1. Heard Mr. Ashok Kumar Yadav, learned counsel for the appellants and Mr. A.K. Sahani, learned counsel for the respondent.
2. This Letters Patent Appeal has been heard through Video Conferencing in view of the guidelines of the High Court taking into account the situation
arising due to COVID-19 pandemic. None of the parties have complained about any technical snag of audio-video and with their consent this matter
has been heard.
3. The instant intra-court appeal has been filed under Clause 10 of Letters Patent against the judgment dated 19.02.2018 passed in W.P.(C) No. 5298
of 2008, whereby, the writ petition has been allowed with direction to the respondents/appellants to take a final decision in terms of the observations
and directions made in the order dated 19.02.2018 within a period of one month from the receipt of a copy of that order and the writ
petitioner/respondent was directed to pay the amount so calculated within a period of 15 days from the date of receipt of the communication, failing
which, the benefits under one time settlement will stand withdrawn.
4. The brief facts of the case, as per the pleadings made in the writ petition, are described herein below for proper adjudication of the lis :-
M/s Neel Kamal Engineering and Body Builder (P) Ltd., Ranchi was granted a term loan by respondent no.1/appellant no.1. When the said unit failed
to pay the dues, the Executive Committee of respondent no.1/appellant no.1 by its order dated 22.07.1995, decided to take possession and sale the
mortgage of the aforesaid company and, accordingly, proposed sale of the said unit was advertised inviting tenders on 14.12.1995. On 22.07.1998, the
Executive Committee of respondent no.1/appellant no.1, vide Item No. 5789 in the meeting, decided to sell the mortgaged assets of M/s Neel Kamal
Engineering and Body Builder (P) Ltd., for total consideration of Rs.35 Lakhs. On 04.01.1999, the writ petitioner/respondent made a representation
before respondent no.2/appellant no.2 intimating that he was ready to deposit the amount subject to condition of waiver of interest and passing on good
title free from any liability and encumbrances as a condition of contract. He also requested respondent no.2/appellant no.2 to take immediate steps
before the Debts Recovery Tribunal to get the property released from all liabilities. By letter dated 11.02.2000 i.e. after lapse of 13 months, the
Deputy Manager, Zone-IV of respondent no.1/appellant no.1 intimated the writ petitioner/respondent that the Corporation has absolute right to sell the
mortgaged assets and he advised the writ petitioner/respondent to pay the initial cash down amount of sale in terms of the sale order dated 17.08.1998
within 21 days from the date of issuance of the letter. Although the sale order was issued on 17.08.1998, but the matter remained pending in the hands
of the Corporation till 11.02.2000 and, thereafter, the writ petitioner/respondent complied with the final decision communicated to him on 11.02.2000 by
depositing initial cash down payment. On 28.02.2000, the writ petitioner/respondent deposited the required amount. On 12.07.2000, the writ
petitioner/respondent submitted a draft copy of guarantee, hypothecation, agreement etc. for execution which was duly received in the office of
respondent no.3/appellant no.3 on 21.07.2000. On 26.07.2000, an agreement for sale-cum-payment of balance loan was executed by and between
respondent no.1/appellant no.1 and the writ petitioner/respondent. In Clause-5 of the said agreement, it was indicated that the interest would be
calculated and realized on quarterly/rest basis from the date of execution of the sale agreement.
The said agreement for sale and even the letter dated 11.02.2000 did not contain any clause of imposing any interest for the period in between sale
order and agreement for sale. The Power of Attorney holder of the writ petitioner/respondent on 26.07.2000 requested for revision of repayment
schedule and intimated that the said agreement was subject to objection of the date of initial payment. The said letter was duly received in the office
of respondent no.3/appellant no.3 on 26.07.2000. In terms of such agreement, the writ petitioner/respondent deposited a sum of Rs.9,65,665/- in the
form of 22,000 $ (Dollar) to respondent no.1/appellant no.1. In pursuance of the said agreement and settlement between respondent no.1/appellant
no.1 and the writ petitioner/respondent, the mortgaged assets of M/s Neel Kamal Engineering and Body Builder (P) Ltd. were handed over by
respondent no.1/appellant no.1 to the writ petitioner/respondent. After taking possession and in between 31.12.1998 to 31.01.2006, the writ
petitioner/respondent paid a total sum of Rs.56,76,911/- inclusive of Rs.9,65,665/- against the total settled amount of Rs.35 Lakhs. All of a sudden, the
writ petitioner/respondent came to know from a news item published in ""Prabhat Khabar"" on 21.09.2007 that amongst others, the unit of the writ
petitioner/respondent has also been put on auction sale, for which, offers have been invited from intending purchasers. The unit of the writ
petitioner/respondent was mentioned at Serial no.3 of the said notice showing outstanding dues of Rs.15,45,174/-. The writ petitioner/respondent
preferred a writ petition being W.P.(C) No. 5498 of 2007 for quashing the tender notice dated 21.09.2007. A Scheme was evolved by respondent
no.1/appellant no.1 vide office order dated 09.03.2002, whereby, it was intimated that the application may be submitted for liquidation of dues in terms
of the said Scheme after deposit of 5% of the total dues. On 11.10.2007, the writ petitioner/respondent made an application along with a cheque of
Rs.1,70,000/- as application money for settlement of dues under the said Incentive Scheme dated 09.03.2002. The said application was duly received
in the office of respondent no.3/appellant no.3 on 11.10.2007 along with cheque. On 10.04.2008, the writ petitioner/respondent further deposited a sum
of Rs.10 Lakhs against the grant of valid receipt No.2806 dated 10.04.2008. On 06.06.2008, the writ petitioner/respondent requested respondent
no.3/appellant no.3 to communicate him further amount payable by him under the said Incentive Scheme dated 09.03.2002 on deposit of
Rs.11,70,000/-. As per auction notice, total dues calculated and shown in the tender notice was Rs.15,45,174/-. Against the said amount, the writ
