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CASE NO.:

Appeal (civil) 5502 of 2004

PETITIONER:

M/s Amar Alcoholi Ltd.

RESPONDENT:

SICOM Ltd. & Anr.

DATE OF JUDGMENT: 08/11/2005

BENCH:

ASHOK BHAN & ALTAMAS KABIR

JUDGMENT:

J U D G M E N T

Bhan, J.

The final judgment and order dated 10th of

October, 2003, passed by the High Court of

Judicature at Bombay, Nagpur Bench at Nagpur in

Writ Petition No. 153 of 12003 dismissing the writ

petition filed by the appellant, is under challenge

in the instant appeal. By the impugned order, the

High Court has declined the prayer of the appellant

to quash the auction of the properties including

the plants and machinery of the appellant, which

were mortgaged in favour of SICOM Limited (the

first respondent herein).

The short question that arises for our

consideration in this appeal is, whether SICOM (the

first respondent) is a State Financial Corporation

within the meaning of and governed by the State

Financial Corporations Act, 1951 (for short "the

Act")?

To appreciate the question, it would be

necessary to state the facts giving rise to the

present appeal, which are in brief, as follows:

The first respondent, formerly known as "The

State Industrial Investment Corporation of

Maharashtra Limited" (SIICOM), is a company

established under the provisions of the Indian

Companies Act, 1956, by the Government of

Maharashtra in the year 1966, with 100 per cent

shares being owned by the State Government, with an

object of development of industries and financing

the industrial undertakings in the State of

Maharashtra.

The appellant company mainly engaged in the

transport business, approached the first respondent

to get a loan for setting up a unit to manufacture

grain based alcohol with installed capacity of 5000

Kilo Litres annually. The appellant was sanctioned

a term loan of Rs.90 lakhs in august, 1994 in

consortium with IREDA (Rs. 65 lakhs) and Oriental

Bank of Commerce (Rs. 35 lakhs). Commercial

production of the appellant's unit which was

scheduled to begin in April 1995 could commence

only in July 1996. On account of such delay of

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over one year in commencing production, the

appellant company started defaulting in payment

right from July 1996 itself. Several opportunities

were given to the appellant to pay up the amount

due and outstanding. On the failure of the

appellant to pay up the same, the first respondent

sent a demand notice dated 23rd March, 1999 to the

appellant stating that a sum of Rs.19,91,783/- be

paid by the 31st of March, 1999. Pursuant to the

demand notice issued by the first respondent,

certain payments were made by the appellant.

However, the appellant again defaulted in payment

of instalments and, as on 14th December, 2000, a sum

of Rs.97,57,695/- (principal amount + the interest

accrued thereon) became due and payable. As many

as 16 cheques issued by the appellant-company

bearing different dates amounting to Rs.36.81 lakhs

were dishonoured on presentation.

Owing to the continuous defaults and non-

payment of instalments and interest on time, the

first respondent issued a take over notice on 8th

January, 2001 stating therein that in case the

appellant fails to clear the outstanding dues of

Rs.97,57,695/- on or before the 25th of January,

2001, the first respondent would take over the

possession of the hypothecated and mortgaged assets

on 31st of January, 2001 at 10.00 A.M. Subsequently

due to negotiations between the parties, the first

respondent, vide its letter dated 6th February,

2001, deferred the take over of the assets of the

appellant company to 20th February, 2001. The

appellant-Company was asked to pay Rs.19.81 lakhs

by the 15th of February, 2001, failing which the

mortgaged assets will be taken over by the first

respondent on 20th of February, 2001. The appellant

issued 12 post-dated cheques amounting to 19.81

lakhs. On receipt of those cheques, the take over

action was again deferred. Out of those 12 cheques

issued in favour of the 1st respondent, four

cheques were dishonoured on presentation. The

appellant's limit was once again extended till 20th

of August, 2001 to enable it to make good the

outstanding payments, failing which the assets were

to be taken over by the first respondent. The

arrears were not cleared and finally owing to

continued defaults on the part of the appellant-

company, the first respondent took over the

possession of the assets mortgaged with it invoking

its powers under Section 29 of the State Financial

Corporation Act, 1951 (for short "the Act") and

took the actual possession thereof on 23rd of

October, 2001.

