eligible to apply for settlement of the loan under the one time settlement, 2007 scheme. the unit has already repaid more than rs. 50 lakhs.7. the apex court in the case of s.j.s. business enterprises (p) ltd. v. state of bihar and ors. reported in : air2004sc2421 has held that the power vested under section 29 of the state financial corporations act, 1951 must be exercised bona fide and fairly and presumption in favour of public officials that they would discharge their duties honestly and in accordance with law may be rebutted by establishing circumstances which probabilise abuse of power and the corporation must act in accordance with the statute and must not act unfairly and unreasonably. else its action would be amenable to review under article 226 of the constitution. reasonableness to be tested against dominant consideration to secure the best price for the pledged property. to secure the best price, adequate publicity must be given to ensure maximum effective participation by bidders by giving them fair and practical period of time unless immediate sale is imperative.8. in fact, the reasons for conducting the sale at a price less than the amount due from the petitioner unit do not reveal that it is the maximum price of the unit. in the present case, it is clear that the o.s.f.c. has not explained the circumstances. therefore, the borrower deserves sympathy as his intention is bona fide and he has deposited the money as per the direction of the court.9. from the above, it appears that the osfc has not considered the petitioner's case in accordance with the one time settlement, 2007 scheme. since the sale in favour of the purchaser has not been confirmed, the money deposited by him shall be returned to him with interest.10. as the petitioner unit has applied to avail the facility of one time settlement, 2007 scheme and deposited the money in the court pursuant to the direction of this court, the same shall be taken into account towards the initial deposit as required under the ots 2007 scheme and the petitioner's application shall be considered by opposite party nos. 2 and 3 afresh taking into consideration the deposit made by it.11. with the above directions, both the writ petitions are disposed of.i.m. quddusi, j.12. i agree.