petitioner/respondent already deposited Rs.11,70,000/-. By letter dated 07.07.2008, respondent no.3/appellant no.3 purported to have re-casted the
accounts showing an arbitrary amount of dues asking the writ petitioner/respondent to pay the said amount without taking into consideration the terms
and conditions of the agreement for sale. On 11.08.2008, the writ petitioner/respondent raised objection against the said illegal demand as contained in
letter dated 07.07.2008 contending, inter alia, that after settlement of the said order, agreement for sale was executed on 26.07.2000 and in terms of
the said agreement, the writ petitioner/respondent already paid the amount and, therefore, there is no justification on the part of the
respondents/appellants to demand interest for the period in between 17.08.1998 to 26.07.2000. The said objection was duly received in the office of
respondent no.3/appellant no.3. By way of reminder dated 26.08.2008, the writ petitioner/respondent requested respondent no.3/appellant no.3 to
communicate the decision to the competent authority on the objection raised by him on 11.08.2008. The respondents/appellants did not take any step
upon the application made by the writ petitioner/respondent in terms of the Incentive Scheme and the objection raised by him against the arbitrary
demand made in letter dated 07.07.2008. Being aggrieved with the letter dated 07.07.2008, the writ petitioner/respondent preferred a writ petition
being W.P.(C) No. 5298 of 2008, which was allowed by the learned Single Judge.
5. It was the case of the respondents/appellants that the mortgaged assets of M/s Neel Kamal Engineering Body Builders Pvt. Ltd. was sold in favour
of the writ petitioner/respondent and the sale order was issued vide Memo No.275 of 1998-99 dated 17.08.1998 at a total consideration amount of
Rs.35 Lakhs and the purchaser was required to pay Rs.8.75 Lakhs including earnest money of Rs.20,000/- within one month from the date of issue of
sale order. The balance amount of Rs.26.25 Lakhs was ordered to be converted into term loan repayable within a period of 7 years in 28 quarterly
installments of Rs.93,750/- and the payment of installment was to be started from 31.12.1998 and the last payment of installment was to be paid on
30.09.2005. In terms of the sale order dated 17.08.1998, the writ petitioner/respondent was required to make payment of interest @ 18% with 2%
penal interest, if any, on the balance consideration amount. As per the sale order, the process of execution of sale agreement and handing over the
possession of the assets of the unit was to be completed within a period of one month from the date of credit of payment made by the purchaser and
interest was to be realized from the date of execution of sale agreement. Subsequently instead of making payment within 30 days from the date of
issuance of the sale order, the writ petitioner/respondent vide letter dated 16.09.1998 made a request for extension of time for payment of initial
amount in terms of the sale order and as per the request made by the purchaser, the Managing Director of the Corporation extended time for making
payment of the aforesaid initial cash down payment in terms of the sale order with a condition that interest @ 18% shall be chargeable on the
consideration amount after one month from the date of issuance of sale order and, accordingly, the said decision of the Corporation was
communicated to the writ petitioner/respondent vide Memo no. 403/98-99 dated 03.11.1998. The initial amount could not be deposited by the writ
petitioner/respondent within the extended period and again sought for extension of time for making payment from time to time. Instead of making
payment in terms of sale order, the writ petitioner/respondent continued to raise issues about the title of the land in view of the ex-parte decree against
the erstwhile promoter in favour of State Bank of India, Ranchi Branch by the Debts Recovery Tribunal, Ranchi. The respondents/appellants vide
letter dated 11.02.2000 informed the writ petitioner/respondent that the Corporation has absolute right to sale the mortgage assets of the concern and
as such the writ petitioner/respondent was advised to pay the initial cash down amount of sale as communicated vide sale order dated 17.08.1998
within 21 days from the date of issuance of letter, failing which, the sale order finalized in favour of the writ petitioner/respondent shall be treated as
cancelled. Thereafter, the writ petitioner/respondent deposited a worldwide draft of $20,000 dated 28.12.1998 on 29.02.2000 to the
respondents/appellants for encashment. The rupees equivalent of the aforesaid demand draft was Rs.9,45,664/-. Thereafter, a direction was issued by
the head office of the appellants dated 06.06.2000, by which, the period of execution of the sale agreement and handing over the possession of the unit
was to be completed by 30.06.2000. The branch office of the respondents/appellants issued letter dated 13.07.2000 to the writ petitioner/respondent,
whereby, the writ petitioner/respondent was informed that the process of the execution of the sale agreement and handing over the possession of the
unit was to be completed up to 31.07.2000. The sale agreement was executed on 26.07.2000, but in the sale agreement the schedule for repayment of
loan component has been mentioned that the repayment of schedule of loan shall commence from 31.12.2000 and end on 03.09.2007 and the period
and amount of installment was kept same as was in the sale order. The writ petitioner/respondent continued to make default in making payment of
installments in terms of the agreement as a consequence whereof, a notice under Sections 29 and 30 of the State Financial Corporation Act, 1951 vide
reference dated 09.11.2002 was issued to the writ petitioner/respondent, whereby, the writ petitioner/respondent was directed to liquidate the dues of
the Corporation, failing which, the Corporation will initiate action under Section 29 of the State Financial Corporation Act, 1951 for sale of the assets
of the company. The writ petitioner/respondent was again requested to make payment of dues of the Corporation vide letter dated 12.07.2003. The
application made by the writ petitioner/respondent for settlement of dues under Incentive Scheme was considered by the Corporation and, accordingly,
a revised demand notice for payment of balance outstanding dues was communicated to the writ petitioner/respondent vide letter dated 07.07.2008.
