M/S MICRO HOTEL P.LTD. vs. M/S HOTEL TORRENTO LIMITED .

1 REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPEAL NO. 6347 OF 2012 [Arising out of SLP (Civil) No. 32610 of 2011] M/s Micro Hotel P. Ltd. .. Appellant Versus M/s Hotel Torrento Limited & Ors. .. Respondents WITH CIVIL APPEAL NO. 6348 OF 2012 [Arising out of SLP (Civil) No. 1125 of 2012] J U D G M E N T JUDGMENT S. K. RADHAKRISHNAN, J. 1. Leave granted. 2. Common questions arise for consideration in both these appeals and hence we are disposing of both the appeals by a common judgment. Page 1 2 3. We are, in these appeals, called upon to consider the question whether the Division Bench of the Orissa High Court was justified

(IPICOL) to offer afresh the benefit of One-Time Settlement Scheme st (OTS) to M/s Hotel Torrento Limited, 1 respondent herein, which had earlier been offered vide communications’ dated 18.3.2006 and 3.4.2006, but was not availed off by complying with the terms and conditions stipulated therein. The further question is whether the High Court was right in ordering dispossession of the appellant st (auction purchaser) and put 1 respondent back in possession. 4. This case has a chequered history, therefore, it is necessary to JUDGMENT examine the facts at some length to appreciate the real controversy between the parties and to reach a proper and just decision, on nd facts as well as on law. OSFC, 2 respondent herein, disbursed a term loan of Rs.51,27,200/- and loan in lieu of subsidy of Rs.23.30 st lakhs to 1 respondent for establishing a hotel project at Janugarji, Balasore in the State of Odisha. The project was jointly financed by st OSFC and IPICOL, for which 1 respondent had entered into a loan Page 2 3 agreement and mortgaged the title deeds and extended a registered lease deed dated 8.2.1988. Lease was valid for a period of 25 years with a renewable clause. There was default in repayment of the

respondent on 7.2.1991, followed by a recall notice dated 30.11.1991. The respondent was also served with a show cause notice dated 16.12.1994 followed by recall notices dated 4.1.1995 and 13.3.1996. st 5. 1 respondent then filed a Writ Application No. 2513 of 1996 on 20.3.1996 before the High Court of Orissa to quash the recall notice dated 13.3.1996 and for rehabilitation. The High Court disposed of that writ application with a direction to respondents 2 st and 5 (OSFC & IPICOL) to consider the request of 1 respondent for JUDGMENT rehabilitation package. On 9.3.2006, an OTS scheme was st introduced by OSFC and 1 respondent applied for settlement of its loan account under that scheme. On 18.3.2006, the benefit of the st scheme was extended to 1 respondent by OSFC and agreed in principle to settle the term loan account on payment of Page 3 4 Rs.1,16,21,200/- on or before 18.4.2006, subject to certain terms and conditions which were as follows: 1. The settlement amount shall either be paid in one

OR Installments as per the sequence mentioned below: a) Up front payment of Rs.23,61,400.00 (Rupees twenty three lakh sixty one thousand four hundred only) (i.e.25% of settlement amount less initial deposit) shall be paid along with the acceptance letter (format enclosed herewith) on or before Dt. 16.04.06, within 30 days. b) The balance settlement amount of Rs.87,15,900.00 (75%) shall be paid on or before Dt. 15.06.06. 2. Any other expenses chargeable/incurred/debited in the loan accounts towards misc. expenses on L/A with effect from Dt. 11.07.05 (date of application) till the final settlement of loan accounts shall be paid by you along with the settlement amount. JUDGMENT 3. It may be noted that (NDC) can only be issued in your favour after liquidation of all the loans availed. 4. You shall have to submit the consent/decree/permission/withdrawal order (wherever applicable) before issue of No Due Certificate (NDC). Page 4 5 In case of failure on payment of the aforesaid amount within the stipulated dates, the one time settlement of dues considered in your favour including relief and concession thereon shall be withdrawn without further reference to you.”

