M/S.PEARL HILL BUILDERS AND DEVELOPERS vs UNION OF INDIA

2026:KER:46315
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MRS. JUSTICE PREETA A.K.
TH
MONDAY, THE 29 DAY OF JUNE 2026/8TH ASHADHA, 1948
W.A.NO.340 OF 2026
AGAINST THE JUDGMENT DATED 12.11.2024 IN W.P(C).NO.8708 OF 2021
OF HIGH COURT OF KERALA
APPELLANT(S)/PETITIONER:
M/S.PEARL HILL BUILDERS AND DEVELOPERS
AGED 55 YEARS
ARE REPRESENTED BY ITS MANAGING DIRECTOR, MR.ABDUL NAZAR,
PUTHEN PEEDIYAKKAL HOUSE, MOORIYAD P.O.,
CHALAPPURAM-673002.
BY ADV.SRI.LAKSHMI NARAYAN R.(SR.)
BY ADV.SRI.N.RAYNOLD FERNANDEZ
RESPONDENT(S)/RESPONDENT:
1 UNION OF INDIA
REPRESENTED BY THE SECRETARY, MINISTRY OF LAW AND
JUSTICE, NEW DELHI-110001.
2 GOVERNMENT OF KERALA,
REPRESENTED BY THE SECRETARY, MINISTRY OF LAW,
THIRUVANANTHAPURAM-695001.
3 THE KERALA FINANCIAL CORPORATION,
HEAD OFFICE, VELIYAMBALAM, THIRUVANANTHAPURAM-695033,
REPRESENTED BY ITS MANAGING DIRECTOR 4TH RESPONDENT.
4 THE MANAGING DIRECTOR,
KERALA FINANCIAL CORPORATION, HEAD OFFICE, VELLAYAMBALAM,
THIRUVANANTHAPURAM-695033.
5 CHIEF MANAGER,
KERALA FINANCIAL CORPORATION BRANCH OFFICE,
MALABAR PALACE, GH ROAD, KOZHIKODE-673001.

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6 C.ABDUL MANAF
AGED 51 YEARS
SON OF C.HUSSAIN, RESIDING AT CHOLAMUGHATH HOUSE,
THAZHEKODE WEST. PIN 679 341, THAZHEKODE VILLAGE,
PERINTHALMANNA TALUK, MALAPPURAM DISTRICT,
NOW WOKRING AS CHIEF MANAGER, KERALA FINANCIAL
CORPORATION BRANCH OFFICE, MALABAR PALACE, GH ROAD,
KOZHIKODE 673 001.
7 K.B. PADMADAS
SON OF BALAKRISHNAN, THEERTHAM, KOOLIYATTUVALAPPIL (HO,
PUDUKKAD, VIYYUR P.O., THRISSUR PIN 680 010
8 T.P.SALEEM
SON OF T.V.PUSHPANGATHAN, THASHNATH (H),
CHENTRAPPINI P.O., PIN 680 687
9 VARUN P.
SON OF PEETHAMBARAN, HOUSE NO.28/2453, POTTAMMAL,
KUTHIRAVATTAM P.O., CALICUT PIN 673 16., PIN - 673016
0 EDWIN JOSEPH
SON OF T.T.JOSEPH, TREASA GRADEN, CHETHIKKULAM,
ELATHUR P.O., PIN 673 303
11 ANIL KUMAR S.
AGE NOT KNOWN, SON OF M.SIVASANKARA PILLAI, V.P.HOUSE,
CHANTHANATHOPPU P.O., KOTTAMKARA VILLAGE, IN 691 014,
KOLLAM TALUK, KOLLAM DISTRICT
12 PEETHAMBARAN
AGE AND FATHERS NAME NOT KNOW TO THE PETITIONER,
HOUSE NO.28/2453, POTTAMMAL, KUTHIRAVATTAM P.O.,
CALICUT, PIN - 673016
BY ADV.SMT.R.ASALATHA VARMA, CGC
BY SRI.M.R.ARUN KUMAR, SENIOR GOVT. PLEADER
BY ADV.SRI.GEORGE POONTHOTTAM (SR.)
BY ADV.SMT.NISHA GEORGE
BY ADV.SMT.DHANYA P.ASHOKAN (SR.)
BY ADV.SRI.M.R.VENUGOPAL, SC, KFC
BY ADV.SRI.S.SREEKUMAR (KOLLAM)
BY ADV.SRI.S. MUHAMMAD ALIKHAN
BY ADV.SMT.ANJANA S. RAJ
BY ADV.SMT.GAYATHRI VENUGOPAL
BY ADV.SMT.A. A. AKHILA SREE PARVATHY
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 17.06.2026,
THE COURT ON 29.06.2026 DELIVERED THE FOLLOWING:

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“C.R.”
J U D G M E N T
Dr. A.K. Jayasankaran Nambiar, J.

