W.P.(C) Nos.19571/2010 & 10213/2010 (Kerala High Court)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** ## **MONDAY, THE 25TH DAY OF JANUARY 2016/5TH MAGHA, 1937** ## **WP(C).No. 19571 of 2010 (V)** **----------------------------** ## **PETITIONERS:** - **-------------------** **1. RAJENDRA BABU.G., S/O.GOPALAPANICKER, 'KAILAS'. T.C.30/865, KNRA-104, PETTAH THIRUVANANTHAPURAM.** **2. GEETHA BALACHANDRAN, W/O.BALACHANDRAN 'SREERAGAM', T.C.1/2080-1, THAMARABHAGAM KUMARAPURAM, MEDICAL COLLEGE P.O., THIRUVANANTHAPURAM.** **3. VYSAKH BALACHANDRAN, 'SREERAGAM',** - **T.C.1/2080-1, THAMARABHAGAM, KUMARAPURAM MEDICAL COLLEGE P.O., THIRUVANANTHAPURAM.** **BY ADVS.SRI.D.KISHORE SMT.MEERA GOPINATH SRI.A.S.SHAMMY RAJ RESPONDENTS:** - **--------------------** **1. KERALA FINANCIAL CORPORATION** - **REPRESENTED BY ITS MANAGING DIRECTOR, VELLAYAMBALAM THIRUVANANTHAPURAM-695033.** **2. THE CHIEF MANAGER, THE KERALA FINANCIAL CORPORATION, VELLAYAMBALAM, THIRUVANANTHAPURAM-695033.** **3. M/S.JAYALAKSHMI BUILDERS PVT. LTD.,** - **REPRESENTED BY ITS MANAGING DIRECTOR-CHAKRAPANI T.C.2-1145, PATTAZHY, PATTOM THIRUVANANTHAPURAM, NOW RESIDING AT G-A, REGENCY MINOR KOWDIAR, THIRUVANANTHAPURAM-695033.** **4. A.MOHAMMED SHERIFF, 'AYSHA MANZIL', KERALAPURAM, KOLLAM-14.** **R1 & R2 BY ADV. SRI.K.JAJU BABU,SC,KERALA FINANCIAL CORPORTION R4 BY ADVS. SRI.P.B.KRISHNAN** **SRI.P.M.NEELAKANDAN SRI.P.B.SUBRAMANYAN SRI.SABU GEORGE R3 BY ADVS. SRI.SHYAM PADMAN SRI.A.RANJITH NARAYANAN SRI.S.K.SAJU SRI.JOHN THITHEEMOS** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25-01-2016, ALONG WITH WPC. 10213/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WP(C).No. 19571 of 2010** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 : TRUE COPY OF THE SALE DEED NO.1335/76 DATED 11.5.1972.** - **P2 : COPY OF THE POWER OF ATTORNEY DATED 14.10.1994.** - **P3 : TRUE COPY OF THE LOAN AGREEMENT DATED 25.3.1999.** - **P4 : TRUE COPY OF JUDGMENT DATED 25.11.2008 IN W.P.(C) 33186/08 OF THIS HONOURABLE COURT.** **P5 : TRUE COPY OF THE SALE NOTIFICATION PUBLISHED IN MATHRUBHOOMI DAILY DATED 17.1.2010.** **P6 : TRUE COPY OF THE PROCEEDINGS NO.12066660/1773/2010 DATED 15.5.2010 OF 2ND RESPONDENT.** **P7 : TRUE COPY OF THE JUDGMENT DATED 12.12.2008 IN W.A.478/08 OF THIS HONOURABLE COURT.** **P8 : TRUE COPY OF THEB OFFER LETTER DATED 25.11.2014 SUBMITTED BY PETITIONERS 2 AND 3 TO KFC.** ## **RESPONDENT'S EXHIBITS:** **R4(a) : TRUE COPY OF THE GUARANTEE DEED DATED 27.3.1998.** **R1(a) : TRUE COPY OF THE RESOLUTION TAKEN BY THE BOARD OF DIRECTORS OF THE 1ST RESPONDENT ON 4.12.2013.** **R1(b) : EXTRACT OF THE MINUTES OF 575TH BOARD MEETING HELD AT 11.30 A.M. ON 16.6.2014 AT BOLGATTY PALACE, ERNAKULAM.** **R4(b) : TRUE COPY OF THE E.P.NO.5/2008 IN O.P.NO.30/2000 OF CONSUMER REDRESAL FORUM, TRIVANDRUM.** **R4(c) : TRUE COPY OF THE AGREEMENT BETWEEN THE 4TH RESPONDENT WITH 2ND PETITIONER AND 3RD PETITIONER.** **R4(d) : TRUE COPY OF THE AGREEMENT BETWEEN THE 4TH RESPONDENT WITH 2ND PETITIONER AND 3RD PETITIONERS.** **R4(e) : TRUE COPY OF THE AGREEMENT BETWEEN THE 4TH RESPONDENT AND DR.ALICE JOSEPH.** **R4(f) : TRUE COPY OF THE AGREEMENT BETWEEN THE 4TH REPONDENT AND SUMA DEVI SUDHAKARAN.** ## **//TRUE COPY//** **P.A. TO JUDGE** **smv** ## **SHAJI P. CHALY, J.** ## ----------------------------------------------- **W.P.(C). Nos.19571 & 10213 of 2010 ----------------------------------------------Dated this the 25[th] day of January, 2016.** ## **JUDGMENT** W.P.(C) No.19571 of 2010 is filed by the petitioners therein seeking a declaration that the decision of respondents 1 and 2 to sell the petitioners' property having an extent of 36.5 cents in Sy.No.431 of Madathuvilakom Village pursuant to Exts.P5 and P6 under section 29 of the State Financial Corporations Act, 1951 in favour of 4[th] respondent or any other person is null and void in view of the law laid down by the Apex Court in **Karnataka SFC v. N.Narasimhaiah and others** reported in [(2008) 5 SCC 176] and for other related reliefs. 