waiver of Rs.1,88,21,099 subject to certain terms and conditions, which were as follows: “(a) The OTS amount is Rs.45 lacs (Rupees forty-five lacs only) and the resultant sacrifice(s) by way of waiver is Rs.1,88,21,099 (Rupees one crore twelve lakhs seventeen thousand five hundred twenty nine only on account of funded interest and Rs.76,03,570/- (Rupees seventy six lakhs three thousand five hundred seventy only) on account of overdue interest. (b) The OTS amount shall be paid within a period of 1 year from the date of this letter as per the schedule given below: JUDGMENT Rs.6,75,000 towards 25% of upfront payment (including initial payment made by you) within 30 days and balance 75% amounting to Rs.33,75,000/- within a period of 1 year in 4 quarterly installments, carrying simple interest @ 14% p.a. on reducing balance. (c) The above OTS is subject to cancellation, if it is found that you have provided incorrect details and information or suppression of any material facts for getting the sanction of OTS. The decision of IPICOL is final in this regard. Page 5 6 (d) In case of non payment, IPICOL shall have the right of requital.” 7. We notice that despite of waiver of Rs.2,26,85,800 and

did not comply with the terms and conditions of the OTS scheme, st consequently, OSFC and IPICOL informed 1 respondent that they had withdrawn OTS offer. 8. We find, on 31.3.2007, yet another OTS scheme of 2007 was st launched by OSFC and, again, an offer was made to 1 respondent to avail of the benefit of that scheme. OSFC, on 4.10.2007, st requested 1 respondent to pay the settlement amount of st Rs.1,16,21,200 with delayed payment of interest within 10 days. 1 respondent did not comply with that request as well, consequently, JUDGMENT st OSFC, on 28.12.2007, withdrew the offer and advised 1 respondent to pay the entire dues as per the agreement, failing st which 1 respondent was informed that recovery proceedings would be initiated for realization of the dues. Later, OSFC sent a demand notice dated 22.8.2008 stating that the total loan outstanding as on st 31.12.2007 was Rs.4,52,94,691 and 1 respondent was called upon Page 6 7 to pay the amount, failing which it was informed that recovery proceedings would be initiated.

notice dated 22.08.2008 and for a direction to consider its claim under the OTS scheme. On 31.10.2008, OSFC had, however, issued a notice recalling the entire amount along with interest and st informed 1 respondent that in case of failure to make payment, further action would be taken under Section 29 of the State Financial Corporation Act (SFC Act). Writ Petition came up for hearing before the Orissa High Court on 4.12.2008, and the Court directed OSFC to maintain status-quo and on 7.4.2010, the Court st passed an ad-interim order directing 1 respondent to inform as to JUDGMENT whether they were willing to deposit the amount or Rs.1 Crore for consideration of their claim under OTS. On 26.11.2008, IPICOL also made a request to OSFC to initiate proceedings under Section 29 of SFC Act and to take over the assets of the unit. 10. Writ Petition No. 13376 of 2008 came up for final hearing on st 21.4.2010, and the Court enquired whether 1 respondent was Page 7 8 willing to pay Rs.1 Crore, as suggested by the Court on 4.12.2008. The Court was informed that a petition had been filed on 21.4.2010 along with a bank draft of Rs.17,50,000 drawn in favour of the