The petitioner in W.P.(C).No.8708 of 2021 is the appellant before
us aggrieved by the judgment dated 12.11.2024 of a learned Single Judge
that dismissed its writ petition.
2. The brief facts necessary for disposal of this writ appeal are as
follows:
The appellant/petitioner is a firm engaged in the business as
Builders and developers. In connection with its business activities, it had
availed a loan of Rs.4.89 crores from the Kerala Financial Corporation
[hereinafter referred to as the “Corporation”] against a mortgage by
deposit of title deeds in respect of 16.21 Ares of property in Kasaba
Village in Kozhikode District. It is the case of the appellant that at the
time of filing the writ petition, the market value of the mortgaged
property was approximately Rs.30 crores. According to the appellant,
pursuant to default occasioned by it in repayment of the loan amount, the
loan was declared as a Non Performing Asset in 2014 and coercive action
was taken by the Corporation for recovery of the loan amount with
accrued interest. After a couple of rounds of litigation before this Court,
when the earlier recovery steps initiated by the respondent Corporation
were interdicted, the Corporation proceeded to take possession of the
property on 15.01.2019 and initiated steps to bring the property to sale.

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Since the sale notice dated 26.10.2019 failed to elicit any response from
bidders, the Corporation fixed the reserve price of the property through
an approved valuer as evident from Ext.R4(e) dated 16.11.2020, at
Rs.11,32,30,000/- and arrived at a realisable value of 80% of the market
value equivalent to Rs.9,05,86,000/-. This was later revised upward and
fixed at Rs.9,15,42,000/- by Exhibit R4(d) document dated 02.12.2020
and the fact was communicated to the appellant/petitioner. Thereafter,
on 17.12.2020, a notice under Section 29 of the State Financial
Corporations Act [hereinafter referred to as the “SFC Act”] was issued to
the appellant, wherein, he was informed that if the outstanding amounts
under the loan account were not paid within the time stipulated in the
notice, the Corporation would go ahead with the sale of the property. It
is the admitted case before us that no response was given by the
appellant to the said notice. The Corporation therefore proceeded to
publish the sale notice in the official website of the Corporation and in
two newspapers on 18.01.2021 and 23.01.2021 respectively, as evident
from the documents produced as Exts.R4(k), R4(l) and R4(m) along with
th
the counter affidavit of the 4 respondent Corporation. The e-auction for
the sale of the property was conducted on 12.03.2021 as evidenced by
Ext.P5 document produced in the writ petition.
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3. Although at the e-auction, the 11 respondent was identified as
the highest bidder from out of the two bidders [respondents 11 and 12],
who responded to the auction notice, he did not pay the entire sale
consideration by himself. Instead, he requested the Corporation to
confirm the sale in favour of his nominees - respondents 7 to 10, who had

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formed themselves into a partnership. It is significant that of the said
th th
respondents, the 9 respondent is the son of the 12 respondent, who
was the only other bidder at the e-auction. The pleadings before us also
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reveal that while the 11 respondent paid 25% of the sale consideration
as required by the e-auction notice on 20.03.2021, beyond the period of 7
days stipulated therein, the Corporation also offered a loan of Rs.5 crore
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to the partnership firm of which the 9 respondent was a partner on
30.03.2021 and the said amount was shown as adjusted towards the sale
consideration paid by the firm comprised of respondents 7 to 10 in the
sale deed executed in their favour on 13.04.2021. It was impugning the
entirety of the action taken by the respondent Corporation to bring the
property to sale and thereafter confirming the sale in favour of
respondents 7 to 10 that the writ petition was filed.
4. The learned Single Judge, who considered the matter, took note
of the contentions advanced on behalf of the appellant/petitioner, which
were essentially fourfold. Firstly, it was contended that the auction sale
conducted by the respondent Corporation was without following the
guidelines laid down by the Supreme Court in Kerala Financial
Corporation v. Vincent Paul – [2011 (2) KLT 286] . Secondly, it was
contended that the reserve price fixed for the property and the place of
sale were not mentioned anywhere in Ext.P3 notice dated 17.12.2020 or
at the time when the auction sale was conducted on 12.03.2021. Thirdly,
it was pointed out that the land value fixed as per the valuation report
that was relied upon by the respondent C while arriving at the reserve
price was only Rs.16 lakhs per cent, whereas the land value was much

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more than that. It was also pointed out that the valuation report did not
show any separate value for the building that was situated in the
property. Fourthly, the anomaly in the conduct of the auction sale,
where, out of the two bidders, namely respondents 11 and 12, the
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properties were sold to the 11 respondent but the sale deed was
executed in favour of respondents 7 to 10, who were the nominees of the
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11 respondent, was highlighted to suggest that respondents 7 to 10 had
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formed a cartel, along with the 11 respondent, and this was evident
th th
from the fact that the 9 respondent was the son of the 12 respondent,
who was the unsuccessful bidder at the e-auction.
5. The learned Single Judge, after considering the submissions of
the respondent Corporation as also the contentions of respondents 7 to
10, in whose favour the sale was confirmed, found against the
appellant/petitioner on all the four arguments put forth on its behalf, and
proceeded to dismiss the writ petition.
6. In the appeal before us, we have heard Sri.Lakshmi Narayan R.,
the learned senior counsel, duly instructed by Sri.N.Raynold Fernandez,
the learned counsel for the appellant, Smt.Dhanya P. Ashokan, the
learned senior counsel appearing for the respondent Corporation and
Sri.George Poonthottam, the learned senior counsel, duly instructed by
Smt.Nisha George, the learned counsel for respondents 7 to 10 and 12.
7. For the sake of brevity, we might at the outset point out that
while before us, the learned senior counsel Sri. Lakshmi Narayan R.

