REPORTABLE                           

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3446  OF 2003

Kerala Financial Corporation                         .... Appellant(s)

Versus

Vincent Paul & Anr.               .... Respondent(s)

WITH

CIVIL APPEAL NO. 3450  OF 2003    

AND

CIVIL APPEAL NO. 3451 OF 2003

J U D G M E N T P.Sathasivam,J.

1) These appeals are filed against the judgments and orders  

dated 27.11.2001 and 22.01.2002 passed by the High Court of  

Kerala at Ernakulam in A.S. No. 557 of 2000 and O.P. No.  

33834 of 2001 respectively.  

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2)  Brief facts:

(a) The Kerala Financial Corporation (in short “the KFC”), a  

Public Sector Undertaking,  is a State Financial  Corporation.  

On 24.10.1977, a loan of Rs.50 lakhs was sanctioned by the  

KFC to a firm called Cable India (hereinafter referred to as “the  

Firm”)  on hypothecation of land and machinery.  In view of  

consistent failure of the firm to repay the loan, on 11.09.1987,  

the  KFC  took  over  the  firm  under  Section  29  of  the  State  

Financial Corporations Act, 1951 (in short “the Act”).   On the  

same day, the Firm filed O.S. No. 2194 of 1987 with I.A. No.  

1776 of  1987 for  temporary  injunction  restraining  the KFC  

from taking over the firm.   

(b) On 07.10.1988, a notice was published by the KFC in  

Mathrubhumi Malayalam Daily inviting tenders from intending  

buyers  for  purchase  of  the  property.  The  last  date  for  

submission of tender was 31.10.1988.  Pursuant to the same,  

only one bidder, i.e. one Vincent Paul, submitted the tender  

quoting an amount of Rs. 7.5 lakhs as bid amount and also  

deposited the earnest money of Rs. 10,000/- as stipulated in  

the  tender  notice.   On the  same  day,  after  discussion  and  

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negotiation  between  the  KFC  and  Vincent  Paul,  the  KFC  

issued  a   letter  to  the  said  Vincent  Paul  expressing  its  

willingness to sell the property for Rs. 8.25 lakhs subject to  

certain conditions.   

(c) By letter dated 01.11.1988, the Firm filed O.S. No. 2109  

of 1988 before the Munsiff Court, Thrissur, seeking injunction  

to restrain the KFC from taking any action pursuant to the  

auction/sale  proceedings  and  on  the  very  same  day  the  

learned  Judge  directed  to  maintain  status  quo  as  on  

31.10.1988.   

(d) By letter  dated  05.11.1988,  the  KFC informed Vincent  

Paul  that  further  proceedings  of  the  sale  could  be finalized  

only after  vacating the temporary injunction ordered by the  

Munsif  Court,  Thrissur.    On 10.11.1988,  I.A.  No.  1776 of  

1987 in O.S. No. 2194 of 1987 filed by the firm was dismissed.  

On 17.01.1992, O.S. No. 2109 of 1988 was also dismissed and  

the  injunction  was  vacated.  Against  the  said  order,  on  

26.02.1992,  the  Firm  filed  A.S.  No.  56  of  1992  before  the  

District Judge, Thrissur.  In the meantime, on 03.02.1993, the  

first  suit  i.e.  O.S.  No.  2194  of  1987  itself  was  dismissed.  

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Against  the  said order,  the  Firm filed  AS.  No.  146 of  1993  

before the District Judge, Thrissur.

(e) On 06.12.1994, Vincent Paul filed a suit bearing O.S. No.  

1522  of  1994  before  the  subordinate  Judge,  Thrissur  for  

specific performance of the agreement of sale.  Subsequent to  

the filing of the said suit, the appeals i.e. A.S. No. 56 of 1992  

and  A.S.  No.  146  of  1993   were  dismissed  by  a  common  

judgment  dated  10.04.1995  by  the  Addl.  District  Judge,  

Thrissur.  The suit for specific performance i.e. O.S No 1522 of  

1994,  filed by Vincent Paul was also dismissed by the Sub-

ordinate  Judge,  Thrissur,  vide  judgment  dated  07.03.2000,  

holding  that  there  is  no  concluded  contract  between  the  

parties  so  as  to  entitle  the  plaintiff  to  a  decree  for  specific  

performance.  Against the said order, on 18.09.2000, Vincent  

Paul  filed  A.S.  No.  557  of  2000  before  the  High  Court  of  

Kerala.   

