@JUDGMENTTAG-ORDER
M. Venugopal, J.@mdashThe Petitioner has preferred the instant Writ of Certiorarified Mandamus praying for passing of an order by this Court in calling for the records of the in DII/Cud/SPIC/2012-1 dated 31.10.2012 and to quash the same. Further, it has sought for direction in directing the 1st Respondent to forthwith execute the modified Lease Deed without insisting upon payment of the differential land cost of Rs. 9,31,92,765/- for the purposes of executing the modified Lease Deed in respect of the Plot Nos. C 14, C 15, C 16 and C 16A with an extent of 64.49 acres of land at SIPCOT Industrial Complex, Cuddalore in its favour. Writ Facts:
(i) The 1st Respondent established an Industrial Complex at Cuddalore for the purposes of promoting establishment of industries and entered into a Lease Agreement with one M/s. Southern Petrochemical Industries Corporation Limited, (hereinafter called SPIC) on 21.2.1990 in respect of the property at Plot No. C 14, C 15 and C 16 in SIPCOT''s Industrial Complex at Cuddalore within the village limits of Kudikadu Village ad-measuring 63.33 acres for a value of Rs. 63,33,000/-.
(ii) Also, the 1st Respondent entered into Lease Agreement with SPIC for the property at Plot No. C-16A in SIPCOT''s Industrial Complex at Cuddalore within the village limits of Kudikadu Village ad-measuring 1.16 acres for a value of Rs. 1,45,000/-. The first Lease Agreement was executed between SIPCOT and SPIC on payment of Rs. 33,88,500/- by SPIC being about 50% of the rent agreed upon by the party by way of non-refundable premium and on a condition that SPIC shall pay promptly a sum of Rs. 29,44,500/- being the balance of the rent/premium payable within a period of one year after reserving the rent for 99 years being Rs. 100/- from the date of execution of the deed in two equal half yearly installments, the first installment falling due on completion of six months from the date of execution of the lease deed. Likewise, the second Lease Agreement was executed on payment of Rs. 1,45,000/- being full and complete payment of non-refundable premium. The SPIC paid all the amounts due to the 1st Respondent.
(iii) According to the Petitioner, at the request of SPIC, the 1st Respondent/State Industries Promotion Corporation of Tamil Nadu Limited, Chennai 8, through letter dated 11.1.1999, granted ''NOC'' as requested by SPIC to mortgage the leasehold rights of the land obtained from the 1st Respondent for getting financial assistance from IDBI/EXIM Bank subject to conditions. For the loans taken by SPIC in regard to the installment payments, defaults were committed. The SPIC took loans from several other banks and as such, the banks, who had advanced loans to SPIC, had formed a consortium for realisation of their dues out of the Secured Assets of SPIC.
(iv) The 2nd Respondent is a Securitisation Company registered to carry on the business of securitisation or asset reconstruction u/s 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Section 3 of the SARFAESI Act, inter alia, provides that a securitisation or reconstruction company registered under the said Section of the SARFAESI Act may act as an agent for any bank or financial institution for the purpose of recovery of the dues from the borrowers on such payment or charges as may be mutually agreed upon between the parties. As such, whenever any security creditor/Bank assigns their debt in favour of ARCIL for realisation, ARCIL will have all the powers of a secured creditor under the provisions of the SARFAESI Act and proceed against the borrower. Therefore, the sale of the secured assets by ARCIL would be equivalent to a sale by any financial institution/Bank.
(v) The Industrial Development Bank of India had assigned the debts relating to M/s. SPIC to the 2nd Respondent and the 2nd Respondent issued notice under Rule 6(2) and 8(6) of the Security Interest (Enforcement) Rules, 2002 on 17.05.2011 to M/s. SPIC informing them about the sale of the secured immovable assets of the SPIC (borrower), possession of which was taken over u/s 13(4) of the SARFAESI Act read with Security Interest (Enforcement) Rules, 2002. As a matter of fact, the Petitioner participated in the sale conducted by the 2nd Respondent and was declared as a successful bidder and thus purchased the leasehold rights of the aforesaid properties at SIPCOT Industrial Complex at Cuddalore for a sale consideration of Rs. 12 crores and the 2nd Respondent also issued sale certificate dated 21.10.2011 to that effect.
(vi) The 1st Respondent/SIPCOT had passed an Office Order in O.O. No. 1/2005 dated 05.01.2005 which runs as under:
The existing policy of not collecting differential land cost in the case of Management changes arising out of sale of a unit by Financial Institutions, Banks, Departments, of the State and Central Governments and Official Liquidator and also in respect of Associate and Joint Sector Project of ELCOT and TIDCO will be continued.
(vii) Later, the Petitioner, through its letter dated 12.1.2002, requested the 1st Respondent to execute the modified Lease Deed in their favour. The 2nd Respondent also on their part wrote a letter dated 13.01.2012 requesting the 1st Respondent to transfer the leasehold rights of the properties aforesaid in favour of the Petitioner.
(viii) The 1st Respondent, through letter dated 01.02.2012, requested the Petitioner to furnish their project profile and shareholding pattern viz., List of Directors, share capital and percentage of share as on date duly certified by a Chartered Accountant. The Petitioner complied with the request of the 1st Respondent and through their letter dated 09.04.2012 furnished the necessary documents.