In order to recover the arrears, it was decided

to put the mortgaged property to auction. The

advertisement for sale of the property was

published on 23rd of November, 2001 in response to

which the only offer of Rs.261 lakhs was received

which was rejected on the ground that the offer for

purchase was below the disposal value estimated by

the Government Approved Valuer. Soon thereafter,

the appellant approached the first respondent in

January, 2002 for One Time Settlement (OTS). The

proposal put forth by the appellant was accepted by

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the first respondent vide its letter dated 6th

February, 2002 for OTS at Rs.95 lakhs. The

appellant issued a cheque of Rs.20 lakhs towards

OTS which was dishonoured on presentation.

However, the said amount of Rs. 20 lakhs was

subsequently paid by the appellant company. The

balance sum of Rs.75 lakhs which was payable by the

appellant on or before the 28th of February, 2002,

as per the terms of the OTS, remained unpaid. To

clear the balance payment, the last date for

payment of the said amount of Rs.75 lakhs was

extended thrice by the first respondent, the last

one being the 28th March, 2002. Not being able to

clear the dues, the appellant again requested for

extension of time till 15th of April, 2002 for

clearing the outstanding dues, which was not agreed

to. The appellant was informed by the first

respondent that it shall be taking steps to

safeguard its interest including auctioning the

assets in possession of the first respondent by

identifying the interested buyers. As the

appellant failed to make the payment as per the

terms of the OTS within the stipulated period, the

OTS was cancelled on 9th of April, 2002.

After cancellation of OTS, the unit of the

appellant was advertised for sale for the second

time on 8th of June, 2002. The highest offer of

Rs.376 lakhs was received in the auction and the

same was approved by the first respondent. The

appellant vide its letter of 2nd of July, 2002 was

given an opportunity to match the offer or give

better offer to clear dues of Rs.100.94 lakhs

existing as on 30th of June, 2002 on or before 18th

of July, 2002. Needful was not done. On 6th of

August, 2002, another opportunity was given to the

appellant, as a special case, to make the aforesaid

payment by the 18th of August, 2002. There being

no better offer, the auction price of Rs.376 lakhs

was accepted but, however the party who had given

the offer of Rs.376 lakhs did not pay the balance

purchase consideration.

Due to failure of the second auction also, the

first respondent decided to re-auction it for the

third time and advertisement was published in the

newspapers on 30th October, 2002. M/s. Karan

Distilleries Pvt. Ltd., which offered the highest

bid in response to the said advertisement, is the

2nd respondent in this appeal. It offered Rs.225

lakhs which, after negotiations, was finally

increased to Rs.320 lakhs, which was accepted by

the first respondent. The appellant and its

promoter were given a chance to match/improve upon

the offer made by the 2nd respondent. As there was

no counter-offer received from the appellant

despite giving them chance, the first respondent

proceeded with the sale of the assets to recover

its dues. On receipt of the entire consideration,

the first respondent handed over the physical

possession of the assets of the appellant to the 2nd

respondent and also executed Deed of conveyance in

their favour.

Aggrieved by the order of auctioning, the

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appellant filed writ petition in the High Court

seeking, inter alia, stay of the auction

proceedings for sale of the unit by the first

respondent. The High Court by way of interim

relief, stayed the proceedings subject to the

appellant's depositing a sum of Rs. 50 lakhs on or

before 21st of March, 2003, failing which the stay

was to stand vacated automatically without any

further reference to the Court. The appellant

could deposit only half of the amount ordered by

the High Court and thus failed to comply with the

direction. As the compliance with the order of the

High Court was a condition precedent to the interim

order, the stay stood vacated automatically.

After filing of the writ petition, the appellant

filed an additional affidavit before the High Court

submitting that the provisions of Section 29 of the

Act were not applicable to the first respondent as

it ceases to be a financial corporation after the

reduction of shares of the Govt. of Maharashtra to

49% only.