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would re-iterate the same four contentions as were urged before the
learned Single Judge, as noticed in an earlier paragraph of this judgment,
we have not been shown any material that would persuade us to interfere
with the findings of the learned Single Judge on the first three of those
contentions. The conduct of the appellant in occasioning persistent
defaults in the matter of repayment of the loan amounts, and in not
responding to the valuation report and intimation regarding fixation of
the reserve price that were received by it, effectively prevents it from
questioning the legality and propriety of the actions of the respondent
Corporation in that regard at this belated stage of the proceedings. We
also do not find any irregularity or illegality in the procedure followed by
the respondent Corporation up to the stage immediately prior to
effecting the sale of the mortgaged property. Our concern, presently, is
only with regard to the manner in which the sale of the mortgaged
property was effected by the respondent Corporation. The contention of
the learned counsel for the appellant in that regard is essentially that the
sale was not conducted in a fair manner and therefore did not result in
the respondent Corporation getting the best possible price for the
mortgaged property.
8. We have to bear in mind that the respondent Corporation is a
statutory body governed by the provisions of the SFC Act. In the context
of Section 29 of the SFC Act, which deals with the power of a Financial
Corporation to take possession of a defaulting unit and transfer by sale
for realisation of amounts due to the Corporation, the Supreme Court in
Mahesh Chandra v. Regional Manager, U.P. Finanacial Corporation

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and Others - [(1993) 2 SCC 279] observed as follows as regards the
manner in which the power ought to be exercised:
“ 15. Section 29 confers very wide power of the Corporation to ensure
prompt payment by arming it with effective measures to realise the arrears.
But the simplicity of the language is not an index of the enormous power
stored in it. From notice to pay the arrears, it extends to taking over
management and even possession with a right to transfer it by sale. Every
wide power, the exercise of which has far - reaching repercussion has
inherent limitation on it. It should be exercised to effectuate the purpose of
the Act. In legislations enacted for general benefit and common good the
responsibility is far graver. It demands purposeful approach. The exercise of
discretion should be objective. Test of reasonableness is more strict. The
public functionaries should be duty conscious rather than power charged. Its
actions and decisions which touch the common man have to be tested on the
touchstone of fairness and justice. That which is not fair and just is
unreasonable. And what is unreasonable is arbitrary. An arbitrary action is
ultra vires. It does not become bona fide and in good faith merely because no
personal gain or benefit to the person exercising discretion should be
established. An action is mala fide if it is contrary to the purpose for which it
was authorised to be exercised. Dishonesty in discharge of duty vitiates the
action without anything more. An action is bad even without proof of motive of
dishonesty, if the authority is found to have acted contrary to reason. Power
under Section 29 of the Act to take possession of a defaulting unit and
transfer it by sale requires the authority to act cautiously, honestly, fairly and
reasonably. Default in payment of loan may attract Section 29. But that alone
is insufficient either to assume possession or to sell the property. Neither
should be resorted to unless it is imperative. Even though no rules appear to
have been framed nor any guideline framed by the Corporation was placed,
yet the basic philosophy enshrined in Section 24 has to be kept in mind.
Rationale of action and motive in exercise of it has to be judged in the light of
it. Lack of reasonableness or even fairness at either of the two stages renders
the take over and transfer invalid…...........
16 . Equally sub-section (4) of Section 29 treated the Corporation "to
be a trustee" of the debtor or person claiming title through him. It saddles the
Corporation or the officer concerned with inbuilt duties, responsibilities and
obligation towards the debtor in dealing with the property and entails him to
act as a prudent and reasonable man standing in the shoes of the owner.
According to Prof. Issac, a noted author on Trusts, trusteeship has become a
readily available tool for everyday purpose of organisation financing, risk
shifting, credit operations, settling disputes and liquidation of business affairs.
Maitland, the other renowned writer on Equity, observed that one of the
exploits of equity; the largest and the most important, is the innovation and
development of the trust. Thus, trust has been and is being applied for all
purposes mentioned by Prof. Issac and many others as device to accomplish
different purposes. Trusteeship is an institution of elasticity and generality.
The broad base of the concept of property or its management vested in one
person and obligation imposed for its enjoyment by others is accepted in
Hindu jurisprudence. Therefore, when the property of the debtor stands
transferred to the Corporation for management or possession thereof which
includes right to sell or further mortgage etc., the Corporation or its officers
or employees stands in the shoes of the debtor as trustee and the property
rd
cestue que trust . In N. Suryanarayan Iyer's Indian Trust Act , (3 edn., 1987
at page 275) in Section 37 it is stated that, "Where the trustee is empowered
to sell any trust property... by public auction or private contract and either at
one time or at several times...” the duty of trustee is to obtain the best price.
He should, therefore, use reasonable diligence in inviting competition to that