2. The petitioners therein are owners of the aforesaid properties against which a mortgage is created in favour of the 1[st] respondent under which the 3[rd] respondent is the principal debtor. 3. W.P.(C) No.10213 of 2010 is filed seeking to issue a writ of mandamus directing the 1[st] respondent to produce all documents regarding the proceedings initiated by them against 2 W.P.(C) 19571 & 10213 of 2010 the 36.5 cents of property in Sy.No.431 of Madathuvilakom Village, Trivandrum and the apartment called “Chidiya Apartments' therein and provide copies to the petitioners and also for issuing a writ of certiorari quashing the proceedings initiated by the 1[st] respondent against the aforesaid property including taking over possession under section 29 of the SFC Act and sale of the property effected if any and for other related reliefs. 4. The subject matter of the writ petitions are intrinsically connected and therefore it is only appropriate that they are disposed of together. For disposing of the aforesaid writ petitions, the facts stated in W.P.(C) No.19571 of 2010 alone is required since in both the writ petitions the facts are similar in nature. Since the 1[st] and 2[nd] respondents have expressed their inclination to settle the matter in accordance with Ext.R1(b) resolution adopted by it which was agreed to by the 3[rd] respondent builder, normally I could have disposed of the writ petitions recording the said submission. But the 4[th] respondent auction purchaser has raised certain disputes with respect to the same and therefore, I think it is only proper that appreciation of the facts and consideration of the subject matter is required. 3 W.P.(C) 19571 & 10213 of 2010 The brief facts are as follows: 5. The petitioners are owners of an extent of 36.5 cents of property situated in Sy.No.431 of Madathuvilakom Village belonging to the 1[st] petitioner and his brother, late Balachandran, evident from Ext.P1. Sri.Balachandran died and petitioners 2 and 3 are the wife and son of the deceased. Late Balachandran entered into an agreement with the 3[rd] respondent on 14.10.1994 for construction of an apartment by name 'Chidiya Apartment' in the said property. By virtue of the said agreement, the owners of the property are entitled to get 7 apartments and accordingly a power of attorney was executed in favour of the 3[rd] respondent by the 1[st] petitioner and his deceased brother authorising the 3[rd] respondent to construct the apartments and to enter into agreements with intending purchasers for sale of the apartments and undivided rights in the aforesaid property, evident from Ext.P2, power of attorney dated 14.1.1994. It is contended that the construction of apartments was almost over by the year 1999. 6. While so, the 3[rd] respondent approached the 1[st] petitioner and his brother Sri.Balachandran and requested them to stand as guarantors for availing loan from the 1[st] respondent for 4 W.P.(C) 19571 & 10213 of 2010 completing the apartments in the aforesaid land. By that time almost all the apartments were agreed to be sold out and the 3[rd] respondent had assured that within two months, sale deed will be executed and the amount will be repaid to the 1[st] respondent. Accordingly the 1[st] respondent and his brother stood as guarantors/co-obligants for availing loan from the 1[st] respondent on 25.3.1999. According to the petitioners, the property was offered as collateral security and the petitioners did not retain a copy of the agreement dated 25.3.1999 and they did not know about the contents of the document till the same was produced by the 1[st] respondent along with the counter affidavit in W.P.(C) No.10213 of 2010. The said loan agreement is evident from Ext.P3. 7. It is the contention of the petitioners that, they were astonished to know that the loan was provided by the 1[st] respondent to the 3[rd] respondent for construction of a shopping complex at Pongumoodu, Thiruvananthapuram. In fact the loan was taken for the purpose of completion of the apartments constructed in the mortgaged property offered as collateral security. It is the further contention of the petitioners that Ext.P3 agreement was entered into fraudulently by the 3[rd] W.P.