(f) On 17.09.2001, the KFC invited fresh tenders for the sale  

of assets.  One K.K. Ummer Farook responded to the tender by  

making an offer of Rs. 55,55,555/- for the land and building  

which was the highest amount among the four offers received.  

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In the meantime, by judgment dated 27.11.2001, the Division  

Bench of the High Court allowed A.S. No.557 of 2000 filed by  

Vincent  Paul,  consequently  decreed  the  suit  filed  by  him.  

Against the said judgment, the KFC filed Civil Appeal No. 3446  

of  2003  before  this  Court  by  way  of  special  leave  petition.  

Challenging the same judgment, K.K. Ummer Farook filed Civil  

Appeal No. 3450 of 2003 before this Court by way of special  

leave petition.  K.K. Ummer Farook also filed O.P. No. 33834 of  

2001 before the High Court praying for direction to convey the  

property being the highest bidder in the second tender and the  

same was dismissed as infructuous by the High Court  vide  

judgment dated 22.01.2002. Against the said judgment, K.K.  

Ummer Farook filed C.A. No. 3451 of 2003 before this Court  

by way of special leave petition.  

3) Heard Mr. Rajendran Nair, learned senior counsel for the  

appellant in C.A.No.3446 of 2003, Mr.  V. Giri, learned senior  

counsel for the appellant in C.A. Nos. 3450 and 3451 of 2003  

and  Mr.  C.S.  Rajan,  learned  senior  counsel  for  respondent  

No.1  in  C.A.  Nos.  3446  and  3450  of  2003,  Mr.  R.  

Sundarvardan,   learned   senior counsel    for respondent  

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No.2  in  C.A.No.3446/2003  and  respondent  No.3  in  

C.A.No.3450 of 2003.

4) During the course of hearing, Mr. P.V. Dinesh, learned  

counsel appearing for the KFC filed additional affidavit stating  

that  the  KFC,  formed  in  1953,  is  a  statutory  Corporation  

constituted under the Act and more than 95% of the shares  

are held and controlled by the State Government.  The Board  

is constituted under Section 10 of the Act.  According to him,  

the Managing Director is appointed by the State Government  

and  its  Chairman  is  the  nominee  of  Small  Industries  

Development Bank of India (in short “SIDBI”) and substantial  

re-finance is  granted from SIDBI for  sanctioning loans.   He  

pointed  out  that  the  procedure  for  the  sale  is  as  per  the  

standing orders and recovery policy as approved by the Board  

from time to time and the recovery policy may change every  

year for settlement of NPA loan accounts.  According to the  

procedure that was followed in 1988, a sale proclamation shall  

be  published  in  a  local  daily  newspaper  in  Vernacular  

language with details of property and date of opening tender or  

auction.   The  tender  has  to  be  submitted  to  the  Managing  

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Director  at  the  Head  Office  and  the  opening  of  

tender/auctioning  has  to  be  conducted  at  the  Head  Office.  

The sale will be confirmed by the Managing Director.  Officers  

of the Corporation will value the properties and 80% of that  

valuation will be considered as upset price for the purpose of  

sale of properties.   

5) He  further  pointed  out  the  procedure  which  has  been  

followed in  the  present  case.   He  stated  that  the  notice  to  

defaulter/promoter  under  Section  29  was  issued  and  

thereafter,  the  assets  were  taken  by  the  Branch/District  

Manager  authorized  by  Managing  Director.   Valuation  of  

assets was done by the officers of KFC.  Land valuation was  

done by the Legal Officer in consultation with Village Officer  

concerned and by conducting local enquiry for fixing market  

value.  Valuation of building, plant and machinery was done  

by  Technical  Officer  based  on  the  norms  approved  by  the  

Institute of Engineers.  The tender notice was published in two  

newspapers for the sale of the property.   

6)  Though these details have been furnished by the counsel  

for the KFC during the course of hearing, the fact remains that  

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the State Government has not framed rules or guidelines for  

sale of public properties by way of tender or auction.  KFC is  

incorporated under Section 3 of the Act.  Section 29 of the Act  

empowers the KFC to attach and sell the security in discharge  

of debts.  It gives KFC the right to take over possession of the  

security  offered  while  taking  the  loan  and  the  right  to  

transfer/sale the same as if  KFC is the owner.   The money  

acquired after such transfer/sale of the secured property shall  

be  used  in  discharge  of  debts  due  to  KFC  including  all  

expenses incurred by it.  The residue amount, if any, is to be  

paid to the person entitled.  Section 31 of the Act also provides  

the same remedy but the procedure goes through the District  

Judge.   In  terms of  this  Section,  KFC has  to  apply  to  the  

District Judge in whose jurisdiction the property may lie for an  

order  of  sale.   However,  Section  29  provides  for  speedy  

recovery.

