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
advocatemmmohan 
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