(ix) Subsequently, in reply to the Petitioner''s letter, the Chairman and Managing Director of the 1st Respondent sent a reply bearing letter No. D-II/Cud/2012 dated 11.04.2012 stating that atleast 10 days time shall be required to process their application. The 1st Respondent, through letter dated 18.06.2012, requested the Petitioner to furnish the details of promoters and shareholding pattern of M/s. ARCIL viz., list of directors, share capital and percentage of shares as on date duly certified by a Chartered Accountant.
(x) The Petitioner, through its letter dated 05.09.2012, requested the 1st Respondent to execute the modified Lease Deed in their favour. The 1st Respondent instead of executing the modified Lease Deed as per their policy dated 05.01.2005 issued the impugned order/letter dated 31.10.2012 stating that they accord approval for transferring the ''Leasehold Rights'' of the aforesaid properties at SIPCOT Industrial Complex, Cuddalore from M/s. SPIC to the Petitioner for manufacturing vitamins and steroid subject to the following conditions:
1. M/s. T.H. Infrastructure (P) Ltd., shall remit Rs. 9,31,92,765/- (Rupees Nine crores thirty one lakhs ninety two thousand seven hundred and sixty five only) towards differential land cost and Rs. 7500/- (Rupees Seven Thousand and Five Hundred only) towards processing fee within a period of 90 days from the date of the letter.
2. The Company shall remit any dues accrued towards water charges and maintenance charges etc.
3. The Company shall execute Modified Lease Deed at their cost within 30 days from the date of payment of differential land cost.
4. The Company shall furnish Statutory clearance like PCB clearance, SIA approval etc., before implementation of the project.
2.The Long Counter Averments of the 1st Respondent:
(i) The 1st Respondent allotted Plot Nos. C 14 to C 16 and C 16A with an extent of 63.33 acres to M/s. SPIC Pharma Ltd. for setting up a Pharmaceutical unit at SIPCOT Industrial Complex, Cuddalore on 07.05.1987 at Rs. 1,00,000/- per acre. Also, 1.16 acres was allotted to the unit at Rs. 1.25 lakhs per acre on 20.06.1990. They executed a Lease Deed on 22.08.1990 (viz., Document No. 1640/90). Also that, the 1st Respondent issued NOCs to the Company in favour of IDBI, Exim Bank, LIC and UTI for availing financial assistance by mortgaging the leasehold rights of the plots at SIPCOT Industrial Complex, Cuddalore. The Company committed default in repayment of loan to the banks.
(ii) Since M/s. SPIC defaulted in repayment of loans to the Banks, notice was issued for sale of secured immovable assets of M/s. SPIC, possession of which has been taken over by the 2nd Respondent/ARCIL (M/s. Asset Reconstruction Company (India) Ltd.,) u/s 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The failure of SPIC to comply with the demand notice dated 23.10.2008 issued by the 2nd Respondent, the authorised officer of the 2nd Respondent took over the possession of the immovable properties of SPIC on 16.05.2011.
(iii) The Reserve Bank of India which regulates asset reconstruction companies, such as ARCIL, had stated that ARCIL''s accounting policy was "modified very frequently" and M/s. ARCIL was not inconformity with RBI Rules. The regulator''s norms state that income which was due for over 180 days and not realised should be reversed. A large part of ARCIL''s income was booked on an accrual basis.
(iv) The Asset Reconstruction Firms such as ''ARCIL'' (2nd Respondent) buy out bad loans from banks at a discount by either offering cash or security receipts, which were structured on the lines of bonds and payable in five to seven years. These buy-out firms redeem or retire these security receipts after recovery of the underlying bad loans.
(v) Whenever requests were received from the allottees for change in management, the 1st Respondent demand differential land cost as per the Office Order No. 1/2005 dated 05.01.2005. As per O.O. No. 25/1999 dated 22.08.1999, the existing provisions are applicable to the purchasers of the units (assisted by SIPCOT/TIIC) and sold in auction by SIPCOT and TIIC may be extended to the other units assisted by other Financial Institutions/Banks.
(vi) In the instant case, change in management arising out of sale of M/s. SPIC Pharmaceuticals Limited to M/s. TH Infrastructure (P) Ltd., (Writ Petitioner) by ARCIL (2nd Respondent) which does not come under the category as per O.O. No. 25/1999 dated 22.08.1999 and O.O. No. 1/2005 dated 05.01.2005. As specified in the Office Order, the 1st Respondent had not issued NOC in favour of the 2nd Respondent. As such, the 1st Respondent demanded the differential land cost in their letter dated 31.10.2012.
(vii) As per the terms and conditions of Lease Deed, the allottee shall not directly or indirectly transfer, assign, sell, encumber or part with interest, without obtaining prior approval from the Respondent for avoiding trafficking and trading the industrial plots with profit motive. The 1st Respondent, being a land owner, it is their right to stipulate conditions for leasing purpose.
(viii) Further, the 2nd Respondent had informed that in its capacity as trustee of ARCIL-SPIC Limited under the Securitization and Reconstruction of Assets and Enforcement of Security Act, 2002 sold the aforesaid property in an auction sale and handed over its possession to the Petitioner without obtaining prior permission from the 1st Respondent. Also that, they requested the 1st Respondent to permit them to execute a modified Lease Deed in respect of above plots in their favour. They confirmed the sale of the said property and requested the 1st Respondent of transfer all the rights/interest available to the mortgagor in favour of the purchaser M/s. T.H. Infrastructure (P) Ltd. (Writ Petitioner).