During the course of verification of account by the Account Section of the Corporation, it was found that interest on the consideration amount has not
been charged for the period 17.09.1998 to 25.07.2000 and it was further stated that as per the sale order dated 17.08.1998, the writ
petitioner/respondent to complete the sale process within one month from the date of issue of sale order and interest has to be charged after one
month from the date of issue of sale order i.e. interest was to be charged w.e.f. 17.09.1998 and, hence, interest from 17.09.1998 to 25.07.2000 has to
be charged and posted in the account and, accordingly, the account has been re-casted. The balance outstanding amount as on 29.02.2008 was shown
to be Rs.74,763,83/- and further interest after 29.02.2008 shall be charged till liquidation of account after crediting of the subsequent payment made by
the writ petitioner/respondent. The writ petitioner/respondent raised objection against the said demand vide letter dated 11.08.2008, which was duly
replied by the Corporation vide letter dated 30.10.2008, wherein, it was clarified that in terms of the sale order dated 17.08.1998 the initial amount was
to be paid within one month from the date of the sale order and agreement was to be executed one month from the date of payment of initial amount
stipulated in the sale order and interest was to be charged @ 18% with penal interest with effect from the date of execution of sale agreement. After
issuance of sale order, instead of making payment and execution of agreement, the writ petitioner/respondent requested for extension of time to make
payment of the initial amount vide letter dated 16.09.1998 and after considering the request made by the writ petitioner/respondent, the Managing
Director of the appellants allowed time for payment of initial amount with a condition that interest @ 18% would be charged on the consideration
amount after one month from the date of issue of sale order, which was duly communicated to the writ petitioner vide letter dated 03.11.1998. Instead
of that, the writ petitioner/respondent made delay in payment of initial amount. The agreement was executed on 26.07.2000, however the time for
payment of initial amount and execution of agreement, resulting into fixation of date for charging of interest remained same as given in the sale order,
whereas, the delay in payment of initial amount and execution of agreement was not properly elaborated in the agreement. It was contended that the
demand has been raised in terms of the sale order issued in favour of the writ petitioner/respondent and only because of the clerical mistake in the sale
agreement, the writ petitioner/respondent cannot derive any benefit from the same. The prayer of the writ petitioner/respondent for acceptance of the
application dated 10.11.2007 for liquidation of dues under Incentive Scheme 2002 can be extended to the writ petitioner/respondent only after making
payment of the balance outstanding dues in terms of the fresh demand issued vide letter dated 07.07.2008. The writ petitioner/respondent was
required to make the entire payment in terms of the Scheme and thereafter the writ petitioner/respondent is entitled to get the benefit of waiver of
penal interest to the extent of Rs.25,000/- only from the total balance outstanding and since the writ petitioner/respondent has failed to make the entire
payment in terms of the fresh demand for payment under the Incentive Scheme 2002, the benefit may not be extended in favour of the writ
petitioner/respondent.
6. On the above pleadings, the learned Single Judge vide judgment dated 19.02.2018 decided the lis and allowed the writ petition with direction to the
respondents/appellants to take a final decision in terms of the observations and directions made in the order dated 19.02.2018 within a period of one
month from the receipt of a copy of that order and the writ petitioner/respondent, as per the undertaking given by him, was directed to pay the amount
so calculated within a period of 15 days from the date of receipt of the communication, failing which, the benefits under one time settlement will sand
withdrawn. Being aggrieved with this judgment, the respondents/appellants have preferred this Letters Patent Appeal.
7. Mr. Ashok Kumar Yadav, learned counsel for the appellants assailed the impugned order on the ground that extension of time was on the basis of
the condition that the writ petitioner/respondent will make payment of interest from one month after issuance of sale order and the interest continued
to accrue from one month after the date of issuance of sale order dated 17.09.1998 and merely because the said clause could not be incorporated in
the agreement dated 26.07.2000, the respondents/appellants will not lose interest for the said period. This aspect of the matter has not been properly
appreciated by the learned Single Judge. He submitted that the learned Single Judge has not appreciated the terms of the agreement, wherein, the
charging of interest from 17.09.1998 on the basis of the order issued by the Managing Director of the Corporation could not be incorporated. He
further submitted that the learned Single Judge has not considered the delay in making payment of the initial cash down payment by the writ
petitioner/respondent. He also submitted that even in terms of the sale order, the payment of the installment was to begin from 31.12.1998 itself, which
was delayed only on the request of the writ petitioner/respondent and for that the respondents/appellants cannot be blamed. He further submitted that
the extension of time was the conditional extension, which was duly conveyed to the writ petitioner/respondent and it was never objected by the writ
petitioner/respondent that they are not ready and willing to comply with the said condition for extension for time. He further submitted that there
cannot be presumption of law that if a particular condition was inadvertently imposed upon the writ petitioner/respondent and it could not be recorded
in the agreement, then it becomes finality and no claim can be raised on the basis of inadvertence or mistake committed by either of the parties. The
initial cash down payment was delayed solely on the request of the writ petitioner/respondent. No fault lies on the part of the respondents/appellants.