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end. Where a contract of sale has been entered into bona fide by a trustee the
court will not allow it to be rescinded or invalidated because another
purchaser comes forward with a higher price. It would, however, be improper
for the trustee to contract in circumstances of haste and improvidence. Where
in a trust for sale and payment of creditors the trustee sold at a gross under
valuation showing a preference to one of the creditors, he was held guilty of
breach of trust. If the purchaser is privy to the fraud the property itself can be
recovered from him.
17. The sale may be either by public auction or private contract. In
either case the trustee has to keep in mind that he must obtain the most
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advantageous price. Kerr on Receivers (17 Edition, page 208) states that "a
receiver, however, is not expected any more than a trustee or an executor to
take more care of their property entrusted to him than he would have as a
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reasonably prudent man of business". In Halsbury's Law of England, (4
Edition; Vol. 39 para 919) it is stated that the "receiver will be compelled to
show that he has acted with perfect regularity and has used such degree of
prudence as would be expected from a private individual in relation to his own
affairs". The trustee or a receiver is, therefore, duty bound to protect and
preserve the property in his possession and the standard of conduct expected
of him, in dealing with the property or sale thereof, is as a prudent owner
would exercise in dealing with his own property or estate. The degree of care
expected of him in handling property taken possession of is measured by the
degree of care expected of a person acting as trustee, executors or assignes.
The object and endeavour should also be to secure maximum advantage or
price in a sale of the property in lots or as whole, as exigencies warrant.
18. The Corporation or its officers or servants as trustee are bound to
exercise their power in good faith in selling or dealing with the property of the
debtor as an ordinary prudent man would exercise in the management of his
own affairs to preserve and protect his own estate. Therefore, the acts of the
officer or servant of the corporation should be reasonable, just and fair which
must meet the eye and the offer accepted must be competitive and every
attempt should be made to secure as maximum price as possible to liquidate
the liabilities incurred by the industrial concern or the debtor under the Act.”

9. Although the guidelines issued by the Supreme Court in
Mahesh Chandra (supra) were found to have been too widely
expressed in regard to the extent of indulgence shown to chronic
defaulters therein, and the decision in Mahesh Chandra (supra) was
overruled to the extent the guidelines issued thereunder were contrary to
the letter and intent of Section 29 of the SFC Act, the afore extracted
paragraphs from the said judgment that outline the statutory object of
Section 29 of the SFC Act and the role that is expected to be played by
the Corporation concerned while exercising its powers under Section 29
remains good law. In fact, two recent judgments of the Supreme Court in

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Om Sakthi Sekar v. V. Sukumar - [2026 INSC 237 = 2026 KHC
OnLine 7124] and M.R. Vasumathi v. The Authorized Officer & Ors.
- [2026 INSC 633] that deal with the aspect of fairness of the process
leading to fixation of reserve price and sale of assets of a borrower under
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
and Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, reiterate the above position.
In Om Sakthi Sekar's case [supra] , while repelling a contention that
once an auction sale was confirmed and the purchaser was a bona fide
third party bidder, the sale ought not to be disturbed except in cases of
fraud or material irregularity, the court observed as follows:
“ 15. While there can be no quarrel with the settled proposition that
the rights of a bona fide auction purchaser deserve due protection and that
confirmed court sales should not ordinarily be interfered with, it is equally
well established that such protection is not absolute. Where credible issues
are raised regarding the adequacy of valuation or the fairness of the process
leading to the fixation of the reserve price, the supervisory jurisdiction of the
Court may be invoked to ensure that the recovery proceedings have been
conducted in a manner that secures the best possible value of the property.
The objective of recovery proceedings is not merely to complete the sale but to
realise the maximum value of the secured asset so as to balance the interests
of the creditor and the borrower. In this regard, reference may be made to the
decision of this Court in Rajiv Kumar Jindal v. BCI Staff Welfare
Association , (2023 (238) Comp Cas 227 : 2023 SCC OnLine SC 507) wherein,
it was observed that the purpose of an auction is to obtain the most
remunerative price for the property by affording an opportunity to intending
purchasers to participate in a process of competitive bidding, thereby
ensuring transparency and fairness in the sale. The Court further emphasized
that if the process of competitive bidding is curtailed or compromised, the
possibility of underbidding or securing an inadequate price cannot be ruled
out. In such circumstances, the court is required to exercise its discretion with
circumspection so as to safeguard the legitimate interests involved in the sale
process. The following paragraphs are apposite:
“24. The object of the auction is to secure optimum realisable value of the
property by giving opportunity to the potential buyers facing competitive
bids either in open or closed format. The terms “auction” or “bid” are
inter-related as both give the idea of selling the product to the public.
Bidding involves the process where a person offers a price which is known
as a bid. The process of bidding takes place in a situation where large
number of people show their willingness to buy a particular product or a
service and bidding in a sealed envelope is often used by various
companies, industries and small businesses for assessing the needs of the
public at large. On the other hand, auction is the process that involves
buying and selling goods and services by offering them for bids, taking

