TaxTMI 
TaxTMI 
2011 (11) TMI 820
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.... 2. The appellant was granted financial assistance by the Tamil Nadu Industrial Investment Corporation [hereinafter referred to as 'the Corporation'] during the year 1994. The immovable property which is the subject matter of the present litigation was given as security. The appellant was running a spinning mill and due to market recession, they sustained severe loss and as a result, the loan installments were not paid as per the agreement. The Corporation agreed to settle the account by way of one time settlement. As per the terms of settlement, the unit was expected to pay the entire amount by 1 January 2004. Since one time settlement was not honored in its entirety, the Corporation took possession of the unit on 4 December 2006. The Corporation, through an authorized valuer, valued the property. The valuer fixed the market value at Rs. 156.43 lakhs. Subsequently, the property was sold in favour of third respondent for an amount below the market value. 3. The appellant approached the Corporation to pay the bid amount quoted by the successful bidder. However, the request was turned down. The third respondent failed to pay the balance consideration less EMD within the....
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....repared at all point of time to pay interest for the delayed period. However the Corporation was not prepared to accept the payment subsequent to the expiry of the time prescribed under one time settlement. (ii) The Valuer appointed by the Corporation fixed the market value of the property at Rs. 156.43 lakhs. However, the property was sold for a sum of Rs. 1.20 crores. Since the sale was made below the market rate, the same is liable to be set aside. (iii) The Corporation was expected to indicate the reserve price in the sale notification. However, no such reserve price was fixed. (iv)The property was worth more than Rs. 2.50 crores as on the date of public auction. However, it was sold for a sum of Rs. 1.20 crores; (v) There were only two bidders and it was in fact, a collusive sale and the same is evident from the difference of price quoted by the successful bidder and the other bidder. The difference was only a sum of Rs. 50,000/-. (vi) The auction notification contains a mandatory clause regarding payment of sale consideration. As per the terms of auction, the bidder should pay the sale amount within thirty days from the date of confirmation....
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....nt. The appellant agreed to pay the entire amount on or before 1 January 2004. It was only on account of their failure to pay one time settlement amount, the Corporation took possession of the unit, invoking Section 29 of the State Financial Corporation Act. The Corporation subsequently obtained a valuation report from their authorized valuer. The valuer fixed the market value of the property at Rs. 156.43 crores. The Corporation issued a sale notification dated 8 September 2009 and it was published on 16 September 2009. 11. The total extent of property is about 6.12 acres of land and 8722 sq. ft. of factory building besides a tiled roof office building measuring about 3931 sq. ft. Agricultural land to an extent of 0.82.5 hectares was the second item notified for sale. The auction was held on 1 October 2009. 12. The communication sent by the Corporation on 30 October 2009 to the appellant contained the market value of the property. However, the Corporation has not disclosed the fact that the property was sold on 1 October 2010 for a sum of Rs. 1.20 crores. 13. The auction notification does not contain either the market value or the upset price of the property. The auction ....
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....otification, it should be considered as an essential term of contract. The said condition is mandatory in nature. 17. The auction was on 1 October 2009. There were only two bidders. The third respondent quoted Rs. 1.12 Crores as against the offer of Rs. 1,01,50,000/ quoted by the other bidder. The sale was confirmed in the name of the third respondent on 2 November 2009. 18.The third respondent initially quoted a sum of Rs. 1,12,00,000/-and it was enhanced later and he has agreed to pay a sum of Rs. 1.20 crores. CONFIRMATION : 19.The order of confirmation dated 2 November 2009 reads thus :- In the tender-cum-public auction sale held at our Office on 01.10.2009 in respect of the subject company's land, building thereon and scrap machinery you have quoted a sum of Rs. 112.00 lakhs as your highest bid on outright payment basis and subsequently enhanced to Rs. 120.00 lakhs (Rupees One crore and twenty lakhs only). Now our Corporation has decided to accept your offer and you are hereby advised to remit the balance bid amount of Rs. 108.00 lakhs along with the sales tax amount for the machinery of Rs. 9760/-totalling to Rs. 1,08,09,760/-after adjusting the 10% bi....
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....ed a sum of Rs. 70 lakhs. However, he requested the Corporation not to present the remaining cheques as he was not having the funds in his account. The payment of Rs. 70 lakhs on 29 December 2009 itself was beyond the prescribed period. It was delayed by 27 days, excluding thirty days time given to make the payment. Subsequently, he has made payment on various dates and the last payment was on 2 December 2010. Therefore, even according to the Corporation, there was a delay of 92 days in making payment. However, very strangely, the Corporation condoned the delay and issued the sales certificate. 25. The issue is whether the auction sale was a nullity. The further question is whether the Corporation was justified in condoning the delay by not taking steps to forfeit the earnest money deposit made by the third respondent in view of the mandatory conditions as contained in the auction notification and the subsequent order of confirmation. 26. The auction notification was very specific that the entire payment should be paid within thirty days. In case the auction notification contains an indication that the time for payment of balance 90% would be extended by the Corporation, ther....
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....fact that he was not in possession of funds to pay 90% of the bid amount within the stipulated period of thirty days and therefore, he wanted the Corporation not to present the cheques till he gives permission. The letter reads thus :- From S. Palaniappan, S/o. P. Sengodan, 117, Thillai Nagar, Erode 638001 To The Branch Manager, The Tamil Nadu Industrial Investment Corporation Ltd., Erode Sirs, Sub : Submission of cheques in Bank. We have given to you five cheques for an amount of Rs. 98,09,760/-of Axis Bank Ltd., Erode. Details as follows : 1. Cheque No. 057634/30-11-09 Rs. 25,00,000/- 2. Cheque No. 057635/30-11-09 Rs. 25,00,000/- 3. Cheque No. 057636/30-11-09 Rs. 25,00,000/- 4. Cheque No. 057637/30-11-09 Rs. 23,00,000/- 5. Cheque No. 057638/30-11-09 Rs. 9760/- Hereby we request your good self to present all these cheques only after getting permission from our side. And also we agree to pay the interest for the days up to the realization of these cheques. This is for your kind information. Thanking you, ....