(C) 19571 & 10213 of 2010 5 respondent with respondents 1 and 2 and that the petitioners were cheated. It is contended by the petitioners that the 3[rd] respondent, principal debtor committed default and thereupon respondents 1 and 2 initiated coercive steps against the property comprised of a 10 storied building with 40 apartments. It is stated that when the 1[st] respondent initiated coercive steps the petitioners filed W.P.(C) No.18838/2003 before this Court seeking to restrain the 1[st] respondent from taking arbitrary and unjustified actions against the property of the petitioners. Thereafter the same was withdrawn on 18.6.2010. In the meanwhile, contends the petitioners, the 1[st] respondent proceeded against the property under sec 29 of the SFC Act. The sale notice was published in the Mathrubhumi daily on 3.1.2008 and at that point of time the 1[st] petitioner filed W.P.(C) No.33186/2008 before this Court. The said writ petition was disposed of by this Court based on an undertaking of the 1[st] petitioner to pay Rs.4 Crores, evident from Ext.P4 judgment. 8. However, the offer was not fullfilled. Thereupon respondents 1 and 2 notified the sale of the petitioners' property again by carrying out publication in Mathrubhumi daily dated 17.1.2010, evident from Ext.P5. It is the case of the petitioners 6 W.P.(C) 19571 & 10213 of 2010 that, the notification was defective since upset price was not shown and Ext.P5 notification is vitiated by malafides. Thereafter on 15.5.2010, the 2[nd] respondent issued a letter to the 1[st] petitioner to the effect that the 1[st] respondent has decided to sell the property to the 4[th] respondent and if the 1[st] petitioner is ready to deposit an amount of Rs.433 lakhs, the amount will have to be remitted before 31.5.2010, evident from Ext.P6. It is the contention of the petitioners that they are unable to remit the amount of Rs.4.33 Crores demanded in Ext.P5 and asserts that Ext.P5 is bad in view of the judgment of the Apex Court in the case of **Karnataka State Financial Corporation** referred supra. Therefore, seeks to declare that the notification pursuant to Ext.P5 is bad. 9. Respondents 1 and 2 have filed counter affidavit refuting the contentions advanced by the petitioners and also denying the factual allegations and circumstances explained in the Writ Petition. The counter affidavit also explain the steps taken by respondents 1 and 2 in order to sell the property so as to recover the outstanding amounts from the petitioners and the 3[rd] respondent. It is also contended that though the petitioners are termed as guarantors they have parted with the property by W.P.(C) 19571 & 10213 of 2010 7 executing the power of attorney in favour of the Managing Director of the 3[rd] respondent company and thereby they have become co-obligants to the transactions with respondents 1 and 2. In that circumstances, it is contended by the 1[st] and 2[nd] respondents that the decision of the Apex Court referred supra has no bearing to the legal and factual situation. It is also contended that, even though an interim order was passed by this Court in W.P.(C) No.32954/2008 filed by the 3[rd] respondent, it had to deposit an amount of Rs.250 lakhs on or before 30.11.2008, the same was not complied with by the 3[rd] respondent also. It is also contended that the 1[st] petitioner who is one of the co-obligants filed W.P.(C) No.33186/2008 challenging the sale proceeds and therein also the interim order passed by this Court was not complied with. It is further contended that both the Writ Petitions were disposed of by Ext.P4 judgment dated 25.11.2008 directing the 1[st] petitioner herein to remit Rs.4 Crores on or before 15.1.2009 but no payment was made as directed by this Court. Hence the 1[st] respondent has no other option but to sell the assets taken over and accordingly it was advertised again as per Ext.P5 and sale is conducted as stated above. It is also contended that the 8 W.P.