The writ petitioner/respondent never raised any objection. He further submitted that the learned Single Judge has erroneously come to the conclusion
that the subsequent agreement entered into between the parties did not provide for charging of any interest for the period from 17.09.1998 to
26.07.2000. He further submitted that as per the Incentive Scheme of the Corporation, the entire account has to be waived by the Account Section
and then only the final demand has to be raised for the purpose of making payment and, accordingly, the Corporation has acted on the basis of the
Scheme. The learned Single Judge has not considered these aspects of the matter while deciding the lis in the writ petition.
8. Mr. Yadav, learned counsel for the appellants relied upon the judgment delivered by the Hon'ble Supreme Court in the case of Karnataka State
Industrial Investment & Development Corpn. Ltd. v. Cavalet India Ltd., reported in (2005) 4 SCC 456.
9. Paragraph 19 of the said judgment is quoted herein below:
19. From the aforesaid, the legal principles that emerge are:
(i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate authority over the acts and deeds
of the Financial Corporation and seek to correct them. The doctrine of fairness does not convert the writ courts into appellate authorities over
administrative authorities.
(ii) In a matter between the Corporation and its debtor, a writ court has no say except in two situations:
(a) there is a statutory violation on the part of the Corporation, or
(b) where the Corporation acts unfairly i.e. unreasonably.
(iii) In commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task is assigned.
(iv) Unless the action of the Financial Corporation is mala fide, even a wrong decision taken by it is not open to challenge. It is not for the courts or a
third party to substitute its decision, however, more prudent, commercial or businesslike it may be, for the decision of the Financial Corporation.
Hence, whatever the wisdom (or the lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable.
(v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold and this could be achieved
only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.
(vi) Public auction is not the only mode to secure the best price by inviting maximum public participation, tender and negotiation could also be adopted.
(vii) The Financial Corporation is always expected to try and realise the maximum sale price by selling the assets by following a procedure which is
transparent and acceptable, after due publicity, wherever possible and if any reason is indicated or cause shown for the default, the same has to be
considered in its proper perspective and a conscious decision has to be taken as to whether action under Section 29 of the Act is called for.
Thereafter, the modalities for disposal of the seized unit have to be worked out.
(viii) Fairness cannot be a one-way street. The fairness required of the Financial Corporations cannot be carried to the extent of disabling them from
recovering what is due to them. While not insisting upon the borrower to honour the commitments undertaken by him, the Financial Corporation alone
cannot be shackled hand and foot in the name of fairness.
(ix) Reasonableness is to be tested against the dominant consideration to secure the best price.
By way of relying this judgment, Mr. Yadav learned counsel for the appellants submitted that the writ Court may not exercise its power under Article
226 of the Constitution of India as an appellate authority.
10. Learned counsel for the appellants further relied upon the judgment rendered by the Hon'ble Supreme Court in the case of Micro Hotel Private
Limited v. Hotel Torrento Limited, reported in (2012) 10 SCC 290.
11. Paragraph 22 of the said judgment is quoted herein below:
22. Litigations in courts are won or lost mainly on facts more on law. Duty is cast on all the parties who appear in a court of law to place the correct
facts so that the court can draw correct inferences which enable it to reach a logical, reasonable and just conclusion. Wrong facts lead a court to
wrong reasoning and wrong conclusions. Duty is also cast on the court to take note of the facts which are correctly placed. Wrong appreciation of
facts leads to wrong reasoning and wrong conclusions and justice will be the casualty. Deciding disputes involves, according to Dias on Jurisprudence,
knowing the facts, knowing the law applicable to those facts and knowing the just way of applying the law to them. If any of the abovementioned
ingredients is not satisfied, one gets a wrong verdict. A Judge has to reason out truth from falsehood, good from evil which enables him to deduce
inferences from facts or propositions. The facts are correctly stated in the instant case but the Division Bench wrongly understood those facts and
wrongly applied the law, consequently, wrong inferences were drawn and ultimately reached wrong conclusions.
By way of relying this judgment, learned counsel for the appellants submitted that litigations in Courts are won or lost mainly on facts more on law.
12. Learned counsel for the appellants further relied upon the judgment delivered by the Hon'ble Supreme Court in the case of Kerala Financial
Corporation v. Vincent Paul, reported in (2011) 4 SCC 171.