request to the Court for time up to 26.2.1010 so as to pay the amount of Rs.1 Crore. The Court ordered the return of the draft to st the 1 respondent since the amount was due to both OSFC and st IPICOL. The Court was informed by OSFC that 1 respondent had not availed of the earlier proposal for OTS and no new OTS scheme was available, still the Court passed the following order: “The learned counsel for the Corporations submits that the earlier proposal for one-time settlement had been considered by both the Corporations and the matter had been settled. But the petitioner did not pay the amount for which it had to be cancelled and, at present there is no scheme for one-time settlement. JUDGMENT Be that as it may, the Petitioner having defaulted in payment of huge amount we dispose of the writ petition directing that the petitioner may deposit a sum of Rs.50,00,000/- (Rupees fifty lakhs) each before each of the two Corporations by 20.6.2010 and applications shall be filed before both the Corporation for settlement of the dues. If any such application is filed the same shall be considered on its own merit by both the Corporations either separately or jointly provided there is any scheme available for such settlement by the Corporations . Page 8 9 the In event, the Petitioner fails to deposit the aforesaid amount by 20.6.2010, both the Corporations shall be at liberty to take such action as permissible under law under the State Financial Corporation Act .” (emphasis added) st 11. 1 respondent did not comply with even the above mentioned st order. OSFC then issued a registered notice dated 8.7.2010 to 1 respondent pointing that since it had failed to comply with the above mentioned order of the Court, OSFC would be at liability to st initiate proceeding under the SFC Act. The 1 respondent was, therefore, asked to liquidate the entire outstanding amount as on st 30.6.2010, failing which 1 respondent was informed that OSFC would be initiating action under Section 29 of SFC Act. Later, OSFC issued a seizure order dated 2.8.2010 of the property and JUDGMENT that order was executed on 15.9.2010 and the possession of the unit was taken over “as is where is” basis. 12. OSFC, during seizure, got prepared a valuation report dated 17.09.2010 from its panel valuer. Based upon that valuation report, off-set price of the unit was fixed at Rs.1,75,45,000. Later, the sale notice was published in the Daily newspapers, Samaj and Page 9 10 the New Indian Express on 18.9.2010. On 21.9.2010, again, OSFC st issued a notice to 1 respondent to clear the outstanding dues with up to date interest of Rs.6,18,62,238/- collected up to 30.6.2010

st 29.9.2010 so also to get the assets released. 1 respondent was informed of the sale notice published in the daily newspapers requesting to clear up the dues before the DDAC meeting scheduled st to be held on 29.9.2010. 1 respondent was also informed that in the event of non-payment of dues, it could still match or better the st highest bid price. 1 respondent, however, did not take any steps to clear the outstanding dues, but preferred a Review Petition No. 99 of 2010 for reviewing the order passed by the Orissa High Court on 21.4.2010 in Writ Petition No. 13376 of 2008. The Court rejected JUDGMENT st the review petition on 22.9.2010. The Court, after noticing that 1 respondent had not deposited any amount in pursuance to its order dated 21.4.2010, held as follows: “Apart from the above, from the conduct of the petitioner, we find that the petitioner did not pay any amount when the account was settled under the scheme earlier and waited for another demand notice. Even in the writ petition though the petitioner was directed to deposit Rs.50,00,000/- (Rupees fifty lakhs) each with the two Corporations, the same was not Page 10 11 complied with. In course of hearing of this review petition, the petitioner has offered only Rs.40,00,000/- (Rupees forty lakhs) to be deposited with the two Corporations against the outstanding dues of more than seven crore. We are, therefore, of the view that the petitioner has no intention to clear the dues of the two Corporations which had financed for establishing a hotel. In the meantime possession of the said hotel has been taken by OSFC under section 29 of the State Financial Corporation Act and the same has been advertised for sale . The sale notice, a copy whereof was produced before us shows that the loanee can th appear before the DDAC on the date fixed i.e. 29 of September, 2010 for the purpose of getting release the seized asset.” (emphasis added) st 13. 1 respondent then submitted a proposal to DDAC, which was considered by DDAC on 29.9.2010 and the order was st communicated to the 1 respondent. 14. DDAC, in pursuance to the auction notification in the JUDGMENT newspapers, received altogether 9 bids and, after negotiations with the auctioneers, the offer of the appellant was found to be the highest at Rs.774 lacs, which was accordingly accepted OSFC delivered the possession of the land, building and machinery/furniture and fixtures to the appellant vide possession letter dated 11.10.2010. Page 11 12 st 15. 1 respondent, as already stated, then approached the Orissa High Court and filed the present writ petition No. 17711 of 2010 to quash the cancellation of the OTS dated 28.12.2007, sale letter

