Fairness in secured asset sales requires natural justice, transparency and ordinarily public auction before disposal of borrower property.

Power under section 29 of the State Financial Corporations Act must be exercised fairly, reasonably and in conformity with natural justice, because the Corporation acts as a State instrumentality and, upon taking possession, in a trustee-like capacity. Sale of an industrial unit without notice to the borrower, and by accepting a comparatively low private tender on deferred terms, was held unsustainable where the Corporation had not fully disbursed the loan and had not adopted a bona fide, transparent process. Public auction was identified as the normal mode of sale, with private negotiation permissible only in exceptional cases with adequate publicity and disclosure. The sale was quashed and the borrower was to be given an opportunity to redeem.

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Issues: (i) whether the Corporation's takeover and sale of the industrial unit under the State Financial Corporations Act were valid when the entire loan was not disbursed and the borrower was not given an opportunity before acceptance of a low tender; (ii) whether, in exercising power under section 29 of the Act, the Corporation was bound to act fairly, reasonably and in conformity with natural justice, and to prefer public auction or a transparent sale procedure.

Issue (i): whether the Corporation's takeover and sale of the industrial unit under the State Financial Corporations Act were valid when the entire loan was not disbursed and the borrower was not given an opportunity before acceptance of a low tender.

Analysis: The power under section 29 is wide, but it is not unfettered. The statutory scheme, read with section 24, requires the Corporation to act on business principles and in a manner consistent with fairness and public interest. Where the borrower had repeatedly sought release of an open plot, offered substantial payment, and the Corporation still proceeded to accept a comparatively low tender on deferred terms without notice or opportunity to the borrower, the action lacked fairness and reasonableness. The failure to disburse the full loan and the absence of a genuine attempt to accommodate the unit's financial difficulties were material circumstances showing that the sale did not proceed on a prudent or bona fide basis.

Conclusion: The takeover and sale were invalid and the sale was liable to be set aside.

Issue (ii): whether, in exercising power under section 29 of the Act, the Corporation was bound to act fairly, reasonably and in conformity with natural justice, and to prefer public auction or a transparent sale procedure.

Analysis: The Corporation was treated as an instrumentality of the State and, upon taking possession of the debtor's property, as standing in the position of a trustee. Its conduct was therefore required to satisfy the standards of justness, fairness, reasonableness and good faith. The Court held that default alone does not justify taking possession or selling the property unless such steps are imperative. Public auction was stated to be the normal and preferred mode for sale, while private negotiation could be resorted to only in exceptional cases with adequate publicity and disclosure. The borrower should ordinarily be informed of valuation and sale terms, and given an opportunity to match the offer or bring higher bidders.

Conclusion: The Corporation was bound to follow a fair, transparent and reasonable procedure, and the sale by private negotiation on the facts was unsustainable.

Final Conclusion: The appeal succeeded, the sale was quashed, possession was directed to be resumed by the Corporation, and the borrower was given an opportunity to redeem the hypotheca or, failing that, to have the property dealt with through open auction with wide publicity.

Ratio Decidendi: Power under section 29 of the State Financial Corporations Act must be exercised consistently with fairness, reasonableness, natural justice and the duty to secure the best price, ordinarily by public auction or an equally transparent process.

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