7) The procedure of attachment and sale of property though  

available  under  the  Code  of  Civil  Procedure,  1908,  it  shall  

apply only when there is a decree at the instance of any of the  

parties.   In  the  present  case,  the  KFC  had  not  proceeded  

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through  the  Civil  Court  but  has  taken  independent  action  

under Section 29 of the Act.    

8) Coming to the decree for specific performance granted by  

the High Court in favour of Vincent Paul, by notice under Ex.  

B1, KFC invited tenders from intending buyers for purchase of  

immovable  property  attached  by  them.   The  last  date  for  

submission  of  tender  was  31.10.1988.   Vincent  Paul  

submitted  a tender  quoting an amount of  Rs.  7.5  lakhs as  

bidding amount.  He also deposited a sum of Rs.10,000/- for  

earnest money deposit as stipulated in the tender notice.  One  

of  the  conditions  of  tender  was  that  the  successful  bidder  

whose bid is accepted should pay 25% of the purchase price  

offered within one week, if and when the tender is accepted,  

the  balance  amount  be  paid  within  one  month  thereafter.  

When  the  tender  was  opened  on  31.10.1988,  the  amount  

quoted by Vincent Paul was noticed as the highest one.  After  

discussion and negotiation between the KFC and Vincent Paul,  

the price was ultimately fixed at Rs. 8.25 lakhs.  Thereafter,  

letter  dated  31.10.1988 (Ex.  A2)  was issued by the KFC to  

Vincent Paul calling upon him to pay the balance amount of  

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Rs.8.15  lakhs  after  appropriating  Rs.10,000/-  paid  by  him  

towards Earnest Money Deposit.  According to Vincent Paul-

the plaintiff, as per Ex. A2 the plaintiff has to deposit 25% of  

the amount payable within a week thereof i.e.,  on or before  

05.11.1988  and  the  balance  amount  within  one  month  

thereafter.  It is his grievance that inasmuch as the defendant-  

KFC  did  not  abide  by  the  agreement  to  sell  despite  his  

compliance,  he  filed  suit  for  specific  performance.   On  the  

other hand, it was contended by the defendant-KFC that there  

was no concluded contract and Ex. A2 has not been accepted  

by the plaintiff.  According to them, Ex. B1 was only a tender  

notice  and  the  suit  for  specific  performance  is  not  

maintainable and in any event is barred by limitation since it  

was filed only in 1994.  Though the trial Court accepted the  

case of the defendant and dismissed the suit, the High Court  

in  appeal  filed  by  the  plaintiff  granted  decree  for  specific  

performance.  

9) Whether the plaintiff-Vincent Paul has made out a case  

for discretionary relief of specific performance?  For this, it is  

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useful  to  refer  the  letter  dated  31.10.1988  of  the  KFC  

addressed to Vincent Paul which reads as under:

“KERALA FINANCIAL CORPORATION HEAD OFFICE: VELLAYAMBALAM, TRIVANDRUM-695 033

No. BL.1158/R/88 Date : 31.10.1988

Shri Vincent Paul Pellissery House P.O. Ammadam, Trichur.

Sir,  

Sub: Sale of the assets of M/s Cables India                            Punkunnam, Trichur.

Ref:   Your tender letter dated 31.10.1988 and further discussion with us.

With reference to the above we may inform that we are  agreeable  to  sell  the  assets  viz.  the  landed  properties  comprised in Sy.  Nos.  1856/6 (19 cents)  and 1856/7 (43  cents)  together  with  building  thereon  and  machinery  including  the  electrical  fittings  and  accessories  for  Rs.8,25,000/-  subject  to  compliance  of  the  following  conditions:-

1. 25% of  the sale  consideration should be  remitted to us within a week from the date  of confirmation of the transaction.

2. The balance should be remitted in a lump  sum within  one month from the date  of  remittance of the initial payment.

3. All the formalities in this regard should be  complied within two months.

Leaving  the  amount  of  Rs.10,000/-  remitted  on  31.10.1988,  the  balance  consideration  amounting  to  

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Rs.8,15,000/-  should  be  remitted  to  the  Corporation  to  execute the sale deed and transfer the possession to you.