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bids and selling the item to the highest bidder and that is possible if there
is a competitive bidding between the bidders.
25. The purpose of auction (open or close format) is to get the most
remunerative price and giving opportunity to the intending bidders to
participate and fetch higher realizable value of the property. If that path is
cut down or closed, the possibility of fraud or to secure inadequate price
or underbidding would loom large. In the given circumstances, it is the
duty of the court to exercise its discretion wisely and with circumspection
and keeping in view the facts and circumstances in each case.
26. The object of auction has been considered by this court in
Lakshmanasami Gounder v. C.I.T. Selvamani as under:-
“…The object of the sale is to secure the maximum price and to avoid
arbitrariness in the procedure adopted before sale and to prevent
underhand dealings in effecting sale and purchase of the debtor's
property. Public auction is one of the modes of sale intending to get
highest competitive price for the property. Public auction also ensures
fairness in actions of the public authorities or the sale officers who should
act fairly and objectively. Their action should be legitimate. Their dealing
should be free from suspicion. Nothing should be suggestive of bias,
favouritism, nepotism or beset with suspicious features of underbidding
detrimental to the legitimate interest of the debtor. . .”
10. Similarly in Vasumathi [supra] , while stressing on the need
to strictly comply with the statutory ordained time limit while disposing
the secured assets of a borrower by sale at an auction, it was observed as
follows:
“ 35. The DRT, the DRAT and the High Court appear to have proceeded on a
broader premise of consideration of delay, conduct of the borrower, and the
perceived equities in favour of the auction purchaser. Equally, it is true that
the record bears out that no concrete steps were ultimately taken by the
appellant, who is the daughter of the deceased guarantor, to liquidate the
outstanding dues and that earlier attempts at settlement did not come to
fruition. However, in our considered opinion, the failure to repay without being
informed of an extension being granted to the auction purchaser, by itself,
cannot validate proceedings that are otherwise vitiated in law.
36. While it is trite that the rights of an auction purchaser and the sanctity of
a confirmed sale ordinarily merit due protection, such protection is by no
means absolute. It must yield where the very process engendering the sale is
demonstrated to be legally infirm or to be incongruous with the statutory
framework. The object of proceedings under the SARFAESI Act is not the mere
culmination of a sale in a mechanical manner, but the lawful realisation of the
secured asset through a process that is fair, transparent and strictly compliant
with the prescribed rules. In the present case, the non-adherence to the
timeline that the SARFAESI Rules contemplate constitutes a material
irregularity going to the root of the matter. The mere factum that the sale
stood confirmed cannot, therefore, foreclose judicial scrutiny.”
11. It is against the backdrop of the said decisions that we have to
scrutinize the actions of the respondent Corporation in the instant case,

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especially in the conduct of the e-auction sale. The e-auction notice was
published on the website of the respondent Corporation on 24.02.2021
notifying the e-auction date as 12.03.2021. In the said notice, produced
as Ext.P5 in the writ petition, the reserve price of the mortgage property
was shown as Rs.9,15,42,000/- and the total liability of the borrower to
the respondent Corporation was shown as Rs.9,56,51,212/- as on
23.02.2021. Clauses 6 and 7 of the General Conditions notified are
relevant and read as follows:
“6. Once an e-sale/auction is confirmed the tenderer or the party in whose
favour the sale is decided shall remit a minimum of 25% (Twenty five percent)
of the e-sale value or amount so specified/agreed, upon with the Corporation,
within 7 (seven) days of the confirmation or on the date so specified in the
auto mail/SMS of confirmation. E M D will be adjusted against this amount. If
the successful e-tenderer/e-bidder fails to make the payment as aforesaid and
take delivery of the properties involved, the auto mail/SMS of confirmation
shall stand revoked automatically and the E M D shall stand forfeited.
Similarly if after making the advance as prescribed, the bidder fails to make
further payment get the deal settled, the advance so paid shall stand forfeited.
The Corporation will then be free to retender and/or re-auction the industrial
concern or part thereof or carry on negotiation at the risk of the e-tenderer
and for any loss or damages caused in this account shall be recoverable from
the e-tenderor/e-bidder/parties.
7. The balance 75% (Seventy five percent) of the bid amount will be
deposited by the party within 30 (thirty) days of the confirmation. The
unit/property/machinery/vehicle will be handed over only after the execution
of the sale deed/sale note in favour of the bidder/e-tenderor or his nominee. In
the case deferred payment with approval of the Corporation in deserving
cases the unit be handed over only on sufficient collateral security and on the
security of the industrial site sold.”
12. In the e-auction conducted on 12.03.2021, only two bidders
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namely respondents 11 and 12 participated and the 11 respondent was
declared the highest bidder at Rs.9.18 crores. On the same day, i.e., on
12.03.2021, he paid Rs.46 lakhs towards the EMD as well. Thereafter on
20.03.2021, an amount of Rs.183.50 lakhs representing 25% of the sale
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consideration was paid and the 11 respondent requested the respondent
Corporation to execute the sale deed in the name of respondents 7 to 10.