(ix) The 2nd Respondent is not coming under the category of financial institution and the 1st Respondent had issued NOC in favour of IDBI and other Banks only, but not in favour of the 2nd Respondent (ARCIL). The 2nd Respondent (M/s. ARCIL) invoked the SARFAESI Act, but it could not be held as either bank or financial institution as specified in the 1st Respondent''s Office Order No. 25/1999 dated 22.08.1999 and O.O. No. 1/2005 dated 05.01.2005. Hence, the 1st Respondent/SIPCOT could not apply the norms applicable to Banks/Financial Institutions to the 2nd Respondent. Further, the Reserve Bank of India does not recognise M/s. ARCIL (2nd Respondent) as a Financial Institution due to its non compliance of RBI norms. The 1st Respondent is not in a position to consider the 2nd Respondent as a Financial Institution and as such, it demanded the differential land cost.
(x) The Petitioner, in their letter dated 12.01.2012 informed that they are the successful purchaser of all the leasehold rights of the aforesaid SPIC Limited, pursuant to the Sale Certificate dated 21.10.2011 issued by the 2nd Respondent.
(xi) The 1st Respondent placed the matter before the Board on 19.10.2012 and it was resolved to collect differential land cost of Rs. 9,31,92,765/- from the Petitioner (M/s. T.H. Infrastructure (P) Ltd.) considering the 2nd Respondent (ARCIL) as a non-financial institution as per O.O. No. 1/2005 dated 05.01.2005 for transferring the leasehold rights of Plot No. C 14 to C 16 and C 16A with an extent of 64.49 acres of land at SIPCOT Industrial Complex from M/s. SPIC Pharmaceuticals Ltd., to M/s. T.H. Infrastructure (P) Ltd. The same was communicated to the Company in the 1st Respondent''s letter dated 31.10.2012.
3. The 2nd Respondent''s Averments:
(i) The 2nd Respondent is a Company incorporated under the Companies Act, 1956. It was incorporated as a public limited company on 11.02.2002 and obtained with certificate of commencement of business on 07.05.2003. Further, in pursuance of Section 3 of the Securitization Act 2002, it obtained the certificate of registration dated 29.08.2003 issued by the Reserve Bank of India (valid and subsisting till date) and operates under the powers conferred under Securitization Act, 2002.
(ii) The 2nd Respondent is a ''Financial Institution'' within the meaning of Section 2(h)(ia) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 as it is registered with the Reserve Bank of India as a ''Securitization'' as well as a ''Reconstruction'' Company u/s 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(iii) The 1st Respondent refused to execute the modified lease deed in favour of the Petitioner on the ground that the 2nd Respondent is not a Bank/financial institution and therefore, the sale of leasehold rights in favour of the Petitioner would not be covered under O.O. No. 25/1999 dated 22.08.1999 and O.O. No. 1/2005 dated 05.01.2005. As per Section 2 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 ''financial institution'' means ''the Securitization Company or Reconstruction Company which has obtained a certificate of registration under sub-section (4) of Section 3 of the SARFAESI Act, 2002 (54 of 2002)''. Also, as per Section 2(m)(ii) of the SARFAESI Act, 2002 ''financial institution'' means any institution specified by the Central Government under sub-clause (ii) of clause (h) of Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).
(iv) A bare perusal of Section 2(h)(ia) of the RDDBFI Act 1993 and Section 2(m)(ii) of the SARFAESI Act, 2002 would make it clear that any company having a certificate of registration u/s 3(4) of the SARFAESI Act, 2002 is a financial institution recognised by RBI. As such, the contention of the 1st Respondent is that the 2nd Respondent is not a ''financial institution'' is baseless one.
(v) In terms of Section 5 and Section 6 of the SARFAESI Act, 2002 the 2nd Respondent has the right to acquire any Non Performing Assistance and in exercise of the said right, the 2nd Respondent acquired the Non Performance Assistance from the consortium banks and stepped into their shoes. The rights of the 2nd Respondent are no lesser then the rights available with the bank/financial institutions which lent the money to Southern Petrochemical Industries Corporation Limited. When the law provides for identical/equivalent rights for both the financial institution and the reconstruction company, the 1st Respondent cannot take a stand contrary to law. Section 5(2) of the SARFAESI Act, 2002 reads as under:
If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.
(vi) Also that, Section 6(2) of the Act enjoins as follows:
Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or financial institution, the obligor, on receipt of such notice, shall make payment to the concerned securitisation company or reconstruction company, as the case may be, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor making the payment from all liability in respect of such payment.
(vii) As per Section 5(3) of the SARFAESI Act, 2002 any no objection which is subsisting or having effect immediately before the acquisition of financial asset which are in favour of the bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the Securitisation Company or Reconstruction Company. As such, the NOC issued by the 1st Respondent in favour of Industrial Development Bank of India, Exim Bank, LIC and UTI is valid and enforceable by the 2nd Respondent. In fact, Section 5(3) of the Act, 2002 contemplates the following:
Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers-of-attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial asset under is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of the securitisation company or reconstruction company, as the case may be.
