REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1850 OF 2007

M/S. INDUSTRIAL PROMOTION AND INVESTMENT  CORPORATION OF ORISSA LIMITED … APPELLANT

VERSUS M/S. TUOBRO FURGUSON STEELS  PRIVATE LIMITED  & OTHERS … RESPONDENTS

J U D G M E N T Aftab Alam, J. 1. This appeal, at the instance of M/s Industrial Promotion  and Investment Corporation of Orissa Limited (“Corporation” for  the sake of brevity), is directed against the judgment and order  dated June 29, 2006 passed by a Division Bench of the Orissa High  Court. By the impugned judgment, the High Court allowed the Writ  Petition [W.P.(Civil) No.1556/2003] filed by respondent Nos.1 & 2  (M/s Tuobro Furguson Steels Private Limited and its Director) and  undoing a contract of sale of an Industrial Unit entered into  between  the  parties,  directed  the  appellant  to  refund  Rs.8,00,000/-  (Rupees  Eight  Lacs),  that  was  paid  by  the  respondents to the appellant as part of the sale consideration,

together with simple interest at prevailing rates of interest of  the State Bank of India on deposits  made by customers during the  relevant period.  2. The facts relevant to appreciate the rival contentions of  the parties are brief and may be stated thus. A  Foundry  Unit  situated at Ganeswarpur Industrial Estate, Balasore, by the side  of NH-5, along with land, building, plant and machineries was  taken  over  by  the  Corporation  under  Section  29  of  the  State  Financial  Corporation  Act,  1951,  as  its  original  promoters  namely, M/s Josna Casting Centre, defaulted in payment of its  dues.  The  taken-over  Unit  was  put  to  sale  vide advertisement  dated February 8, 1999 issued in Oriya and English newspapers  inviting offers for purchase of the Unit. A copy of the sale  advertisement  is  at  Annexure  P1  which  gives  a  complete  description of the Industrial Unit along with all the relevant  details. It is significant to note that in the advertisement it  was stipulated that the sale would be on ‘AS IS WHERE IS’ basis.  Further, the intending purchasers were allowed inspection of the  Unit-on-sale from February 16 to 27, 1999.  3. In response to the advertisement the respondents made an  offer (revised by letters dated April 12, 1999 and August 5,  1999)  to  purchase  the  Unit  for  a  total  consideration  of  Rs.40,00,000/-  (Rupees  Forty  Lacs)  with  down  payment  of  Rs.8,00,000/-  (Rupees  Eight  Lacs).  The  offer  made  by  the  respondents was considered by the Advisory and Disposal Committee  of  the  Corporation,  and  in  acceptance  of  the  offer,  the

Corporation issued the sale letter  dated September 10, 1999. A  copy of the sale letter is at Annexure P2.  In the sale letter it  was stated that possession of the Unit would be handed over to  the respondents on payment of Rs.8,00,000/- (Rupees Eight Lacs)  and the balance amount of Rs.32,00,000/- (Rupees Thirty Two Lacs)  would be treated as fresh loan to respondent no.1 to be repaid  within  a  period  of  6  years  in  quarterly  instalments  after  a  moratorium of 18 months with interest at the rate of 18 per cent  per annum from the date of handing over the physical possession  of the Unit. The sale formalities were required to be completed  within 30 days from the date of issue of the letter. It was  further stipulated in the letter that the sale would lapse and  the earnest money forfeited if the documents were not executed  within the prescribed time. In clause 2 of the letter it was once  again repeated that the sale was on “AS IS WHERE IS” basis and no  further  claim  in  that  respect  would  be  entertained  by  the  Corporation. In clause 5 it was stated that the sale of fixed  assets was free from liabilities other than the deferred payment  of loan of Rs.32,00,000/- (Rupees Thirty Two Lacs) with interest  as stated in the earlier paragraph of the letter.  Clause 8 made  it  clear  that  the  sale  did  not  pre-suppose  sanction  of  any  additional loan in favour of the purchaser for operation of the  Unit. In clause 9 of the letter it was stated that though the  Corporation would recommend to all concerned to assist and help  the buyer of the Unit (the respondents) but would not be in any  manner responsible if any of the benefits were not granted to the