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It must at once be noticed that the payment of 25% of the sale
consideration was not on the seventh day after confirmation of sale
which would have been 19.03.2021 but on the eighth day, namely,
th
20.03.2021. The payment was also not made by the 11 respondent in
whose favour the sale was confirmed. This is because, going by clause 6
and 7, the “party” who is to make payment is the “tenderer or the party
in whose favour the sale is decided”. Therefore, technically speaking no
amount was paid by the “tenderer or the party in whose favour the sale is
decided” other than the amount deposited as EMD. Further, the request
for executing the sale deed in favour of respondents 7 to 10 was also
made prior to payment of the balance 75% of the sale consideration.
This was in contravention of clause 7 of the General Conditions extracted
above. It is clear therefore that the successful bidder in whose favour
the sale was confirmed, left the scene immediately after the confirmation
and was not part of the further steps for finalisation of the sale.
13. What happened thereafter is even more intriguing. The
respondent Corporation, that was statutorily obliged to obtain the best
price for the property, advanced a term loan of Rs.5 crore to respondents
7 to 10 for the purpose of purchasing the property, the sale of which was
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confirmed in favour of the 11 respondent. Responding to a specific
query posed to the learned senior counsel for the respondent
Corporation, their actions were justified as being in compliance with a
Circular dated 23.03.2021 that purportedly empowered the Corporation
to do so. The said Circular reads as follows:

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KERALA FINANCIAL CORPORATION

HEAD OFFICE, THIRUVANANTHAPURAM
Circular No. KFC/CIR 81/CR 47/2020-21 Date 23.03.2021
Credit
Guidelines / Operational Procedures for processing loans for the
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acquisition of existing concerns / units sold by the Corporation
Ref: 1. Circular No. KFC/CIR 07/CR 03/2019-20 dated 24.05.2019
2. Circular No. KFC/CIR 29/CR 15/2020-21 dated 10.08.2020
1. The Credit Manual of the Corporation, circulated vide first reference, inter alia, covers "Acquisition
of existing concerns/ units taken over by KFC" as an eligible activity for finance by the Corporation.
The Minimum Promoters' Contribution specified as per the Manual is 50% of depreciated value of
plant & machinery and 25% for the value of land and building of the enterprise being acquired. It is
also specified that the value should be limited to the document value plus documentation charges or
the value fixed by the Corporation, whichever is lower. In such cases, the general condition that the
land value shall be limited to 50% of the promoters' contribution shall not be applicable.
2. BOs have sought clarifications on the procedures to be adopted while sanctioning loans to the
purchaser of assets sold by the Corporation under SFCs Act 1951/ SARFAESI Act 2002. Considering
this, it has been decided to issue the following revised detailed guidelines/ operational procedures:
Scheme under which the
All loans are to be processed under the 'Scheme No.1,
Scheme for Term Loan for Industrial Activities' irrespective of its sector.
loan is to be processed :
Purpose of the loan : To purchase the assets sold by the Corporation under SFCs Act 1951/
SARFAESI Act 2002
-All eligible entities as per the Credit Policy.
-The CIBIL Credit Vision score of all the promoters should be 650 or
above.
-The promoters should have been issued with the Sale Confirmation
Letter by the Corporation as on date of sanctioning the loan.
Eligible Promoters :
The Sale Confirmation amount & documentation charges plus DSRA
portion.
In such cases, the general condition that the land value shall be limited to
50% of the promoters' contribution shall not be applicable.
No other charge/ expense (like, processing charge/interest during
construction/ etc. shall be included in the project cost).
Project Cost :
Minimum Promoters
: 50% of the Sale Confirmation amount & documentation charges.
The PC has to be brought in upfront.
Contribution (PC)
Maximum
Assistance :
Up to 60% of the Sale Confirmation amount & documentation charges,
subject to the condition that minimum 15% of the loan component
earmarked for sale consideration is retained as DSRA.
Processing fee/
: As per the Circular No. KFC/CIR 18/CR 07/2020-21 dated 08.07.2020
for other income.
Upfront fee
Internal Credit
: Not insisted.
rating
Rate of Interest : Shall be 12%. No rebate is allowed in this scheme. The rate is linked to
the Base rate of the Corporation.
-The asset being sold in “as is where is” condition.
-Personal Guarantee of all the Promoters.
Security Coverage