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....as not made by way of tendeRs. It was a public auction. Therefore, the primary requirement was to fix the reserve price and the auction should start only from the indicated price. This essential condition of sale has not been followed by the Corporation. Therefore, sale proceeding is liable to be set aside on this ground also. 37. The appellant having found that the Corporation has agreed to sell the property for a sum of Rs. 1.20 crores, immediately submitted a representation on 2 November 2009 agreeing to pay the said amount. It is also a matter of record that the confirmation order was also given on the said date. The Corporation rejected the request made by the appellant on flimsy reasons. It is an admitted position that the third respondent has not paid the balance sale consideration as on the date on which the request of the appellant was rejected by the Corporation. The Corporation was more interested in concluding the sale in favour of third respondent. That appears to be the reason for the rejection of request made by the appellant to pay the amount quoted by the third respondent and at the same time in extending the time to the auction purchaser to pay the balance amou....
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....n was dealing with the property of a third party. Merely because the unit was sick and it was taken over by the Corporation, it would not enable them to sell the property for a pittance. It was a first auction and as such, the Corporation was not obliged to sell the property immediately. Since large extent of property and a factory building was involved in the matter, they could have postponed the sale to a later date expecting better offeRs. The Corporation has not taken earnest efforts to collect the market value of the property as shown in the valuation certificate issued by the authorized valuer of the Corporation. The appellant is fully justified in their contention that the Corporation officials colluded with the third respondent and sold the property for a lower amount and accepted the payment even after the expiry of the time stipulated in the order of confirmation. CONCEPT OF RESERVE PRICE : 43. The Supreme Court in Anil Kumar Srivastava v. State of U.P.,: (2004) 8 SCC 671, considered the concept of valuation and upset/reserve price and observed thus :- 11. Before coming to the above challenge, we would like to examine the concepts of "valuation" and "upset/....
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....That the upset price is fixed to facilitate the conduct of the sale. That fixation of upset price does not preclude the claimant from adducing proof that the land is sold for a low price. 44. In Gajraj Jain v. State of Bihar (2004) 7 SCC 151, the Supreme Court indicated that the absence of valuation report and reserve bid would vitiate the very sale. The Supreme Court said :: 14. In the present case, it has been urged that absence of valuation report and the reserve bid does not vitiate the sale. We do not find merit 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 reasonableness has been laid down in the above judgment in which it is held that reasonableness is 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 ....
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.... a compete nullity. The Supreme Court observed ::- 5. In Manilal Mohanlal Shah and others v. Sardar Sayed Ahmed Sayed Mahmad and another: AIR 1954 SC 349, it has been held that in such circumstances there is no sale at all if the balance purchase money is not paid within 15 days. It is not a mere irregularity. Non-payment of the said amount renders the sale proceedings a complete nullity. 6. In Balram v. Ilam Singh and others: 1996 (5) SCC 705 it has been held that the obligation of the purchaser to deposit the full purchase money within time is a mandatory requirement and non-compliance with the Rule renders the sale a nullity and not a mere irregularity. 7. In view of the above, we are of the opinion that the auction-sale of the appellants' property was a nullity, and there was no valid auction-sale. THE OTHER AUTHORITIES : 47. The need to secure best price in public auction was emphasized by the Supreme Court in Chairman and Managing Director, SIPCOT v. Contromix (P) Ltd., (1995) 4 SCC 595. The relevant paragraph reads as follows:- 12.In the matter of sale of public property, the dominant consideration is to secure the best price for....
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....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. (SCC p. 601, para 12) 49. The Supreme Court in Bharat Sanchar Nigam Ltd. vs. Telephone Cables Ltd. 2010(3) Scale 36, emphasized the need for the Public Sector Undertakings to ensure fairness in their transaction. The Supreme Court said:: A public undertaking is required to ensure fairness, non-discrimination and non-arbitrariness in their dealings and decision making process. Their action is open to judicial review and scrutiny under the Right to Information Act, 2005. 50. The Supreme Court in Navalkha & Sons v. Ramanya Das, (1969) 3 SCC 537, in the context of "confirmation" of sale observed that it is the duty of the Court to sa....
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....rty and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or (d) by private treaty. Among the above modes, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State. (iii) The authority concerned shall serve to the borrower a notice of 30 days for sale of immovable secured assets. (iv) A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms the auction-sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders. (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity o....
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....is set aside. 54. WHY THE SUBJECT SALE IS BAD :: REASONS IN BRIEF : (i) The Corporation failed to fix the upset price; (ii) The property was sold far below the market value fixed by the Authorized Valuer appointed by the Corporation; (iii) The Corporation violated the mandatory sale consideration regarding deposit of balance consideration within a period of thirty days from the date of confirmation, by accepting 90% of the amount after 92 days; (iv) The Corporation rejected the request made by the appellant to deposit the amount quoted by the successful bidder arbitrarily and long thereafter, accepted the balance amount from the auction purchaser. 55. The learned counsel for the appellant, during the course of his arguments, submitted that the appellant is prepared to deposit the entire amount paid by the third respondent forthwith. According to the learned counsel, the officials of the Corporation informed them that in case the amount is deposited, it would be adjusted in the loan account and the property would not be released until the entire amount is paid. 56. There is no question of permitting the appellant to pay ....