Unit or if there was delay in grant of any of the benefits. It  was expressly made clear that the denial of any benefits to the  Unit by any financial organisation or any other body or delay in  grant of any concession or benefit shall not be a ground for non- payment of the Corporation’s dues. 4. In furtherance of the sale, respondents made payment of  Rs.8,00,000/- (Rupees Eight Lacs) to the appellant and following  the payment, possession of the Unit was made over to respondents  on September 15, 1999. Before the delivery of possession, the  Director and other technical persons of the respondent company  verified/compared the assets with the inventory of assets item- wise  and  thereafter,  took  over  possession  of  the  assets  on  September 15, 1999 in presence of officers of the Corporation,  OSFC and SBI and the security personnel.  The handing over of  possession of the Unit was witnessed by a ‘Memo of Delivery of  Possession of Assets’ executed both on behalf of the appellant  and the respondent company.  A copy of “the Memo of Delivery of  Possession of Assets” is annexed as Annexure P-3 to the appeal  memo. 5. After taking possession of the Unit, the respondents did  not take any step to complete the documentation with IPICOL and  Orissa State Financial Corporation as required in clause 7 of the  sale letter. The appellant then wrote a number of letters (on  October 12, 1999, January 4, 2000 and February 28, 2000) asking  the respondents to execute the documents/loan agreement with the  Corporation and with the Orissa State Financial Corporation. The

respondents, however, went on temporising in the matter. Instead  of executing the necessary documents, the respondents wrote to  the appellant complaining about the high rate of interest and  requesting  to  lower  it  down.   The  respondents  also  made  the  complaint  that  the  machineries  were  in  very  bad  shape  and  required  to be  replaced and  unless the  issue of  the rate  of  interest was resolved, it would not be possible to start the  operation of the factory. The respondents also complained about  the difficulty in getting loans from the bank or other financial  institutions and asked the appellant whether it would give its  consent to creation of  pari passu or second charge as security  for the loan amount advanced by the financial institutions. It  also  complained  about  the  electricity  dues  and  sought  the  intervention of the appellant to resolve the difficulties being  faced by it.  6. On March 24, 2000, the appellant – Corporation once again  wrote to respondents asking them to pay the over due interest of  Rs.3,51,445/- as on March 31, 2000 and to execute the necessary  documents.   7. The respondents did not make any payment nor did they take  any step to complete the documentation.  Instead, by letter dated  July 20, 2001, they asked the appellant to take back the Unit  stating that from July 31, 2001, they would withdraw the security  personnel engaged by them in the factory premises which was till  that date under their control.  On October 12, 2001, respondents  informed  the  appellant  that  a  theft  had  taken  place  in  the

factory premises which was at that time under their possession.  On April 29, 2002, respondents once again wrote to the appellant  that they  would withdraw the security personnel if the assets  were not taken over by the appellant within 15 days.  Faced with  the recalcitrant attitude of respondents, the appellant issued  notice under Section 29 of the State Financial Corporation Act,  1951 to respondents and took over the assets of the Unit. 8. On February 17, 2003, the respondents went to the High  Court challenging the taking over of the assets by the appellant.  9. On June 17, 2004, the appellant decided to sell the Unit  along  with  its  assets  to  Sun  Agro  Foods  &  Exports  for  a  consideration of Rs.17,00,000/- (Rupees Seventeen Lacs) but could  not hand over possession to the new buyer in view of the interim  order passed by the High Court in the Writ Petition filed by the  respondents.  Finally, by the impugned order dated June 29, 2006,  the High Court allowed the Writ Petition filed by the respondents  and  directed  the  Corporation  to  refund  to  the  respondents  Rs.8,00,000/  (Rupees  Eight  Lacs)  along  with  interest  at  the  prevailing bank rate that was received by it as part of the sale  consideration. 10. The order of the High Court is brief and does not even  advert to all the relevant facts as stated above. 11. It  took  note  of  the  case  of  the  respondents-writ  petitioners in the following manner:-