(C) 19571 & 10213 of 2010 judgment will operate res judicata as the subject matter is one and the same in both Writ Petitions. 10. It is also contended by the 1[st] respondent that the sale conducted by it is very transparent and that is the reason why the petitioners were given notice giving an opportunity to buy the industrial asset together with the land for not less than the price of Rs.4.33 Crores but the petitioners have not made use of the said opportunity also. In the said circumstances respondents 1 and 2 have sought dismissal of the Writ Petition. The 4[th] respondent has filed a counter affidavit refuting allegations made in the Writ Petition and also contending that they are purchasers of the property in question and the sale was carried out by respondents 1 and 2, in accordance with law. It is also contended that the judgment of the Apex Court under which the claim is raised in writ petition will not have any bearing or application to the facts and circumstances involved in the case and further that the 1[st] and 2[nd] respondents have carried out the sale by taking into account the provisions of the State Financial Corporation Act. Therefore, the 4[th] respondent seeks dismissal of the Writ Petition. Various additional counter affidavits were filed by respondents 1 and 2 and the 4[th] respondent raising 9 W.P.(C) 19571 & 10213 of 2010 various contentions with respect to the claims raised in the Writ Petition. 11. I have gone through the contentions raised in the Writ Petitions, various counter affidavits filed by the respondents and perused the records and heard the respective counsel. 12. Today when the matter was taken up for hearing, counsel for 3[rd] respondent submitted that they are prepared to abide by Ext.R1(b) minutes of the 575[th] Board Meeting of the 1[st] respondent held on 16.6.2014. Contents of the said exhibit is extracted hereunder for convenience and reference: “The Board held on 04.12.2013 felt it prudent to inform the Hon'ble Court that the Corporation is considering an OTS proposal of the loanee since the bidder in the auction in 2010 had not yet deposited the bid amount. The Hon'ble High Court vide its interim order dated 03.04.2014 permitted the Corporation to process the compromise settlement of the loanee subject to permission of Court before implementation of any decision. The Board discussed the case and the interim order of the Hon'ble court. The loanee has agreed to make payment of amount as per norms of compromise settlement of the Corporation and it would be accepted if pending court cases and other disputes are also settled amicably by him within two weeks of the permission of the Hon'ble Court. If the Hon'ble Court does not accept this proposal, the bidder in the auction in 2010 would be 10 W.P.(C) 19571 & 10213 of 2010 asked to similarly settle all court cases and pending cases and remit the bid amount of Rs.4.33 crores and 12% interest thereon (compounding annually) within two weeks from the time of the Hon'ble Court's decision.” 13. According to the learned counsel for the 3[rd] respondent, as per the terms entered into in accordance with the said minutes, 1[st] respondent permitted the petitioners to remit Rs.233 lakhs directly to the KFC and the petitioners have remitted an amount of Rs.67 lakhs already to the 1[st] respondent and thus altogether it was agreed to be settled for a total amount of Rs.300 lakhs under the one time settlement scheme. 14. Learned Standing Counsel appearing for respondents 1 and 2 after taking instructions today, submitted that 1[st] and 2[nd] respondents are prepared to abide by the decisions taken as per the minutes extracted provided that, the settlement amount agreed upon is paid within a period of three months from the date of receipt of a copy of this judgment. The learned counsel for the 3[rd] respondent sought 9 months time to pay the amount but respondents 1 and 2 were not agreeable for the same and insisted that the amount should be paid within a period of three months itself since enough and more opportunities were provided to the petitioners to wipe off the loan amount. 