The High Court dismissed the writ petition

holding that the first respondent was a financial

corporation and it had been notified as such by the

Central Government in exercise of its powers under

Section 46 of the Act. It was further held that

reduction of shareholdings below 50% of the Govt.

of Maharashtra would not make any difference to the

status of the first respondent being a financial

corporation. The other two submissions, viz, (i)

that the true and correct accounts of the

outstanding dues were not furnished to the

appellant and, therefore, the attachment and sale

of the appellant's property was not justified; and

(ii) that it was sold at inadequate price, were

rejected by the High Court, holding that no

material has been placed before the Court to

substantiate aforesaid contentions.

Aggrieved against the dismissal of its writ

petition, the appellant has filed the present

appeal by grant of special leave.

Counsel for the parties have been heard.

It is not in dispute that the first respondent

was established by the State Government with the

object of developing the industries and financing

industrial concerns in the State. It is also not

in dispute that the Central Government had extended

the provisions of Section 29 of the Act to the

first respondent. Thus, the first respondent would

be covered by the expression "an institution

established by a State Government" offering range

of services including the object of financing

industrial concerns in the State of Maharashtra.

It would thus be a financial corporation covered

under the Act.

Section 46 of the Act confers the power on the

Central Government to extend the provisions of the

Act "to any institution established by a State

Government". Section 46 of the Act reads as under:

"46. Power to apply Act to

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certain financial institutions in

existence at commencement of Act

-(1) The Central government may,

by notification in the official

Gazette, direct that all or any

of the provisions of this Act

shall, subject to such exceptions

and restrictions as may be

specified, apply to any

institution established by a

State Government which has for

its object the financing of

industrial concerns, and on the

issue of such notification, the

institution shall be deemed to be

a Financial Corporation

established by the State

Government for the State within

the meaning of this Act and the

provisions of this Act shall

become applicable thereto

according to the tenor of the

notification.

Provided that no notification

shall be issued under this sub-

section in respect of any

institution unless a request is

made in that behalf by the State

Government concerned.

(2) Any notification issued under

sub-section (1) may suspend the

operation of any enactment

applicable to any such

institution immediately before

the issue of the notification."

In the year 1986 a request was made to the

Central Government by the Government of Maharashtra

to extend the provisions of Sections 27, 29, 30,

31, 32A to 32F, 41, 41A, 42 and 44 of the Act to

the first respondent. The Central Government

accepted the request of the Government of

Maharashtra and the provisions of the afore-

mentioned sections were extended to the first

respondent vide notification No. F.No.5(9)/86-IF-II

dated 11th December, 1986.

Government of Maharashtra vide the Govt.

Resolution bearing No. IDL/1093/(8928)/IND-8 dated

3rd October, 1994 decided:

(a) to have a public participation in the

capital structure of the first respondent in

accordance with the new industrial policy

framed by the Government of Maharashtra in

the year 1983;

(b) to hold only 49% of the share capital by

the Government;

(c) to give by private placement 26% of the

capital to the selected financial

institutions and banks;

(d) to offer 2% capital out of the said 26%,

to the employees of the said company in

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consonance with the policy framed by the

Government of India; and

(e) to offer the balance 25% to the public

through public issue.

It would be seen from the above that provisions

of Section 29 and other provisions of the Act were

made applicable to the first respondent by the

Central Government by virtue of the powers vested

in it under Section 46 of the Act. Section 29

enables the first respondent to take over the

assets of the delinquent borrowers. As the

appellant had failed to discharge its liability in

spite of several opportunities afforded to it, as

has been enumerated in the foregoing paragraphs,

in our view, the first respondent was fully

justified in taking over the assets of the

appellant in exercise of its powers under Section

29 of the Act.