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: Since the loan amount is limited to 60% of the value of the asset, no
additional/ interim security is insisted. The usual condition of insisting
additional collateral for specific sectors shall not be applicable in this
case.
The moratorium on principal repayment shall be fixed as per the project
requirements, subject to the condition that maximum period shall not
exceed one year.
The total repayment period also shall be fixed as per the project
requirements, subject to the condition that the total period including
moratorium shall not exceed five years. The residual life of the primary
asset should also be taken into consideration while fixing the repayment
period.
However, for Flats/ Apartment projects, the maximum repayment period
shall be limited to three years including one year moratorium.
Repayment of
:
Loan
Foreclosure
: No foreclosure premium, except in case of takeover of loans by Bank/
other FI.
Premium
Processing of the
: Loans shall be processed at BOs or Zones or by Head
Office Appraisal Team as decided by the HO Credit Department.
Loan
Sanctioning
: Prior BRC clearance to be obtained.
As per Credit Policy.
Authority
Disbursing Authority : Branch Head
Stamped receipt for the full sanctioned loan amount has to be obtained
from the purchasers.
A new loan account has to be created for the purchaser. The full loan
amount has to be shown disbursed in the new loan account of the
purchaser. Such portion of the loan amount, after retaining the DSRA,
shall be adjusted in the loan account of the 'unit under sale'.
No portion of the loan amount should be disbursed to the Bank account
of the purchaser.
The DSRA portion shall be kept in the excess head of the purchaser's
loan account, which will be adjusted in the loan account by the CFS
automatically as and when interest is due. Thereafter, the purchaser
should repay the loan as per the schedule set.
Mode of Disbursement :
-Project report with proposed plan to repay the loan.
-KYC/Biodata/Affidavit/copies of IT return statements/etc. of the
promoters.
-Verification of the background of the promoters through Customer
Verification Points/ by Field Officer.
-Any additional document as required by the Appraising Officer for
processing the loan.
Documents to be collected
for processing the loan
:
application
-Symbolic deposit of title deeds kept with the Corporation to be executed
by the proposed purchaser along with loan agreement.
-Disbursement shall be initiated only after ensuring that the promoter has
remitted the balance sale consideration in KFC account.
-Branch Head has to discuss with the concerned Sub-Registrar Officer
(SRO) for registering the sale agreement and the date of registration has
to be fixed.
-Details of KFC loan amount has to be mentioned in the sale agreement.
-Branch Head has to be present in SRO while registering the loan
agreement and the sale deed has to be collected directly by the Branch
Head from SRO.
-BO has to send letter to the Village Officer and liaison with the Village
Other Points :

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Officer to get the mutation done at the earliest.
-Necessary letters have to be sent to the Secretary, Local Body with sale
details.
-Caveat petition to be filed in all cases.
-For units located in Industrial Estates, Branch Head shall liaison with
concerned Estate Manager/ GM, DIC as applicable.
The purchaser shall undertake that balance costs for acquiring the asset,
post-sale expenses, cost of renovation, etc. shall be met by him. The
Corporation will not be under any obligation to provide financial
assistance to meet such expenses.
The promoter should agree to the condition that the Corporation will not
give any legal/ technical guidance/ support on any matter relating to the
sale of the property or its subsequent developments.
Effecting Mutation of the purchased property shall be the responsibility
of the promoter.
KFC shall not be responsible for Non-generation of income from the
project, litigations, attachments, etc. The promoter shall also undertake
to service the loan from his/ her own sources irrespective of the fact that
whether income is generated from the project. The corporation reserves
right enforce recovery measures of the asset sold in case the promoter
fails to service the loan as per the schedule or sanctioned conditions are
not complied.
Additional Sanction
:
Conditions
Applicable stamp duty is 8% and registration fee is 2% of the sale
confirmation amount.
In case the sale confirmation amount of immovable property in excess of
st
or equal to Rs.50 lakh, TDS of 0.75% (applicable till 31 March 2021) /
1% shall be deducted by the Buyer of the property at the time of making
payment of sale as per Sec 194 IA of the Income Tax Act, 1961. Tax so
deducted should be deposited by the buyer to the Government Account
under KFC's PAN (AABCK1316M) and submit the Chellan to the
Corporation.
The accounting entry would be
Dr Bank Account xxx
Dr. Income tax Deducted at Source xxx
Cr. Gross recovery xxx
Stamp duty/ Registration Fees/ TDS are subject to revision and Officers
shall verify the updates with the concerned departments.
Stamp duty/
Registration Fees/
:
TDS
3. The revised guidelines take immediate effect. Any practical difficulty shall be brought to the notice
of the undersigned at the earliest.
Sd/-
Chairman and Managing Director
Copy to:
CMD's Office
ED
GMs
HODs
ZMs/ CMs/ BMs
14. We are at a loss to understand how, in the face of Section 29 of
the SFC Act, that obliges the respondent Corporation to act as a trustee

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of the mortgaged property with an obligation to try and obtain the best
price for the property at an auction sale, it can have a scheme to finance
an auction purchaser with a loan granted to him against the security of
the very same property. We would have thought that any genuine
attempt at obtaining the best price for a property that is up for sale
cannot culminate in the identification of a purchaser who admittedly
does not have the means to pay that price. Added to that, if the Financial
Corporation that is obligated to obtain the best price for the property is
seen to finance the purchaser, through the advance of a loan or
otherwise, then the bona fide s of the Financial Corporation would also
become questionable. To make matters worse, we find that even the
conditions laid out in the Circular were flouted while sanctioning the loan
of Rs.5 crores in favour of respondents 7 to 10. Firstly, the Circular is
unambiguous when it states that an eligible promoter has to be one who
is issued with a sale confirmation letter by the Corporation as on the date
th
of sanctioning of the loan. Here, it was the 11 respondent, who was
issued with the sale confirmation letter whereas, the loan was sanctioned
in favour of respondents 7 to 10. Secondly, although the Circular
mandates that the disbursement of the loan shall be initiated only after
ensuring that the promoter has remitted the balance sale consideration
in the Corporation's account, there is no material on record to show that
th
the 11 respondent, as the eligible promoter, made any payment to the
respondent Corporation. Even assuming, as contended by the learned
senior counsel for respondents 7 to 10, that they had made the necessary
payment to the respondent Corporation for getting a release of the loan
payments, the sale deed executed on 13.04.2021 shows that the