13. Paragraphs 16, 17 and 20 of the said judgment are quoted herein below:
16. The stand taken by the learned Senior Counsel for Vincent Paul was totally denied by KFC by submitting that the communication dated 31-10-
1988 is not absolute but subject to confirmation by Vincent Paul within a week. Admittedly on receipt of the communication dated 31-10- 1988 from
KFC, the plaintiff had not sent any reply in the form of confirmation of the said transaction as provided in Clause (1) of Ext. A-2. In such
circumstance, it cannot be contended that there is a concluded contract between KFC and Vincent Paul. After 31-10-1988, KFC sent another letter
on 5-11-1988 intimating the plaintiff that further proceedings can be finalised only after vacating of the temporary injunction ordered by the Munsif
Court, Thrissur. The said letter has not been disputed by Vincent Paul. Inasmuch as KFC has agreed to sell the property in question for Rs. 8.25 lakhs
subject to compliance with three conditions mentioned in Ext. A-2, unless the other party to the contract, namely, Vincent Paul conveys his willingness
within a week with regard to the terms stipulated therein, he cannot take advantage of mere remittance of a sum of Rs. 10,000 towards earnest
money deposit as stipulated in Ext. B-1.
17. These aspects have been correctly appreciated by the trial court and it rightly dismissed the suit filed by Vincent Paul. On the other hand, the High
Court, on an erroneous assumption as to the communication dated 31-10-1988 concluded that there was a valid contract and granted a decree for
specific performance. We are unable to accept the reasoning of the High Court for granting decree for specific performance in favour of Vincent
Paul.
xxx xxx xxx
20. We have already concluded that the decree for specific performance granted by the High Court cannot be sustained. We also observed in the
earlier part of our judgment that though KFC has initiated proceedings under Section 29 of the Act, admittedly, the State has not framed rules or
guidelines in the form of executive instructions for sale of properties owned by them. Till such formation of rules or guidelines or orders as mentioned
above, we direct KFC to adhere to the following directions for sale of properties owned by it:
(i) The decision/intention to bring the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular
language having sufficient circulation in that locality.
(ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation of the property from an approved valuer and in
consultation with the secured creditor, fix the reserve price of the property 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 of making an offer. It becomes a legal obligation
on the part of the authority that property be sold in such a manner that it may fetch the best price.
(vi) The essential ingredients of sale are correct valuation report and fixing the reserve price. In case proper valuation has not been made and the
reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not
worth purchase by them.
(vii) Reserve price means the price with which the public auction starts and the auction-bidders are not permitted to give bids below the said price i.e.
the minimum bid at auction.
(viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale would
suffer from material irregularity where the debtor suffers substantial injury by the sale.
14. Per contra, Mr. A.K. Sahani, learned counsel for the writ petitioner/respondent submitted that admittedly on 26.07.2000, an agreement was
executed between the parties, wherein, both the parties agreed inter alia in Clause-5 that interest will be realized from the date of execution of sale
agreement i.e. 26.07.2000. In view of such bilateral agreement, demand of interest from 17.09.1998 to 26.07.2000 is not only unjust, but illegal,
arbitrary and unreasonable. The said demand is in violation of Article 14 of the Constitution of India. He further submitted that in view of this
arbitrariness on the part of the respondents/appellants, the writ petition is maintainable before this Court. He also submitted that appellant no.1 is the
instrumentality of the State under Article 12 of the Constitution of India. The respondents/appellants are required to act fairly, legally and specifically
in terms of the agreement, therefore, the demand made by the respondents/appellants in the impugned letter dated 07.07.2008, contained in Annexure-
11 of this Letters Patent Appeal is wholly illegal, arbitrary and unjust enrichment. He further submitted that it is well settled that in the matter of
travelling and business activities of Public Enterprises, privilege possessed by the Government is subject to fundamental rights and in furtherance of
the provisions of the State Policy. The contract entered into those Public Enterprises and Government Company shall not be unfair and opposed to
Public Policy. To buttress his argument, Mr. A.K. Sahani, learned counsel for the writ petitioner/respondent relied upon the judgment delivered by the
Hon'ble Supreme Court in the case of Central Inland Water Transport Corpn. V. Brojo Nath Ganguly, reported in 1986 3 SCC 156.
15. Paragraph 93 of the said judgment is quoted herein below:
93. The normal rule of Common Law has been that a party who seeks to enforce an agreement which is opposed to public policy will be non- suited.
The case of A. Schroeder Music Publishing Co. Ltd. v. Macaulay however, establishes that where a contract is vitiated as being contrary to public
policy, the party adversely affected by it can sue to have it declared void. The case may be different where the purpose of the contract is illegal or
immoral. In Kedar Nath Motani v. Prahlad Rai reversing the High Court and restoring the decree passed by the trial court declaring the appellants'
title to the lands in suit and directing the respondents who were the appellants' benamidars to restore possession, this Court, after discussing the
English and Indian law on the subject, said:
The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff
cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston
and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take
advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by
resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part
of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the
conscience of the court, the plea of the defendant should not prevail.
The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which
contain terms which are so unfair and unreasonable that they shock the conscience of the court. They are opposed to public policy and require to be
adjudged void.
By way of relying this judgment, learned counsel for the writ petitioner/respondent submitted that test of reasonableness and fairness is theory
recognized in law of Contract. The Courts will not enforce and will not call upon to do so and will strike down unreasonable demand in contract.
16. Mr. Sahani, learned counsel for the writ petitioner/respondent further relied upon the judgment delivered by the learned Single Judge of this Court
in identical matter of the present appellant i.e. Bihar State Financial Corporation in the case of Sudist Narain Thakur v. Bihar State Financial Corpn.,
reported in 2003 SCC Online Jhar 435.