were granted by the Division Bench of the Orissa High Court, the operative portion of which reads as follows: “For the reasons stated supra the writ petition is allowed. Rule issued. The letters dated 28.12.2007 and 1.10.2010 (Annexure-5 & Annexure-8 series) cancelling the proposal for OTS and rejecting the representation dated 29.9.2010, the public sale notice dated 19.9.2010 (Annexure-6), the sale letter dated 1.10.2010 (Annexure-8 series), the sale agreement dated 11.10.2010 (Annexure-A/5) and the alleged delivery of possession are hereby quashed. The Orissa State Financial Corporation and IPICOL are directed to place fresh demand with the petitioner, within four weeks from the date of receipt of this order, with regard to the amount of OTS offered in the communications dated 18.3.2006 and 3.4.2006 of the OSFC and IPICOL along with interest at the rate of 9% on the said amount from that date till the date of payment or at the rate of interest, stipulated under the OTS Scheme, 2007 in case of similarly placed persons. The petitioner is directed to make payment within six weeks thereof. Thereafter the possession of the property shall be delivered to the petitioner within a reasonable time. If the petitioner fails to deposit the amount, as directed, the OSFC and IPICOL are at liberty to proceed in the matter in accordance with law.” JUDGMENT Page 12 13 16. Shri C.A. Sundram, learned senior counsel appearing for the appellant (auction purchaser) submitted that the High Court has completely misread and misunderstood the facts of the case which

Learned senior counsel also submitted that the judgment in writ petition No. 13376 of 2008 as well as the order in Review Petition No. 99 of 2010 had attained finality and, consequently, the orders dated 28.12.2007 and 01.10.2010 cancelling the proposal for OTS cannot be questioned. Learned senior counsel also pointed out that the conditions stipulated in the above mentioned orders were also st not complied with by 1 respondent, consequently, the only course st open to 1 respondent was to pay the entire amount demanded by st OSFC and IPICOL. The 1 respondent did not pay the amount JUDGMENT demanded, hence, Section 29 of SFC Act was rightly invoked. 17. Ms. Shubhranshu Padhi, learned counsel appearing for the appellant in SLP(C) No. 1125 of 2012 fully supported the arguments advanced by the learned senior counsel Shri C.A. Sundaram and explained the various steps taken by OSFC which resulted in invoking Section 29 of SFC Act. Page 13 14 18. Shri Ashok Panigrahi, learned counsel appearing on behalf of the respondent, however, supported the judgment of the Hon’ble Court and submitted that there is no justification in interfering with

in OTS Scheme were onerous and that procedures were not followed for the sale of the mortgaged properties. 19. We express our strong disapproval of the manner in which the Division Bench of the High Court has virtually sat in judgment over the judgment of another co-ordinate Bench. We are of the view that the Division Bench of the High Court overlooked some vital facts which have considerable bearing on the outcome of this dispute, consequently, reopened a lis which has attained finality, due to non-compliance of the various directions issued by the co- JUDGMENT ordinate Bench of the High Court. Failure to comply with the various directions issued by the co-ordinate Bench in Writ Petition No. 13376 of 2008 and the order passed in Review Petition No. 99 of 2010 was completely overlooked by the Division Bench. Page 14 15 Appreciation of Facts 20. Litigations in courts are won or lost mainly on facts more on

place the correct facts so that the court can draw correct inferences which enable it 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. JUDGMENT If any of the above mentioned 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. 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. Page 15 16 21. Following are the facts and conclusions overlooked by the Division Bench: (1) OSFC introduced an OTS scheme in the year 2006 and 1st

under that scheme. On 18.03.2006, the benefit of the st scheme was extended to 1 respondent and OSFC agreed in principle to settle the term loan account on payment of Rs.1,16,21,200/-, subject to certain conditions. IPICOL st also approved the request of 1 respondent for OTS at Rs.45 lacs with waiver of Rs.1,88,21,099/-, subject to certain conditions. (2) OSFC and IPICOL, therefore, waived an amount of Rs.2,26,85,800/- and Rs.1,88,21,099 and gave the benefit JUDGMENT st of the OTS scheme to 1 respondent, subject to few other conditions like period of payment, interest etc. st (3) The 1 respondent had failed to comply with those conditions imposed, consequently, OSFC and IPICOL had to withdraw the benefits extended under the OTS scheme. (4) OSFC lodged another OTS scheme in the year 2007. st Opportunity was given to 1 respondent again to avail of the Page 16 17 st benefit of that scheme. OSFC on 04.10.2007 requested 1 respondent to pay the settlement amount of Rs.1,16,21,200/- with delayed payment of interest within