(viii) The Certificate of Registration issued by the Reserve Bank of India in favour of the 2nd Respondent is still valid and subsisting, the 1st Respondent with an intention of extorting transfer fee has sighted this moonshine reason. The 1st Respondent is a financial institution as per RDDBFI and SARFAESI Act, 2002 and hold a valid certificate of Registration issued by the Reserve Bank of India.
4. Reply Averments of the Petitioner:
(i) The policy of the 1st Respondent in O.O. No. 1/2005 dated 05.01.2005 to the effect that ''The existing policy of not collecting differential land cost in the case of Management changes arising out of sale of a unit by Financial Institutions, Banks, Departments of the State and Central Governments and Official Liquidator and also in respect of Associate and Joint Sector Projects of ELCOT and TIDCO will be continued'' has not been disputed and cannot be disputed. Per contra, the 1st Respondent in the counter affidavit has confirmed that the policy will continues.
(ii) Further, once the sale was made by the 2nd Respondent, then, in law, such a sale tantamounts to a sale by the Bank which had earlier advanced the loan to SPIC. As such, the Reconstruction Company cannot be divorced from the schedule bank which assigned the debts to and in favour of the 2nd Respondent. In fact, the 2nd Respondent/ARCIL would then steps into the shoes of the bank which assigned the debts to ARCIL. In law, it is the bank which sold the property or the property which was sold for the purpose of liquidating the debts of the bank and therefore, is squarely covered by the aforesaid policy of the 1st Respondent.
The Petitioner''s Contentions:
5. The Learned Senior Counsel for the Petitioner urges before this Court that the impugned order of the 1st Respondent/SIPCOT dated 31.10.2012 is wholly an illegal and arbitrary one, in the eye of law.
6. According the Learned Senior Counsel for the Petitioner, where instrumentality of the State had laid down certain conditions and policies for their guidance in their transaction with the public, such policies/norms have to be invariably followed and cannot be allowed to deviate from such polices/norms at their whims and fancies.
7. The Learned Senior Counsel for the Petitioner brings it to the notice of this Court that when the 1st Respondent/SIPCOT wanted to deviate from the policies/norms and tried to collect the differential cost of land from one M/s. Vardhaman Life Sciences Private Limited on the ground that the name of the auction purchaser company was changed subsequently, the said action of the SIPCOT was quashed by this Court in its order dated 16.08.2012 in W.P. No. 2229/2012 and the SIPCOT was directed to execute the ''Modified Lease Deed'' without insisting upon payment of differential cost.
8. The Learned Senior Counsel for the Petitioner submits that the Petitioner incurred huge amounts in purchasing the land in question for the purpose of restarting the operations of the plant and manufacturing pharmaceuticals products at the existing site and that any delay in executing the modified lease deed would make the Petitioner suffer from serious loss and prejudice, in that, their financial plan will get frustrated and they would not be able to start the operations in the lands purchased by them from the 2nd Respondent/ARCIL, which were originally held by SPIC.
9. The Learned Senior Counsel for the Petitioner projects an argument that the leasehold rights of SPIC were selected in public auction by the 2nd Respondent/ARCIL for realisation of the amount to the banks and therefore, the sale by the 2nd Respondent to the Government within the ambit of the policy to the following effect:
The existing policy of not collecting differential land cost in the case of Management changes arising out of sale of a unit by Financial Institutions, Banks, Departments of the State and Central Governments and Official Liquidator and also in respect of Associate and Joint Sector Project of ELCOT and TIDCO will be continued.
10. The prime submission of the Learned Senior Counsel for the Petitioner is that the 1st Respondent had accorded their approval to M/s. SPIC to mortgage the leasehold rights in favour of the banks, at a later point of time, it is not open to resile from the approval accorded by it and to demand differential cost if such Leasehold Rights were brought to the sale by the bank for recovery of the amount due to them and this would be the position notwithstanding the fact that the letter dated 11.01.1999 granting NOC to SPIC subject to conditions in view of the policy that was brought by the 1st Respondent by their Office Order dated 05.01.2005.
11. Lastly, it is the contention of the Learned Senior Counsel for the Petitioner that there was a stoic silence attitude on the part of the 1st Respondent in claiming huge differential cost for executing the Modified Lease Deed, which could not be justified in law and the same amounts to failure on its part to perform the duties enjoined upon it.