17. Paragraphs 6 and 7 of the said judgment are quoted herein below:
6. It is well settled that in the matter of trading and business activities of the Public Enterprises, the immunities and privileges possessed by the
Government Companies or Corporation are subject to fundamental rights and in furtherance of the Directive Principles of State Policy. The contract
entered into by these Public Enterprises and the Government Company shall not be unconscionable, unfair, unreasonable and opposed to Public Policy.
Law in this regard has been settled by the Supreme Court in the case of Central Inland Water Transport Corporation v. Brojo Nath Ganguly, reported
in (1986) 3 SCC 156 : (AIR 1986 SC 1571). Their Lordships observed that the test of reasonableness or fairness of a clause in a contract where there
is inequality of bargaining power is another theory recognized in the sphere of law of contracts. The Courts will not enforce and will, when called upon
to do so, strike down an unfair and unreasonable contract, or a clause in a contract entered into between parties who are not equal in bargaining
power.
7. Admittedly in the instant case the auction of the premises was held on 1-9-94 and the petitioner deposited the amount so directed by the
Corporation. Thereafter, final deed of agreement was executed by and between the Corporation and the petitioner and possession of the premises
was delivered to the petitioner on 31-1-95. The petitioner, after taking possession of the premises, started carrying on business and also started
depositing instalments. In my considered opinion, therefore, the petitioner would be liable to pay interest from the date when the possession of the
premises was delivered to the petitioner. The Managing Director rightly issued office order (Annexure 2) directing all the officers of the Corporation
to charge interest, from the date when possession of the premises is delivered to the auction purchaser. The clause contained in the agreement is,
therefore, unfair, unreasonable and against the public policy and violative of Section 23 of the Contract Act.
By way of relying this judgment, learned counsel for the writ petitioner/respondent submitted that clause in the agreement is unfair, unreasonable and
against the public policy of India and in violation of Section 23 of the Contract Act.
18. Learned counsel for the writ petitioner/respondent further submitted that in the present case, Clause-5 of the agreement itself provided that
interest shall be charged from the date of agreement and in that view of the matter, the impugned letter dated 07.07.2008 demanding interest from the
date of decision of sale to the date of agreement is dehors the agreement and cannot sustain in the eyes of law as the same is unfair, unreasonable
and against public policy and in violation of Section 23 of the Contract Act as well as Article 14 of the Constitution of India. He further submitted that
it is an admitted fact that the decision for sale of the assets of the writ petitioner/respondent was taken on 17.08.1998, but due to pendency of dispute
with previous borrower in Debts Recovery Tribunal, the respondents/appellants could not execute the agreement and deliver possession of the assets
to the writ petitioner/respondent in spite of his request made vide Annexure-2 dated 04.01.1999. Ultimately only on 26.07.2000, agreement was
executed and possession of the assets was delivered to the writ petitioner/respondent, therefore, charge of interest for the period between 17.09.1998
and 26.07.2000 is illegal. He further submitted that it is also an admitted fact that the Incentive Scheme was floated by the respondents/appellants
asking for deposit of 5% amount for settlement of dues in principal amount as well as in the interest amount. Admittedly, the writ petitioner/respondent
opted for such settlement in terms of Incentive Scheme on 11.10.2007 vide Annexure- 11 with deposit of Rs.1,70,000/- through Demand Draft and,
thereafter, on 10.04.2008, he further deposited a sum of Rs.10 Lakhs. Such payments were received by the respondents/appellants without any
objection and instead of settlement of the dues in terms of the Incentive Scheme, the respondents/ appellants illegally and arbitrarily came out with
their illegal demand through the impugned letter dated 07.07.2008, which was challenged in the writ petition. He also submitted that it is also an
admitted fact that legal formalities for sale were not completed till 26.07.2000 in respect of execution of agreement for sale for the said assets in
favour of the writ petitioner/respondent. Therefore, the question of taking any amount of interest for the period prior to 26.07.2000 i.e. the date of
agreement, is illegal in terms of the decision rendered by the Hon'ble Supreme Court in the case of Narandas Karsondas v. S.A. Kamtamand,
reported in AIR 1977 SC 774.
19. Paragraphs 35 and 37 of the said judgment are quoted herein below:
35. The mortgagor's right to redeem will survive until there has been completion of sale of by the mortgagee by a registered deed. In England a sale
of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring
payment of the principal money has been served on the mortgagor. Further Section 69 (3) of the Transfer of Property Act shows that when a sale has
been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to
authorise the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right of redemption.
xxx xxx xxx
37. In view of the fact that only on execution, of conveyance, ownership passes from one party to another it cannot be held that the mortgagor lost the
right of redemption just because the property was put to auction. The mortgagor has a right to redeem unless the sale of the property was complete by
registration in accordance with the provisions of the Registration Act.
By way of relying this judgment, learned counsel for the writ petitioner/respondent submitted that right to redeem would survive until there has been
completion of sale by the mortgagee/Corporation by a deed.