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adjustment of the loan amount sanctioned towards the sale consideration
was only on that day, namely, on 13.04.2021. The payment of the balance
sale consideration through the aforesaid adjustment was beyond the
period of 30 days after the confirmation of the sale envisaged in Ext.P5
auction notice. Thus, not only was there a non-compliance with the
conditions of sale with regard to payment of balance sale consideration
to the respondent Corporation, the Corporation did not also comply with
its own Circular while sanctioning the loan to persons who did not qualify
to be eligible promoters under the Circular.
th
15. When, in addition to the above, we also find that the 9
respondent, who is one of the partners of the partnership Firm formed
th
between respondents 7 to 10, is the son of the 12 respondent, who was
the unsuccessful bidder in the e-auction sale, we cannot but view the
entire exercise of sale carried out by the respondent Corporation as one
that was in breach of its statutory obligation to display fairness and
reasonableness in its actions as a trustee of the mortgaged property of
the petitioner/appellant-borrower.
16. In the result, we allow this Writ Appeal, by setting aside the
impugned judgment of the learned Single Judge to the extent it upholds
the sale of the secured asset to respondents 7 to 10, and allow the writ
petition to that extent. The respondent Corporation shall proceed to
obtain a fresh valuation report in relation to the property and fix the
reserve price therefor prior to holding a fresh auction sale within a
period of six months from the date of receipt of a copy of this judgment.

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Before parting with this case, we might observe that we are
mindful of the limits of our jurisdiction and of the settled legal position
that courts will not ordinarily interfere with or unsettle concluded sale
transactions of State Financial Corporations in exercise of the power of
judicial review under Article 226 of the Constitution of India. However,
when we find the actions of the respondent Corporation to be not merely
falling short of the standards required to be adhered to by a State
Financial Corporation under the SFC Act, but also in breach of its
obligations to act fairly and as a trustee of mortgaged property as
envisaged under the statutory provisions, we cannot shut our eyes to the
apparent injustice meted out to the appellant - borrower. This is more so
when it is the admitted case before us that the sale in question was
conducted during a period when the realisable market value of the
property had fallen to substantially lower levels on account of the Covid
pandemic situation.
The Writ Appeal is allowed as above. No costs.
Sd/-
D R . A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
PREETA A.K.
JUDGE
prp /

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APPENDIX OF W.A NO.340 OF 2026
PETITIONER'S ANNEXURES:
ANNEXURE 1 COPY WRIT PETITION WITH ANNEXURES AND ENGLISH
TRANSLATION
ANNEXURE 2 COUNTER AFFIDAVIT FILED BY 4TH RESPONDENT AND
ENGLISH TRANSLATION
ANNEXURE 3 STATEMENT FILED BY 4TH RESPONDENT
RESPONDENTS ANNEXURES:
EXHIBIT R4(H) TRUE COPY OF THE LETTER DT. 28.10.2020 ISSUED
TO THE PETITIONER BY THE 4TH RESPONDENT.
EXHIBIT R4(I) TRUE COPY OF THE ACKNOWLEDGEMENT CARD DATED
22.12.2020 RECEIVED BY THE PETITIONER.
EXHIBIT R4(J) TRUE DOWNLOADED COPY OF THE FINANCIAL
STATEEMNT FOR THE FINANCIAL YEAR 2018-19
UPLOADED BY THE COMPANY IN THE PORTAL OF
MINISTRY OF COMPANY AFFAIRS.
EXHIBIT R4(K) TRUE COPY OF THE SALE NOTIFICATION PUBLISHED
IN THE HINDU DATED 23.01.2021.
EXHIBIT R4(L) TRUE COPY OF THE SALE NOTIFICATION PUBLISHED
IN THE MATHRUBHUMI DATED 23.01.2021.
EXHIBIT R4(M) TRUE COPY OF HTE E-AUCTION NOTIFICATION DATED
18.01.2021 PUBLISHED IN THE WEBSITE OF THE
CORPORATION.
EXHIBIT R4(N) TRUE COPY OF THE ORDER DATED 15.12.2021 IN
W.P.(C).NO.11597 OF 2021 OF THIS HON'BLE
COURT.
EXHIBIT R4(O) TRUE COPY OF THE JUDGMENT DATED 6.10.2021 IN
WPC.8708 OF 2021.
EXHIBIT R4(P) TRUE COPY OF THE JUDGMENT DATED 29.10.2021 IN
R.P.741 OF 2021 IN WPC 8708 OF 2021.
ANNEXURE R7(a) A COPY OF THE PARTNERSHIP DEED DATED 19TH DAYH
OF MARCH 2021.
//TRUE COPY//
P.S. TO JUDGE