st by 1 respondent, consequently OSFC on 28.12.2007 st withdrew that offer as well and advised 1 respondent to pay the entire dues as per the agreement, failing which it was informed that recovery proceedings would be initiated. st (5) 1 respondent filed a Writ Petition No.13376 of 2008 to quash the demand notice dated 22.08.2008 where it was st pointed out by OSFC that 1 respondent had not availed of all the benefits of the OTS scheme extended by the Corporation, consequently they had to cancel the said JUDGMENT scheme. Further, it was also stated that in spite of public st notification and their intimation and frequent requests, 1 respondent did not apply for the OTS 2007 Scheme. (6) When Writ Petition came up for hearing on 07.04.2010, the st Court had enquired whether 1 respondent would be still willing to deposit the amount of Rs. 1 crore for consideration of their claim under OTS. The matter again Page 17 18 came up for hearing before the Division Bench on 21.04.2010 on which the Court disposed of the writ petition st directing 1 respondent to deposit Rs.50,00,000/- each

which it was ordered that the Corporations would be at liberty to take such action as permissible under law under the State Financial Corporation Act. st (7) OSFC issued a loan recall notice to 1 respondent on 8.7.2011, since it did not comply with the directions in WP No. 13376 of 2008 with a request to pay the entire st outstanding amounts within 30 days, failing which the 1 respondent was informed that action would be taken under Section 29 of SFC Act. JUDGMENT (8) OSFC issued a seizure order on 02.08.2010 and during seizure, a valuation report dated 17.09.2010 was prepared. Based upon the valuation report, off- set price of the unit was fixed at Rs.1,75,45,000/-. Sale notice was published in the Daily newspapers “Samaj” and the “New Indian Express” on 18.09.2010. On 21.09.2010, again OSFC Page 18 19 st issued a notice to 1 respondent to clear the outstanding dues with up-to-date interest of Rs.6,18,62,238/-. st (9) Review Petition No. 99 of 2010 filed by 1 respondent in writ

Division Bench on 22.9.2010. While dismissing the Review st Petition, the Bench found that 1 respondent had no intention to clear the dues of the Corporations which had financed for establishing a hotel. The court also noticed that the mortgaged properties were taken over by OSFC invoking Section 29 of SFC Act and advertised for sale. st (10) 1 Respondent filed a representation before DDAC on 29.9.2010 which was rejected and the order of rejection was st communicated vide letter dated 1.10.2010 and 1 JUDGMENT respondent was informed that the assets were already taken over under Section 29 of SFC Act on 15.9.2010 and was put to public auction, with due intimation. (11) Auction was concluded as per rules and ultimately, the appellant was found to be the highest bidder at Rs.774,00,000 which was accepted and sale letter dated Page 19 20 1.10.2010 was issued to the appellant, who had paid the entire amount by 11.10.2010. (12) Sale Memo, Agreement to Sale was executed with the

to the appellant on that date. st (13) 1 respondent then on 11.10.2010 filed the present WRIT Petition No. 17711 of 2010. 22. We are of the view that the above mentioned facts had considerable bearing for rendering a just and proper judgment in writ petition No. 17711 of 2010, but those vital facts were completely overlooked by the Division Bench and it had also ignored the binding judgment of the co-ordinate Bench rendered in writ petition No. 13376 of 2008 and the order passed in Review Petition JUDGMENT No. 99 of 2010 and the steps taken by the Corporations as permitted by the Division Bench. 23. A 3-Judge Bench of this Court in Haryana Financial Corporation and Another v. Jagdamba Oil Mills and Another , (2002) 3 SCC 496 while dealing with the scope of Section 29 of SFC Act held as follows: Page 20 21