Under Section 46 of the Act the Central

Government by a notification in the official

Gazette is empowered to direct that all or any of

the provisions of the Act shall, subject to such

exceptions and restrictions as may be specified,

apply to any institution established by a State

Government which has for its object the financing

of industrial concerns, and on the issuance of

such notification the institution shall be deemed

to be "a Financial Corporation" established by the

Government within the meaning of the Act. It is

not disputed that Respondent No. 1 had been

established by the State Government with the object

of financing industries and the Central Government

had issued the notification under Section 46

confering the powers to be exercised under various

sections of the Act including Section 29. As a

matter of fact, Annexure A, annexed with the

additional affidavit filed by the appellant on

9.10.03 itself suggests beyond doubt that

respondent no.1 was established in the year 1996 by

the Government of Maharashtra as a 100% Government

owned company with the objective of industrialising

of backward areas of the State of Maharashtra.

Thus, respondent no.1 would be covered by the

expression "any institution established by a State

Government" offering range of services. This apart

the Central Government in the year 2003, i.e., even

subsequent to the disinvestment of equity up to 51

per cent held by the Government of Maharashtra, at

the request of the Government of Maharashtra by

virtue of its power under Section 46 (1) of the

Act, has made the provisions of Section 32 G of the

Act, applicable to the first respondent vide

notification dated 16th of September, 2003. This

also shows that Respondent No. 1 is being treated

by the State of Maharashtra as well as Central

Government as the financial Corporation within the

meaning of the Act.

The principal contention advanced by Mr. Ashok

A. Desai, the learned senior counsel appearing on

behalf of the appellant, is that consequent to the

reduction of stakes of the Govt. of Maharashtra in

the first respondent and consequent to the change

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in its nomenclature, the first respondent had

ceased to have the status of a State Financial

Corporation under the Act. We are unable to accept

this contention.

In the facts and circumstances enumerated

herein above, it is crystal clear that the first

respondent was originally established as, and even

as of date continues to be, a company established

by the Government of Maharashtra. It may be

mentioned that the State of Maharashtra being the

single largest shareholder has retained the overall

control over the management of the first respondent

by retaining the right to nominate its Directors by

virtue of the Amended Article 18(a) of the

Articles of Association of the Companies.

By mere reduction in its stakes to below 50 per

cent, SICOM (the first respondent) would not cease

to be a State Finance Corporation in view of the

fact that it has been established by the State of

Maharashtra for financing industrial concerns and

that it had been so notified by the Central

Government in exercise of its powers under Section

46 of the Act. The first respondent is a finance

corporation covered by the Act and reduction in the

shareholdings of the State of Maharashtra below 50

per cent shall not make any difference to the

status of the first respondent, i.e, being a

financial corporation.

The other two points which had been raised in

the writ petition regarding the non-supply of

details of the outstanding amount due and the

inadequacy of the sale consideration were rejected

by the High Court by observing that no material had

been placed before the Court to substantiate them.

The learned counsel sought to contend before us

too, that the auction proceedings are liable to be

set aside because the details of outstanding amount

was not furnished to the appellant and that the

mortgaged property had been sold for inadequate

consideration. There is no material placed before

us to substantiate these two contentions. The

allegations made are vague, particularly when the

appellant was afforded suitable opportunities to

match the bid/offer and it did not turn up, and

cannot be ascertained from any admitted data. The

same are rejected.

It was admitted before the High Court that

outstanding amount had been recovered from the sale

of the appellant's property. In view of this, the

High Court had permitted the appellant to withdraw

the sum of Rs.25 lakhs deposited by the appellant

in pursuance to the interim order of the High

Court. This direction of the High Court holds good

and does not call for any interference.

Lastly, the counsel for the appellant contended

that the first respondent be directed to return the

balance amount, if any, after adjusting the

outstanding amount due from the appellant.

The counsel for respondents, in all fairness,

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concedes that if there is any balance amount, the

same shall be paid back to the appellant. The

appellant would be at liberty to move appropriate

application before the first respondent. If such

an application is filed, the first respondent shall

take a decision thereon within a period of two

months from the date of the receipt of such

application and, in case there is any excess amount

after adjusting the amount due from the appellant

out of the sale proceeds of the mortgaged property

of the appellant-company, the same shall be

returned to the appellant forthwith.

For the foregoing reasons, the appeal stands

dismissed. However, there shall be no order as to

costs.