12. The Learned Senior Counsel for the Petitioner relies on the decision of the Hon''ble Supreme Court in
11. Today the Government, is a welfare State, is the regulator and dispenser of special services and provider of a large number of benefits, including jobs contracts, licences, quotas, mineral rights etc. The Government pours forth wealth, money, benefits, services, contracts, quotas and licences. The valuables dispensed by Government take many forms, but they all share one characteristic. They are steadily taking the place of traditional forms of wealth. These valuables which derive from relationship to Government are of many kinds. They comprise social security benefits, cash grants for political sufferers and the whole scheme of State and local welfare. Then again, thousands of people are employed in the State and the Central Governments and local authorities. Licences are required before one can engage in many kinds of business or work. The power of giving licences means power to withhold them and this gives control to the Government or to the agents of Government on the lives of many people. Many individuals and many more businesses enjoy largess in the form of Government contracts. These contracts often resemble subsidies. It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with Government. Government owns and controls hundreds of acres of pubic Land valuable for mining and other purposes. These resources are available for utilisation by private corporations and individuals by way of lease or licence. All these mean growth in the Government largess and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges. But on that account, can it be said that they do not enjoy any legal protection? Can they be regarded as gratuity furnished by the State so that the State may withhold, grant or revoke it at its pleasure? Is the position of the Government in this respect the same as that of a private giver? We do not think so. The law has not been slow to recognise the importance of this new kind of wealth and the need to protect individual interest in it and with that end in view, it has developed new forms of protection. Some interests in Government largess, formerly regarded as privileges, have been recognised as rights while others have been given legal protection not only by forging procedural safeguards but also by confining/structuring and checking Government discretion in the matter of grant of such largess. The discretion of the Government has been held to be not unlimited in that the Government cannot give or withhold largess in its arbitrary discretion or at its sweet will. It is insisted, as pointed out by Prof. Reich in an especially stimulating article on "The New Property" in 73 Yale Law Journal 733, "that Government action be based on standards that are not arbitrary or unauthorised." "The Government cannot be permitted to say that it will give jobs or enter into contracts or issue quotas or licences only in favour of those having grey hair or belonging to a particular political party or professing a particular religions faith. The Government is still the Government when it acts in the matter of granting largess and it cannot act arbitrarily. It does not stand in the same position as a private individual.
12. We agree with the observations of Mathew, J., in
The Government is not and should not be as free as an individual in selecting the recipients for its largess. Whatever its activity, the Government is still the Government and will be subject to restraints, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal.
The same point was made by this court in
13. He also cites the decision of the Hon''ble Supreme Court in
61. Keeping in mind the above circumstances, the NPA Act is enacted for quick enforcement of the security. The said Act deals with enforcement of the rights vested in the bank/FI. The NPA Act proceeds on the basis that security interest vests in the bank/FI. The NPA Act proceeds on the basis that security interest vests in the bank/FI. Sections 5 and 9 of NPA Act is also important for preservation of the value of the assets of the banks/FIs. Quick recovery of debt is important. It is the object of DRT Act as well as NPA Act. But under NPA Act, authority is given to the banks/FIs, which is not there in the DRT Act, to assign the secured interest to securitisation company/asset reconstruction company. In cases where the borrower has bought an asset with the finance of the bank/FI, the latter is treated as a lender and on assignment the securitisation company/asset reconstruction company steps into the shoes of the lender bank/FI and it can recover the lent amounts from the borrower.
14. The Learned Senior Counsel for the Petitioner seeks in aid of the order dated 16.08.2012 in W.P. No. 2229 of 2012 (between Vardhaman Life Sciences Private Limited V. State Industries Promotion Corporation of Tamil Nadu Limited), wherein, in paragraph Nos. 32 and 33, it is observed as under:
32. It must be remembered that the original Lessee of the Company was a Public Limited Company. Had it been a Public Limited Company, whose equity shares were quoted in the Stock Exchange, there could have been umpteen number of share transfers taking place every day. Then the respondent-Corporation should have been chasing the original Lessee for differential cost, every time a shareholder sold some 10 or 15 shares held by him. This is not the manner in which the principle of lifting the corporate veil and finding out the possibility of transfer of controlling interest, should be done.
33. Therefore, I find that the demand now made by the respondent is wholly unjust, unfair, and unreasonable and offends the fundamental principles of Company Law. Hence, the Petitioner is entitled to the relief prayed for. Therefore, the writ petition is allowed and a direction is issued to the respondent to execute the Modified Lease Deed, without demanding differential cost in favour of the petitioner. I should actually impose costs on the respondent for invoking the Bank Guarantee when it was alive and when there is an interim order. But I spare the respondent as it is a Public Corporation. Therefore, the writ petition is allowed without any order as to costs. Consequently, connected miscellaneous petition is closed.
The 1st Respondent''s Contentions:
15. The Learned Counsel for the 1st Respondent submits that whenever requests are received from the allottees for change in management, the 1st Respondent/SIPCOT demand differential land cost as per Office Order No. 1/2005 dated 05.01.2005 and further, as per O.O. No. 25/1999 dated 22.08.1999, the existing provisions applicable to the purchasers of the units (assisted by SIPCOT/TIIC) and sold in public auction by SIPCOT and TIIC may be extended to other units assisted by other Financial Institutions/Banks also, provided that there must be provision in the NOC issued by the 1st Respondent/SIPCOT for mortgage of plots in their favour and this may be extended to the units assisted by other Financial Institutions/Banks.
16. Continuing further, it is the contention of the Learned Counsel for the 1st Respondent that in the present case, change in management has arisen out of sale of M/s. SPIC Pharmaceuticals Limited, to M/s. T.H. Infrastructure (P) Limited by the 2nd Respondent (M/s. ARCIL) which does not come under the category as per O.O. No. 25/1999 dated 22.08.1999 and O.O. No. 1/2005 dated 05.01.2005 and moreover, as specified in the Office Order, the 1st Respondent has not issued NOC in favour of the 2nd Respondent.
17. The Learned Counsel for the 1st Respondent projects a plea that the 2nd Respondent is not come under the category of Financial Institution and that the 1st Respondent has issued NOC in favour of Industrial Development Bank of India and other banks only, but not in favour of the 2nd Respondent.