11 W.P.(C) 19571 & 10213 of 2010 Thereupon, the learned counsel for the 3[rd] respondent agreed for payment within 3 months. 15. The said arrangement developed during the course of argument is opposed by learned counsel for the 4[th] respondent Sri.P.B. Krishnan contending that the same is against the letter and spirit of the terms of judgment rendered by this Court as per Ext.P4 wherein it was clearly found that in view of the offer made by the petitioners of Rs.4 Crores, no settlement arrived at less than the figure may not be in public interest. 16. I have gone through the judgment and it is true that the offer of Rs.2.5 Crores was made for settlement by the 3[rd] respondent herein and the petitioners had made an offer of Rs.4 Crores and it was in that context the learned Single Judge in Ext.P4 judgment has found that the offer of Rs.4 Crores is to be accepted in public interest. Any how since the offer of Rs.4 Crores was made by the petitioners herein the same was accepted by the learned Single Judge and in accordance with the same only directions were issued to remit the said amount of Rs.4 Cores with 12% interest with a time frame. Admittedly, the said amount was not paid by the 1[st] petitioner and therefore, the 1[st] and 2[nd] respondents have taken further steps. The 4[th] 12 W.P.(C) 19571 & 10213 of 2010 respondent is only an auction purchaser and there is no vested or concluded right accrued to him especially when the auction sale is not confirmed in his favour and therefore in order to oppose the settlement mooted by the 3[rd] respondent and respondents 1 and 2, the 4[th] respondent has no power or authority. There was an interim order passed by this Court in force even today and therefore, further proceedings pursuant to the sale has not taken place. In that view of the matter, in my view, the 4[th] respondent has no manner of right to oppose the settlement mooted by the parties in order to wipe off the loan accrued against the petitioners as well as the 3[rd] respondent. 17. That apart another disturbing factor is that these apartments constructed in the property under mortgage is purchased by various 3[rd] persons. Some of whom are the petitioners in W.P.(C) No.10213/2010. It is also contended in the said writ petition that several orders passed by the Consumer Court against the builder is pending execution and if the loan amount is not wiped off, it will cause disastrous consequences to the purchasers of the apartments. 18. Taking into account the totality of the circumstances, I am of the considered opinion that the decision taken by the 1[st] 13 W.P.(C) 19571 & 10213 of 2010 respondent as per Ext.R1(b) board resolution permitting the 3[rd] respondent to wipe off liabilities in accordance with the terms can be proceeded with. 19. Therefore, W.P.(C) No.19571/2010 is disposed of recording that the respondents 1 and 2 are ready to go ahead with terms and conditions entered into in accordance with Ext.R1(b) resolution extracted above and the 3[rd] respondent is ready to wipe off the loan liabilities in accordance with the said terms and pay the entire amount to the 1[st] respondent Corporation within a period of three months from the date of receipt of a copy of this judgment. Suffice to say failing which, respondents 1 and 2 will be at liberty to proceed in accordance with law to recover the loan amounts. Claims if any of the 4[th] respondent is left open. In view of the disposal of the said writ petition, as above, consideration of W.P.(C) No.10213/2010 on merit, has become inconsequential for the time being. Writ petitions are disposed of accordingly. Sd/- **SHAJI P. CHALY JUDGE** smv 16.1.2015 //true copy// P.A. To Judge