20. Learned counsel for the writ petitioner/respondent further submitted that the findings recorded by the learned Single Judge are based upon the
pleadings and documents available on record. He emphasized upon the observations made in paragraph 5 of the impugned judgment delivered by the
learned Single Judge, whereby, the learned Single Judge has found and held that the agreement has specific clause for realization of interest from the
date of agreement i.e. 26.07.2000. It has also been observed by the learned Single Judge that fault in execution of agreement beyond stipulated period
is on the part of the respondents/appellants. The respondents/appellants never raised any plea of perversity in the impugned judgment in the entire
memo of appeal. He further submitted that in ground no. (f) of the memo of appeal at page 40, the respondents/appellants admitted that inadvertently
the particular condition could not be recorded in the agreement. He also submitted that from this plea it is clear that the agreement does not contain
any clause of charging interest prior to the date of agreement. He further relied upon the judgment rendered by the Hon'ble Supreme Court in the case
of Indian Explosive Ltd. v. Central Coalfields Limited, reported in (2019) 16 SCC 258.
21. Paragraph 9 of the said judgment is quoted herein below:
9. It is, therefore, our considered view that the supplementary clause constitutes a novation of the contract which could not have been done
unilaterally and such unilateral action on the part of Coal India Ltd. violates Article 14 of the Constitution of India and, therefore, liable to correction in
exercise of the writ jurisdiction. No question of appreciation of evidence can and does arise to answer the above question which to us is self-evident
from a mere examination of the two clauses in question. If the action of the State is per se arbitrary as we are inclined to hold in the present case, we
do not think it to be in consonance with the cause of justice to relegate the aggrieved party to an alternative remedy as has been done by the High
Court. To secure justice is the ultimate aim of all principles of law and we must hold accordingly.
By way of relying this judgment, learned counsel for the writ petitioner/respondent submitted that a private contract entered by the State, so long as it
discloses a public law element would have to meet the test of Article 14 of the Constitution of India so far as its terms and conditions and application
thereof are concerned.
22. Learned counsel for the writ petitioner/respondent further relied upon the judgment rendered by the Hon'ble Supreme Court in the case of Surya
Constructions v. State of Uttar Pradesh, reported in (2019) 16 SCC 794.
23. Paragraphs 3 and 4 of the said judgment are quoted herein below:
3. It is clear, therefore, from the aforesaid order dated 22-3-2014 that there is no dispute as to the amount that has to be paid to the appellant. Despite
this, when the appellant knocked at the doors of the High Court in a writ petition being Writ Civil No. 25216 of 2014, the impugned judgment dated 2-
5-2014 dismissed the writ petition stating that disputed questions of fact arise and that the amount due arises out of a contract. We are afraid the High
Court was wholly incorrect inasmuch as there was no disputed question of fact. On the contrary, the amount payable to the appellant is wholly
undisputed. Equally, it is well settled that where the State behaves arbitrarily, even in the realm of contract, the High Court could interfere under
Article 226 of the Constitution of India (ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.)
4. This being the case and the work having been completed long back in 2009, we direct Uttar Pradesh Jal Nigam to make the necessary payment
within a period of four weeks from today. Given the long period of delay, interest @ 6% p.a. may also be awarded.
By way of relying this judgment, learned counsel for the writ petitioner/respondent submitted that where the State behaves arbitrarily, even in the
realm of contract, the High Court could interfere under Article 226 of the Constitution of India.
24. It is admitted case of the respondents/appellants as well as the writ petitioner/respondent that agreement in question was entered into between the
parties on 26.07.2000. In the aforesaid backdrop, a moot question which falls for consideration before the learned Single Judge as to whether in terms
of Clause-5 of the agreement, the Corporation was entitled to charge interest for the period from 17.09.1998 to 25.07.2000 or not?
25. The learned Single Judge after considering the facts came to the conclusion in paragraph 5 of the impugned judgment that there is specific clause
for realization of interest from the date of execution of sale agreement. The sale agreement was not executed within the stipulated time. The demand
of interest for the period from 17.09.1998 to 25.07.2000 has been made by referring to the sale order contained in memo no.275/98-99 dated
17.08.1998. The learned Single Judge came to the conclusion that the basis of demand of interest in the impugned letter for the said period on the basis
of sale order is not sustainable in law.
26. This Court, while considering the aforesaid findings of the learned Single Judge and the submissions advanced by the learned counsel for the
parties, deemed it fit and proper to examine following questions:-
(i) Whether Clause-5 of the agreement can be overlooked;
(ii) Whether the Court of law can grant any realization in the terms and conditions of the sale process; and
(iii) Whether the respondents/appellants can take an advantage of their mistake and can charge interest for the period from 17.09.1998 to 25.07.2000.
Since all these questions are co-related, they are taken up simultaneously.
It is well settled proposition of law that if an agreement is signed by the parties, all the conditions stipulated in the agreement are required to be
followed by the parties.
It is also well settled proposition of law that the Court of law cannot grant any realization in the condition stipulated in the agreement. Admittedly, the
agreement for sale was entered into on 26.07.2000, wherein, Clause-5 of the said agreement stipulates as under:
5. Interest will be calculated and realised on quarterly/rest basis. Interest will be realised from the date of execution of sale agreement.
By the impugned letter dated 07.07.2008, the demand of interest has been made w.e.f. 17.09.1998 to 25.07.2000 on the basis of the sale order issued
vide letter dated 17.08.1998, wherein, it was condition precedent to complete the process of sale within one month from the date of issue of sale order.