                Yours faithfully,

         Sd/-

          MANAGER (RECOVERY)”

10) According to the plaintiff-Vincent Paul, it was agreed to  

by him as to the offer of Rs. 8.25 lakhs by the KFC and in view  

of  the  fact  that  he  has  remitted  a  sum of  Rs.10,000/-  on  

31.10.1988 as Earnest Money Deposit,  he was ready to pay  

the balance amount but the sale was not completed due to  

failure on the part  of  the KFC.  Learned senior  counsel  for  

Vincent Paul submitted that communication dated 31.10.1988  

is  a  concluded  contract  and  no  further  confirmation  is  

required in this regard and the plaintiff has to pay the balance  

amount and the KFC has to execute the sale deed and transfer  

the possession to him.  The stand taken by the learned senior  

counsel  for  Vincent  Paul  was totally  denied by the  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 the KFC, the plaintiff had not sent any reply  

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in the form of confirmation of the said transaction as provided  

in clause (1) of Ex. A2.  In such circumstance, it cannot be  

contended that there is a concluded contract between the KFC  

and Vincent Paul.  After 31.10.1988, KFC sent another letter  

on 05.11.1988 intimating the plaintiff that further proceedings  

can be finalized only after vacating the temporary injunction  

ordered by the Munsif Court, Thrissur.  The said letter has not  

been disputed by Vincent Paul.   Inasmuch as the KFC has  

agreed  to  sell  the  property  in  question  for  Rs.8.25  lakhs  

subject to compliance of three conditions mentioned in Ex. A2,  

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  Ex.  B1.   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.  

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We are unable to accept the reasoning of the High Court for  

granting decree for specific performance in favour of Vincent  

Paul.   

11) During the pendency of the appeal filed by Vincent Paul  

in the High Court, the KFC invited fresh tenders for the sale of  

assets of the Firm on 17.09.2001.  One K.K. Ummer Farook  

responded to the tender by making an offer of Rs. 55,55,555/-  

for  the  land  and  building  which  was  the  highest  amount  

among the four offers received.  By letter dated 17.11.2001,  

the KFC informed K.K. Ummer Farook that they are unable to  

proceed with the sale in view of the pendency of A.S. No. 557  

of 2000 before the High Court.  In the meantime, by judgment  

dated  27.11.2001,  the  Division  Bench  of  the  High  Court  

allowed  A.S.  No.557  of  2000  filed  by  Vincent  Paul,  

consequently decreed the suit filed by him.  Against the said  

judgment,  the KFC filed Civil  Appeal No. 3446 of 2003 and  

K.K. Ummer Farook filed Civil Appeal No. 3450 of 2003 before  

this  Court  by  way  of  special  leave  petition.   K.K.  Ummer  

Farook also filed O.P. No. 33834 of 2001 before the High Court  

praying for direction to convey the property being the highest  

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bidder in the second tender and the same was dismissed as  

infructous by the High Court vide judgment dated 22.01.2002.  

Against the said judgment, K.K. Ummer Farook filed C.A. No.  

3451 of 2003 before this Court. It is not in dispute that while  

ordering notice in the S.L.P.(C) No 7072 of 2002 (C.A. No. 3446  

of  2003)   filed  by the  KFC even on 12.04.2002,  this  Court  

stayed  the  execution  of  the  decree  for  specific  performance  

which shows that the land and building and all accessories  

are with the KFC and the same position continues even today.  

12)  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 the 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 the KFC to  

adhere the following directions for sale of properties owned by  

it:

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(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.

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(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  

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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 suffer substantial injury by the sale.   

13) In view of our discussion and conclusion, we are satisfied  

that the KFC has not strictly followed the above procedure in  

bringing the property for sale.  Accordingly, we set aside the  

judgment and order passed by the High Court granting decree  

for specific performance in favour of Vincent Paul and all other  

sale  transactions either  in the  form of  tender or  auction in  

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respect of the property in question.  We direct the KFC to first  

issue the advertisement calling for tenders by way of public  

auction by following the directions mentioned above.  Before  

resorting  to  such  recourse,  if  the  KFC  has  accepted  any  

deposit from any of the parties by way of tender or bid, the  

same  shall  be  returned  within  a  period  of  30  days  to  the  

respective parties with simple interest @ 9% p.a. from the date  

of such deposit till it is repaid to the parties concerned.

14) All the appeals are disposed of on the above terms.  

 ...…………….…………………………J.            (P. SATHASIVAM)                                   

    .…....…………………………………J.     (DR. B.S. CHAUHAN)  

NEW DELHI; MARCH 14, 2011.                      

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