18. Furthermore, it is the plea of the 1st Respondent that the 2nd Respondent although it has invoked the provisions of SARFAESI Act, it cannot be either held as ''Bank'' or ''Financial Institution'' as specified in the 1st Respondent''s Office Order No. 25/1999 dated 22.08.1999 and O.O. No. 1/2005 dated 05.01.2005.
19. The principle contention advanced on behalf of the 1st Respondent is that the 1st Respondent demanded the differential land cost from the Petitioner in view of the fact that the 2nd Respondent is not a Financial Institution.
20. While rounding up the argument, the Learned Counsel for the 1st Respondent submits that the Reserve Bank of India itself does not recognise the 2nd Respondent as an Financial institution due to its non compliance of RBI norms and therefore, the 1st Respondent/SIPCOT is not in a position to consider the 2nd Respondent as a Financial Institution.
21. The Learned Counsel for the 1st Respondent submits that auction is only to sell the leasehold right of a party and there is no outright sale of property.
22. The Learned Counsel for the 1st Respondent cites the Division Bench Order of this Court dated 23.07.2009 in W.P. No. 10600 of 2007 (between Kanakadhara Spinning Mills (P) Ltd. Rep. By its Managing Director Ananda Kumar V. The Registrar, Board for Industrial Financial Reconstruction (B.I.F.R.), The Authorised signatory-cum-Chief Manager, The South Indian Bank Limited and the Branch Manager, The South Indian Bank Limited) wherein in paragraph 12 to 16, it is, observed and held as under:
12. In the present case, therefore, it is required to be seen whether action u/s 13(4) of the SARFAESI Act has been taken by the secured creditors representing not less than three fourth of the amount advanced to the petitioner.
13. Section 2(1)(zd) defines "Secured Creditor" to mean any bank or financial institution or any consortium of group of banks or financial institutions in whose favour security interest is created for due repayment by any borrower of any financial assistance. As per Section 2 "bank" means (i) a banking company or (ii) a corresponding new bank; or (iii) The State Bank of India; or (iv) a subsidiary bank; or (v) such other bank which is specified by the Central Government.
As per Section 2(1)(m), "financial institution" means
(i) a public financial institution within the meaning of Section 4-A of the Companies Act, 1956 (1 of 1956);
(ii) any institution specified by the Central Government under sub-clause (ii) of clause (h) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(iii) the International Finance Corporation established under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of 1958); (iv) any other institution or non-banking financial company as defined in clause (f) of section 45-Iof the Reserve Bank of India Act, 1934 (2 of 1934), which the Central Government may, by notification, specify as financial institution for the purposes of this Act.
14. It is not disputed that in the present case the respondent Bank comes within the definition of "bank" as per Section 2(1)(c). However, there is nothing on record to indicate that M/s. Sundaram Finance Limited is considered as a "bank" within the meaning of Section 2(1)(c) or Section 2(1)(m). In other words, though the amount payable to M/s. Sundaram Finance Limited by the present petitioner is considered as a charge within the meaning of Section 125 of the Companies Act, for the purpose of SARFAESI Act, M/s. Sundaram Finance Limited does not come within the scope of the bank" or "financial institution". In other words, such M/s. Sundaram Finance cannot be construed as a secured creditor within the meaning of Section 2(1)(zd).
15. Section 13(9) of the SARFAESI Act itself envisages that in cases where financing is more than one secured creditors, the power u/s 13(4) can be exercised only if such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding. Where there is a single secured creditor, it is obvious that such secured creditor represents the entire 100%. On the other hand, where there are more than one secured creditors, the question of applying the test envisaged u/s 13(9) would arise and if such secured creditors holding not less than three-fourth initiate proceedings by amendment as envisaged in Section 13(9) u/s 13(4), reference would come to an end or would stand abated.
16. For the aforesaid reasons, we are unable to accept the contention of the petitioner for issuance of writ of Mandamus. The writ petition is, therefore, liable to be dismissed. No costs.
The 2nd Respondent''s Contentions:
23. It is the submission of the Learned Counsel for the 2nd Respondent that the 2nd Respondent is a Financial Institution and this could be seen from a cursory perusal of the ingredients of Section 2(h)(ia) of the RDDBFI Act and Section 2(m)(ii) of the SARFAESI Act which would make it clear that any company having a Certificate of Registration u/s 3(4) of the SARFAESI Act, 2002 is a Financial Institution recognised by the Reserve Bank of India.
24. Further, it is the stand of the 2nd Respondent that the Certificate of Registration issued by the Reserve Bank of India in respect of 2nd Respondent u/s 3 of SARFAESI Act, 2002 is still valid and subsisting and as such, the contra plea taken on behalf of the Petitioner is not legally tenable, in the eye of law.
25. The Learned Counsel for the 2nd Respondent contends that the No Objection Certificate issued by the 1st Respondent/SIPCOT in favour of IDBI, Exim Bank, LIC and UTI is valid and enforceable by the 2nd Respondent and as per Section 5(3) of the SARFAESI Act, 2002 any no objection which is subsisting or having effect immediately before the acquisition of financial asset which are in favour of the financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the Securitization or Reconstruction Company.
