TARUNI DIARY PRODUCTS PVT LTD REP BY ITS MANAGING DIRECTOR & ANR Vs. A P STATE FINANCIAL CORPORATION, HYDERABAD & ANR

JUDGEMENT

(1.) The relief sought for in this writ petition is for a mandamus to declare the auction notice dated 04.02.2016, issued by the A.P. State Financial Corporation (APSFC for short) extending, by almost 2 years, the time for payment of the balance sale consideration of Rs. 4.30 crores as against the bid amount of Rs. 4.60 crores, and in refusing to accept the proposal of Rs. 6.00 crores offered by the petitioners as against the sale price of Rs. 4.60 crores accepted by the APSFC from the bidder who has not paid the balance sale price for almost 2 years from the date of the auction; and the inaction on the part of the APSFC in not forfeiting Rs. 30.00 lakhs, and in continuing to extend time beyond all reasonable limits, as illegal, arbitrary, against principles of natural justice and in violation of Article 300-A of the Constitution of India.

(2.) It is the petitioners case, as stated by them in the affidavit filed in support of the writ petition, that the 1st petitioner had borrowed Rs. 5.00 crores in the year 2011 towards additional working capital requirements to make timely payment for the milk procured from farmers; the 2nd petitioner had approached the APSFC for sanction of a term loan of Rs. 3.48 crores to set up two separate plants for processing milk and milk products; in compliance with the terms and conditions of the sanction letter, primary security for the said term loan was furnished by way of equitable mortgage of land admeasuring Acs.3.00 in Survey No.1847/1 of B.Kothakota Village, Chittoor District together with the building constructed thereon, and hypothecation of plant and machinery etc; the APSFC had sanctioned credit facilities; the assets, acquired under the term loan, were hypothecated to the APSFC as security for repayment of the term loan; the sanction letter did not stipulate any collateral security; the 1st petitioner had purchased land, of an extent of 1936 square yards in Survey No.92 of Mallampet Village, Quthbullapur Mandal, Ranga Reddy District under registered sale deed dated 30.05.2011; they had also purchased land, admeasuring 4477 square yards, in Survey No.91 of Mallampet Village, Quthbullabpur Mandal, Ranga Reddy District under registered sale deed dated 27.05.2011; the 2nd petitioner had purchased land, admeasuring 4719 square yards, in Survey No.92 of Mallampet Village, Quthbullapur Mandal, Ranga Reddy District vide registered sale deed dated 10.02010; these properties were offered as collateral security for the credit facility sanctioned to the petitioners and its sister concerns; for reasons beyond their control, the petitioners had suffered huge losses, and could not pay the instalments in accordance with the terms and conditions of the sanctioned term loan; the APSFC initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act) for recovery of dues; a demand notice dated 21.12012 was issued, and thereafter a symbolic possession notice dated 09.05.2013 was also sent; thereafter a notice, under Rule 9(1) of the Secured Interest Enforcement Rules, 2002 (for short the Rules), was issued to put the subject secured properties to sale; however, the sale was not successful for want of bidders; the petitioners had, by their letter dated 10.03.2018, requested the APSFC to extend to them a One Time Settlement, and had remitted Rs. 15.00 lakhs and Rs. 7.50 lakhs through demand drafts as down payment for extension of the One Time Settlement facility; they had also requested the respondents to stop all further proceedings, including sale of the primary and collateral securities, as they intended to pay the amounts due under the One Time Settlement scheme; the petitioners came to know, after submission of the One Time Settlement proposal, that the APSFC had, in the exercise of its powers under Section 29 of the State Financial Corporations Act, 1951 (for short the Act), issued a notice for sale of the collateral securities belonging to the petitioners; the 1st petitioner had, vide letter dated 14.03.2018, requested the Managing Director of the APSFC to furnish certain documents; these documents were furnished by the APSFC without any covering letter; on a perusal of the said documents, the petitioners came to know that the APSFC had approved the offer of the 2nd respondent on 104.2016 for a consideration of Rs. 4.60 crores; Clause (1) of the letter dated 13.04.2016 stipulated that the entire sale consideration of Rs. 4.60 crores should be paid within 30 days from the date of the letter i.e on or before 105.2016; as per Clause (3), in case payments were not received, the EMD and other payments should be forfeited without any further reference to the bidder; APSFC informed the bidder, vide letter dated 18.06.2016, that they had only paid Rs. 25.00 lakhs in addition to the EMD of Rs. 5.00 lakhs; they had requested three months time to pay the balance sale consideration of Rs. 4.30 crores; the APSFC had considered the said request, and had extended time for payment of the balance amount due till 10.08.2016, subject to payment of interest at 16.50% per annum from 105.2016 together with asset carrying costs incurred if any; the bidder was informed that, in case the full amount was not received as per the above schedule by 10.08.2016, the entire amount of Rs. 30.00 lakhs would be forfeited; the bidder did not pay the said amount even by then, and yet further time was granted till 09.11.2016 by the APSFC vide its letter dated 21.10.2016; and the valuable property of the petitioners was sought to be knocked away behind their back.

(3.) The petitioners further contended that they had a prospective buyer who was willing to purchase the property for Rs. 6.00 crores which was a much higher price than what the APSFC had sold in a collusive sale on 04.02.2016; the sale effected in favour of the 2nd respondent was being subjected to challenge in the writ petition in view of the defects in the sale notice; the petitioners have a right of redemption under Section 61 of the Transfer of Property Act; without the petitioners consent, the APSFC could not have extended the period for payment of the sale consideration, by the 2nd respondent, for more than two years; Section 29 of the Act cannot be invoked against the collateral security furnished by the petitioners; and, having invoked the provisions of the SARFAESI Act, it is not open to the APSFC to invoke its powers under Section 29 of the Act.