By invoking this clause by way of impugned letter dated 07.07.2008, interest w.e.f. 17.09.1998 to 25.07.2000 has been taken from the writ
petitioner/respondent. Admittedly, the agreement was executed on 26.07.2000. Clause-5 of the agreement itself speaks that the interest will be
realized from the date of execution of sale agreement, as quoted supra. Thus, the stand taken by the Corporation cannot be sustainable in the eyes of
law.
It is also an admitted fact that in paragraph 28 of the counter affidavit, the respondents/appellants have stated that only because of clerical mistake in
the sale agreement, the writ petitioner/respondent cannot derive any benefit from the same. There is no clause to raise any demand for the period
from 17.09.1998 to 25.07.2000. After taking possession and in between 31.12.1998 to 31.01.2006, the writ petitioner/respondent paid a total sum of
Rs.56,76,911/- inclusive of Rs.9,65,665/- against the total settled amount of Rs.35 Lakhs. Thus, the writ petitioner/respondent has paid much amount,
which was payable by him under the said agreement. A chart showing the payment of the aforesaid amount has been annexed by the writ
petitioner/respondent in Annexure-8 to the writ petition.
It is also well settled proposition of law that a person would be bound by the terms of the contract subject to course to its validity. A contract in certain
situations may also be avoided. The terms and conditions of the contract can be altered or modified. That cannot, however, be done unilaterally unless
there exists any provision either in the contract itself or in law. Novation of contract in terms of Section 60 of the Contract Act must precede the
contract-making process. The parties thereto must be ad idem so far as the terms and conditions are concerned. With a view to make novation of a
contract binding and in particular some of the terms and conditions thereof, the offeree must be made known thereabout. A party to the contract
cannot at a later stage, while the contract was being performed, impose terms and conditions which were not part of the offer and which were based
upon unilateral issuance of office orders, but not communicated to the other party to the contract and which were not even the subject-matter of a
public notice. Moreover, when a contract has been worked out, a fresh liability cannot be thrust upon a contracting party.
There is no doubt that the High Court restricts itself in such dispute. However if the State behaves arbitrarily, the High Court could interfere under
Article 226 of the Constitution of India, even in the realm of contract. This aspect of the matter has been considered by the Hon'ble Supreme Court in
Surya Constructions and Indian Explosives Ltd. (supra). Thus, the stand taken by the respondents/appellants about the maintainability of the writ
petition, is not accepted by the Court.
27. It has been held by the Hon'ble Supreme Court in paragraph 10 of the judgment rendered in the case of Radhakrishna Agarwal v. State of Bihar,
reported in (1977) 3 SCC 457, which is quoted herein below:
10. It is thus clear that the Erusian Equipment & Chemicals Ltd. case involved discrimination at the very threshold or at the time of entry into the field
of consideration of persons with whom the Government could contract at all. At this stage, no doubt, the State acts purely in its executive capacity and
is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its
constitutional powers. But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the
constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation
of Article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere,
they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers
some special statutory power or obligation on the State in the contractual field which is apart from contract.
28. In the case in hand, it is an admitted position that there is no right of the respondents/appellants to charge interest for the period from 17.09.1998 to
25.07.2000. It is also an admitted fact that in paragraph 21 of the counter affidavit filed in the writ petition, the respondents/appellants have admitted
that in the agreement it is not mentioned that interest will be charged from 17.09.1998 to 25.07.2000. In this regard, reference can be made to Section
34 of the Code of Civil Procedure, which stipulates that where no contract existed between the parties regarding payment of interest on delayed
deposit or service, interest cannot be claimed.
29. The judgment relied by Mr. Ashok Kumar Yadav, learned counsel for the respondents/appellant in Karnataka State Industrial Investment &
Development Corpn. Ltd. (supra) is not applicable in the facts and circumstances of the present case as in that case, Their Lordships were
considering the fact about non- clearance of dues. The dispute in the present case is different with regard to interest for the period from 17.09.1998 to
25.07.2000 that too in absence of any clause to that effect. Thus, the judgment relied by the learned counsel for the respondent/appellants is not
helping the respondents/appellants. On the contrary, this judgment is helping the writ petitioner/respondent to some extent as two exceptions for
interference by the High Court, as indicated in that judgment covers the case of the writ petitioner/respondent.
30. The judgment relied by the learned counsel for the respondents/appellants in Micro Hotel Private Limited (supra) is also not applicable in the facts
and circumstances of the present case as in that case, Their Lordships were examining the direction of the High Court to offer a fresh benefit of one
time settlement scheme to M/s Hotel Torrento Limited. This is not the dispute herein.
31. The judgment relied by the learned counsel for the respondents/appellants in Kerala Financial Corporation (supra) is also not helping the
respondent/appellants as in that case the dispute was with regard to consistent failure of the firm to repay the loan. The interest issue was not there.
32. This Court, after giving thoughtful consideration of the facts, as discussed herein above and after going across the findings recorded by the learned
Single Judge and after considering the entire aspects of the matter vis-Ã -vis legal position and considering the terms of the agreement, is of the view
that the learned Single Judge has rightly quashed the impugned letter dated 07.07.2008 demanding interest for the period from 17.09.1998 to
26.07.2000. The Court did not find any illegality in the judgment dated 19.02.2018 delivered by the learned Single Judge in W.P.(C) No. 5298 of 2008.
33. We, therefore, are of the view that the said judgment cannot be faulted with.
34. In view thereof, the appeal fails and is, accordingly, dismissed.