26. Apart from the above, it is the contention of the Learned Counsel for the 2nd Respondent that in terms of Section 5(3) of the SARFAESI Act, 2002, the 2nd Respondent is not required to obtain a fresh NOC or permission before selling the property in as much as the NOC issued in favour of the Banks was still valid and subsisting one.
27. In short, the stand of the 2nd Respondent is that the 1st Respondent/SIPCOT is a Financial Institution as per RDDBFI Act and SARFAESI Act, 2002 and hold a valid Certificate of Registration issued by the RBI.
Glimpse of Decisions:
28. At this juncture, this Court, to prevent an aberration of Justice and to promote substantial cause of Justice, cites the following decisions:
(i) In the decision
16. Section 4A of the Companies Act, 1956, as far as the Industrial Finance Corporation of India Limited is concerned, provides as follows: "4-A. Public financial institutions.-
(1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution, namely:-
(i) * * *
(ii) the Industrial Finance Corporation of India, established u/s 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);
(iii) (vii) * * *
(2) Subject to the provisions of sub-section (1) the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a public financial institution:
Provided that no institution shall be so specified unless-
(i) it has been established or constituted by or under any Central Act, or
(ii) not less than fifty-one per cent, of the paid-up share capital of such institution is held or controlled by the Central Government.
17. In our view, the provisions of Sub-Section (1) of Section 4A stand independent of Sub-Section (2) and the financial institutions named in Sub-Section (1) of Section 4A recognize the financial institutions mentioned therein to be public financial institutions which are not covered by the embargo enforced by the proviso to Sub-Section (2) of the said Section. The proviso controls the width of Sub-Section (2) which refers to the powers of the Central Government to specify by notification in the Official Gazette and subject to the provisions of Sub-Section (1), such other institutions as it may think fit to be a public financial institution.
18. It appears to us that Sub-Section (2) of Section 4A is applicable only to institutions which are not mentioned in Sub-Section (1). It is the latter category of financial institutions to which the proviso applies. In view of Section 4A(1)(ii) of the Companies Act, 1956, the Industrial Finance Corporation of India was admittedly regarded as a ''public financial institution'' for the purpose of the said Act.
19. The conversion of the Industrial Finance Corporation of India into a Company did not alter its position and status as a financial institution in view of Section 5 of the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993, which, as pointed out by Mr. K.K. Venugopal, was in the nature of a saving clause, whereby all matters, including all benefits, relating to the Corporation, stood wholly transferred in favour of the new Company.
20. Mr. Dwivedi has submitted that the Notification dated 15th February, 1995, had been issued u/s 4A(2) of the Companies Act which will have to conform to the proviso thereto. Mr. Dwivedi has contended that both the conditions in the proviso would have to be fulfilled in order to be eligible for being specified as a public financial institution. We are unable to accept such contention in view of the fact that clauses (i) and (ii) are not conjunctive but disjunctive and even though Clause (ii) may not have any application to the Respondent No. 1 Company, it was covered by clause (i), since it was constituted under the Companies Act, 1956, which is a Central Act.
(ii) In the decision
18. Section 13 falls under Chapter III dealing with enforcement of security interest. Section 13(2) proceeds on the basis that where a borrower commits a default in payment of a secured debt and had defaulted in payment of the debt and further his account in the books of the bank is classified as sub-standard, doubtful or loss, the NPA Act comes into force. The Apex Court held:
22. ..... The scheme of sub-sections (2), (3) and (3-A) of Section 13 of NPA Act shows that the notice u/s 13(2) is not merely a show cause notice, it is a notice of demand. That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become sub-standard, doubtful or loss. The identification of debt and the classification of the account as NPA is done in accordance with the guidelines issued by RBI. Such notice of demand, therefore, constitutes an action taken under the provisions of NPA Act and such notice of demand cannot be compared to a show cause notice. In fact, because it is a notice of demand which constitutes an action, Section 13(3-A) provides for an opportunity to the borrower to make representation to the secured creditor. Section 13(2) is a condition precedent to the invocation of Section 13(4) of NPA Act by the bank/FI. Once the two conditions u/s 13(2) are fulfilled, the next step which the bank or FI is entitled to take is either to take possession of the secured assets of the borrower or to take over management of the business of the borrower or to appoint any manager to manage the secured assets or require any person, who has acquired any of the secured assets from the borrower, to pay the secured creditor towards liquidation of the secured debt.
23. Reading the scheme of Section 13(2) with Section 13(4), it is clear that the notice u/s 13(2) is not a mere show cause notice and it constitutes an action taken by the bank/FI for the purposes of the NPA Act.
Under Section 13(2), the notice of demand which gives an opportunity u/s 13(3-A) enables the borrower to make representation/objection to the secured creditor. Hence, Section 13(2) is a condition precedent for invoking Section 13(4) of the NPA Act.
19. Further interpreting the provisions, the Supreme Court, in the aforesaid decision, held:
The point to be noted is that the scheme of the NPA Act does not deal with disputes between the secured creditors and the borrower. On the contrary, the NPA Act deals with the right of the secured creditors inter se.
20. Referring to the scheme of the NPA Act, the Supreme Court further held that the very object of Section 13 of the NPA Act is the recovery by non-adjudicatory process. Essentially, NPA Act deals with the rights of the secured creditors.