“According  to  the  petitioner,  after taking  possession of the said Unit, it found that because of  missing  of  some  vital  parts  of  the  machines  and

machineries, huge arrear electric dues and lack of grant  of recommendation for I.P.R. the Unit does not worth  Rs.40,00,000/- (Forty Lakhs) and, therefore, petitioner  made correspondences with opposite party No.1 seeking  reliefs on those accounts besides requesting to reduce  the rate of interest on the differential amount to be  paid in instalments and that when opposite party No.1  turned  a  deaf  ear  to  all  such  approaches  and  representations,  petitioner opted to withdraw from the  Industrial  Unit  and  surrender  the  same  in  favour  of  opposite party No.1.  With such assertion, petitioner  has filed the present writ petition with the prayer to  issue a writ of mandamus directing opposite party No.1  to give the rehabilitation package (as mentioned in the  prayer portion of the writ petition) or alternative to  direct  opposite  party  No.1  to  return  the  amount  of  Rs.8,00,000/-  (eight  lakhs)  which  was  paid  by  it  in  September,  1999  with  interest  at  the  prevailing  Bank  rate.”

The High Court then noted the stand of the Corporation that it  was not possible to give the rehabilitation package, as requested  by the respondents because they had failed to adhere to the terms  of the sale letter.   Having noted the stand of the Corporation,  the  High  Court  disposed  of  the  Writ  Petition  and  passed  the  operative order in the following terms:-

“Regard  being  had  to  the  aforesaid  facts  and  submission, we find that when opposite party no.1 is not  intending to give rehabilitation assistance package as  prayed  for  by  the  petitioner,  therefore,  it  is  appropriate that opposite party No.1 should refund the  amount  of  Rs.8,00,000/-  (eight  lakhs)  together  with  simple interest at prevailing rates of interest of the  State Bank of India on deposits made by customers during  the  relevant  period.   The  amount  be  worked  out  accordingly  and  be  paid  to  the  petitioner  within  a  period  of  four  months,  failing  which  the  entire  sum  shall carry compound interest therefrom.”

We are unable to appreciate the order of the High Court and we  see no basis on which such an order could have been passed.  The

case of the respondents, as noted by the High Court was untenable  on its face.  Even according to the respondents it was only after  having taken possession of the Unit that they found that some  vital parts of the machineries were missing and there were huge  arrears of electricity dues and that the recommendation for the  industrial  policy  resolution  was  not  forthcoming.  In  those  circumstances, the respondents realised that the Unit was not  worth Rs.40,00,000/- (Rupees Forty Lacs). 12. The respondents went to the High Court seeking refund of  the part consideration money Rs.8,00,000/- (Rupees Eight Lacs)  paid by them as if the antecedent acts of the parties, namely,  the  issuance  of  the  advertisement,  the  offer  made  by  the  respondents followed by negotiations between the parties and the  issuance of the sale letter by the Corporation, the payment of  Rs.8,00,000/-  (Rupees  Eight  Lakhs)  by  the  respondents  in  pursuance of the sale letter followed by their  taking over the  possession  of  the  Unit  meant  nothing  and  did  not  create  any  rights or obligations in the parties.  Strangely, the High Court  did not even refer to the sale advertisement, the stipulations  made  in  the  sale  letter  and  the  correspondences  between  the  parties. The High Court completely overlooked that the parties,  with their eyes widely open, had entered into the contract for  sale of the Unit which was subject to the terms and conditions  clearly spelled out in the advertisement and in the sale letter;  that  in  furtherance  of  the  contract,  payment  was  made  and  possession of the Unit changed hands.  In other words, both sides