24. The Court again reminded of the fact that the fairness required of the Corporations could not be carried to the extent of disabling them from recovering what is due to them and held as JUDGMENT follows: “13. …….The Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge. As such in the discharge of its functions, it is free to act according to its own light. The views it forms and decisions it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations. Unless its action is mala fide, even a wrong decision by it is not open to challenge. It is not Page 21 22 for the courts or a third party to substitute its decision, however, more prudent, commercial or businesslike it may, for the decision of the Corporation…...”

v. Regional Manager, U.P. Financial Corporation and Others , (1993) 2 SCC 279 held as follows: “Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. As the facts in the present case show not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been lost sight by the courts below.It is one thing to assist the borrower who has intention to repay, but is prevented by insurmountable difficulties in meeting the commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying on the decision in Mahesh Chandra's cases (supra), the matter has been decided.” JUDGMENT 26. We are of the view that the principles laid down by this Court in the above judgments apply to the case on hand, if the facts are properly appreciated. The Division Bench, in the impugned judgment, took the view that the Corporations had not followed the guidelines laid down by this Court in Kerala Financial Corporation v. Vincent Paul and Another , (2011) 4 SCC 171. In Page 22 23 our view, this is factually incorrect. This Court, in the above judgment, indicated that the authority concerned should serve to the borrower a notice of 30 days for sale of immovable assets. In

08.07.2010 with a request to pay the entire outstanding dues within 30 days otherwise, failing which, it was stated that action st under section 29 of SFC Act would be initiated against the 1 respondent. Seizure order was issued by the Corporation and the entire assets of the unit were taken over under Section 29 of the Act on 15.09.2010 which was after the expiry of 30 days from the date of notice dated 08.07.2010. Therefore the guidelines laid down in the above referred judgment have also been complied with. Even otherwise, the guidelines issued by this Court in Vincent Paul case JUDGMENT would operate only prospectively and that too depends upon the facts and circumstances of each case. 27. We have found that the procedure laid down under Section 29 of SFC Act has been followed by the Corporations. The independent valuer submitted his report on 17.09.2010 and the off-set price of the unit was fixed after getting it valued by an independent valuer. Page 23 24 It was based upon the valuation report that the off-set price of the unit was fixed at Rs.1,77,45,000/- on 17.09.2010. Sale notice was published in the News Papers on 18.09.2010 and the auction was

committed an error in holding that off-set price of property was not valued before the conduct of auction and that there was no due publication of auction. Sale notice, it is seen, was published in the “Samaj” a vernacular paper and also in the “New India Express” a widely circulated English newspaper on 18.09.2010 and the Corporation had received nine offers and after protracting negotiations with all the bidders, the offer of the appellant was accepted being the highest. The Corporation before putting the st appellant in possession again issued a notice dated 21.9.2010 to 1 JUDGMENT st respondent enquiring whether he would match the offer. 1 Respondent did not avail of that opportunity as well. It is under such circumstances that sale letter dated 1.10.2010 was issued to the appellant with a copy to all the st Directors/Promoters/Guarantors of 1 respondent company. The appellant paid the balance consideration of Rs.5,65,20,000 on Page 24 25 11.10.2010 and the Sale Memo was extended on that date and the property was also delivered.

directions issued by the co-ordinate Bench of the Orissa High Court in writ petition No. 13376 of 2008, which gave liberty to the Corporations to proceed in accordance with Section 29 of SFC Act. We are of the view that the Division Bench of the High Court had overlooked those vital facts as well as the binding judgment of a co- ordinate Bench in writ petition No. 13376 of 2008 and had wrongly reopened a lis and issued wrong and illegal directions. 29. In the said circumstances, we are inclined to allow both the JUDGMENT appeals and set aside the judgment of the Division Bench of the Orissa High Court. However, in the facts and circumstances of the case, there will be no order as to costs. ……………….……………………..J. (K. S. RADHAKRISHNAN) Page 25 26 ………………………………….…..J. (DIPAK MISRA) New Delhi September 6, 2012 JUDGMENT Page 26