21. Going by the Scheme of the NPA Act, all that was necessary under the Act was to give notice as contemplated u/s 13(2). Once the borrower commits a default u/s 13(4), no further notice is contemplated except as provided for u/s 6 as regards the further action of assignment and transfer of the financial institution''s interest in the securities in favour of the second respondent.
Discussions and Dispositions:
29. At the outset, this Court very pertinently points out that although the 1st Respondent has taken a plea that the 2nd Respondent is not a ''Financial Institution'', yet, this Court, on going through the Ingredients of Section 2(h)(ia) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 coupled with the ingredients of Section 2(m)(ii) of the SARFAESI Act, 2002, without any hesitation whatsoever, holds that the 2nd Respondent is a ''Financial Institution'' [the Certificate of Registration obtained by it dated 29.08.2003 issued by Reserve Bank of India is valid and subsisting as on date and functions under the powers conferred in the SARFAESI Act, 2002].
30. It is to be borne in mind that the well known principle of ''The Interpretation of Statutes'' is that if two sections of the same statute, "are repugnant, the known rule is that the last must prevail" as per decision Wood v. Riley (1867) L.R. 3 C.P. 26, per Keating J. at p. 27.
31. Also that, one way in which repugnancy can be avoided is by regarding two apparently conflicting provisions as dealing with distinct matters or situations. However, the general principal is that a Court of Law will endeavour to construe the tenor of the language employed in such a way to avoid a conflict situation.
32. That apart, the words of a proviso are not to be taken "absolutely in their strict literal sense" but that a proviso is "of necessity ... limited in its operation to the ambit of the Section which it qualifies" as per decision Lloyds and Scottish Finance Ltd. v. Modern Cars and Caravans (Kingston), Ltd., [1966] 1 Q.B. 764, per Edmund Davies J. at p. 780.
33. Moreover, if a proviso cannot reasonably be construed otherwise than as contradicting the main enactment, then, the proviso will prevail on the principle that "it speaks the last intention of the makers" as per decision Att.-Gen. v. Chelsea Waterworks Co. (1731) Fitzg. 195.
34. Be that as it may, in the light of detailed discussions as mentioned supra and although in O.O. No. 1/2005 dated 05.01.2005 (at the end of the first page), it is mentioned that ''The transfer of leasehold rights of the land will not be permitted for trading purpose'', yet, this Court, taking note of the fact that the 1st Respondent, in the said O.O. No. 1/2005 dated 05.01.2005 (at the commencement of the second page), has stated in categorical terms that ''The existing policy of not collecting differential land cost in the case of management changes arising out of sale of a unit by Financial Institutions, Banks, Departments of the State and Central Governments and Official Liquidator and also in respect of Associate and Joint Sector Projects of ELCOT and TIDCO will be continued'' and keeping in mind of the well recognised principles of Interpretation of Statutes relating to harmonious construction and applying the same for the present case and also bearing in mind that the Certificate of Registration issued by RBI in favour of the 2nd Respondent is still valid and subsisting etc., this Court holds that in view of the Leasehold Rights of a SPIC were sold in public auction by the 2nd Respondent for the realisation of the amount due to the Banks and as such, the sale effected by the 2nd Respondent clearly comes within the ambit of policy of the 1st Respondent/SIPCOT in O.O. No. 1/2005 dated 05.01.2005 and therefore, it is not open to the 1st Respondent to take a contra plea or to approbate or reprobate in this regard, in the considered opinion of this Court.
35. At this stage, one cannot ignore an important fact that this Court, in W.P. No. 2229 of 2012, through an order dated 16.08.2012, has directed the SIPCOT to execute the Modified Lease Deed without insisting upon payment of the differential land cost. The said order passed in the Writ Petition will certainly bind the 1st Respondent/SIPCOT and the Petitioner is very much entitled to the said order of this Court in its favour. It is to be remembered that the 1st Respondent has given its approval to M/s. SPIC to Mortgage of Leasehold Rights in favour of the Banks and therefore, it is not prudent on their part, at a later point of time, to resile from the approval accorded by them to make a claim in regard to the differential cost of land, if such leasehold rights are brought to sale for recovery of the amount due to them. To put it succinctly, the 1st Respondent, being an instrumentality of the State, when it has prescribed certain conditions or policies or norms for their guidance in their transactions with the public, the said policies/norms are to be followed in the tenor and spirit and they cannot be permitted/allowed to deviate from such polices/norms at their whims and fancies, as opined by this Court. Looking at from any point of view, the impugned letter of the 1st Respondent dated 31.10.2012 addressed to the Petitioner requiring it to pay the differential land cost of Rs. 9,31,92,765/- etc. within a period of 90 days from the date of receipt of this letter, is clearly unsustainable in the eye of law. As such, this Court interferes with the said order of the 1st Respondent dated 31.10.2012 and sets aside the same to prevent an aberration of Justice and to promote substantial cause of Justice. Resultantly, the Writ Petition is allowed. The 1st Respondent is hereby directed to forthwith execute the ''Modified Lease Deed'' in accordance with law in favour of the Petitioner without insisting upon payment of differential land cost as stated supra for the purposes of executing the Modified Lease Deed in respect of the Plot Nos. C 14, C 15 and C 16 and C 16 A with an extent of 64.49 acres of land at SIPCOT Industrial Complex, Cuddalore. No costs.