had acted on the basis of the contract, changing their respective  positions and assuming rights and obligations against each other.  The contract having been acted upon, it could not be unilaterally  abrogated on the sweet will of any of the two sides.  In terms of  the  contract  the  respondents  were  obliged  to  pay  the  balance  consideration amount of Rs.32,00,000/- (Rupees Thirty Two Lacs)  along with interest as provided in the sale letter.  In default  of  payment  it  was  the  statutory  right  of  the  appellant- corporation to take possession of the Unit under Section 29 of  the Financial Corporation Act.   13. In  the  aforesaid  facts  and  circumstances,  there  was  no  ground  for  the  High  Court,  to  interfere  in  favour  of  the  respondents,  much  less  to  direct  for  refund  of  the  part  consideration money paid by the respondents to the appellant. 14. Before  concluding,  however,  we  must  take  note  of  the  submissions made by Mr. Shrish Kumar Misra, learned counsel for  the respondents, who tried to defend the order of the High Court.  Mr. Misra submitted that the Corporation had no right to forfeit  the  amount  of  Rs.8,00,000/-  (Rupees  Eight  Lacs)  paid  by  the  respondents as part consideration for the sale of the Unit and at  best they could forfeit the earnest money of Rs.50,000/- (Rupees  Fifty Thousand) paid by the respondents while making the offer to  purchase  the  Unit.   There  is  no  substance  at  all  in  the  submission.   The  question  of  forfeiture  of  the  earnest  money  would  have arisen  in case  the parties  had not  acted upon  in  furtherance of the sale letter but the matter in this case went

much beyond that stage.  The parties agreed for the sale of Unit  for an amount of Rs.40,00,000/- (Rupees Forty Lacs) out of which  the  respondents  were  required  to  make  a  down  payment  of  Rs.8,00,000/- (Rupees Eight Lacs), which they did.  On payment of  the part consideration money, the possession of the Unit was made  over  to  them.   The  respondents  were,  thus,  under  the  legal  obligation  to  pay  the  balance  consideration  of  Rs.32,00,000/-  (Rupees Thirty Two Lacs) in instalments and along with interest,  as stipulated in the letter.  The Corporation had, therefore, not  only the right to retain Rs.8,00,000/- (Rupees Eight Lacs) paid  to  it  as  part  consideration  but  also  to  realise  the  balance  amount of consideration, in accordance with law.   15. Mr. Misra next submitted that according to clause 5 of the  sale  letter  the  fixed  assets  of  the  Unit  were  free  from  liabilities  other  than  the  deferred  payment  of  loan  of  Rs.32,00,000/- (Rupees Thirty Two Lacs)  but in reality there  were many dues, including dues of electricity, against the Unit.  We find no substance in this submission either. According to us,  there was no misrepresentation of facts in clause 5 or in any  other clauses of the sale letter.  As to the electricity dues, it  may be noted that the decision of this Court in Isha Marbles  vs.  Bihar State Electricity Board & Anr.,(1995) 2 SCC 648 had already  come by the time the respondents took over the Unit and it was  for them to take benefit of the decision of this Court.   16. Mr.Misra also tried to seek support from two decisions of  this Court (1) in  Haryana Financial Corporation  Vs.  Rajesh

Gupta (2010)  1  SCC  655,  paragraphs  20  and  22  and  (2)  in  V.K.Ashokan  vs.  Assistant Excise Commissioner (2009) 14 SCC 85,  paragraph 69.  These two decisions have no application to the  facts of the case and do not even slightly advance the case of  the respondents. 17. On hearing counsel for the parties and on going through  the materials on record, we find, for the reasons stated above,  that the order of the High Court is completely unsustainable. We,  accordingly, set aside the impugned order and dismiss the writ  petition filed by the respondents.  18. In  the  result,  the  appeal  is  allowed  with  costs,  quantified at Rs.10,000/- (Rupees Ten Thousand).

…………………………………………………..……J. (Aftab Alam)

……………………………………………………..…J. (Ranjana Prakash Desai)

New Delhi; December 5, 2011