GITA MITTAL, J.

"Power vested by the State in a Public Authority should be viewed as a trust coupled with duty to be exercised in larger public and social interest. Power is to be exercised strictly adhering to the statutory provisions and fact-situation of a case. 'Public Authorities cannot play fast and loose with the powers vested in them'. A decision taken in arbitrary manner contradicts the principle of legitimate expectation. An Authority is under a legal obligation to exercise the power reasonably and in good faith to effectuate the purpose for which power stood conferred. In this context, "in good faith" means "for legitimate reasons". It must be exercised bona fide for the purpose and for none other."

(Ref.: Noida Entrepreneurs Association v. Noida & Ors. (2011) 6 SCC 508)

1. Having acted totally contrary to the above mandate, the Pradeshiya Industrial & Investment Corporation of U.P. Ltd. ('PICUP' hereafter) appellant herein assails the order dated 8th July, 2013 whereby the learned Company Judge has directed return of amounts deposited with the appellant by Mr. Darshan Khurana - the respondent no.3, on behalf of the debtor - Pacquik Industries Ltd. - respondent no.1 (‘Pacquik’ hereafter) herein.

2. We propose to decide the issues pressed before us in the following manner :

I. Factual narration (paras 3 to 41)

II. PICUP treated tender by the respondent no.3 as valid deposit on behalf of Pacquik of the OTS amount (paras 42 to 70)

III. Withdrawal/cancellation of OTS (paras 71 to 88)

IV. Order dated 8th July, 2013 – finding that if OTS cancelled, PICUP had no right to retain amount paid by the respondent no.3 (paras 89 to 90)

V. Whether PICUP stood estopped from withdrawing or cancelling the OTS? (paras 91 to 131)

VI. Whether Pacquik concealed material facts in its OTS proposal and committed fraud on PICUP? (paras 132 to 163)

VII. Whether PICUP was entitled to forfeit the deposited amount? (paras 164 to 166)

VIII. Whether challenge pending in Allahabad High Court precludes our scrutiny? (paras 167 to 174)

IX. Whether financial loss to PICUP by sanction of the OTS (paras 175 to 200)

X. Unnecessary Litigation by Government and Public Sector Enterprises (paras 201 to 207)

XI. Misfeasance in Public Office (paras 208 to 223)

XII. Conclusions (paras 224 to 243)

XIII. Result

We now propose to discuss the above issues in seriatim :

I. Factual narration

3. Let us briefly examine the facts giving rise to the filing of the company petition before the learned Company Judge and the passing of the impugned order.

4. Pacquik, a company incorporated under the Indian Companies Act had approached PICUP for financial facilities. On 3rd December, 1996, a term loan of Rs. 185.00 lakhs stood sanctioned by PICUP to Pacquik for setting up its project at its Noida premises at B-54, Sector 57, NOIDA (U.P.). Against this loan, an amount of Rs. 165.50 lakhs stood disbursed while the balance of Rs. 19.50 lakhs was cancelled.

5. As per its agreement, PICUP was charging interest @21% per annum compounded quarterly from the company. However, Pacquik was given 2% discount on the interest rate. The company had created an equitable mortgage of the factory property at Noida in favour of PICUP by deposit of its title deeds.

6. The Pioneer Multifilms (respondent no.2 herein), was a sole proprietorship firm of Shri Darshan Khurana (respondent no.3 herein). It is also on record that between 15th July, 2005 to 30th December, 2005, cheques worth Rs. 49,25,000/- issued by Pacquik to its creditors, Shri Darshan Khurana and his family members were dishonoured, resulting in the filing of the several proceedings under Section 138 of the Negotiable Instruments Act (‘N.I. Act’) against Pacquik which also had liability towards the income tax, excise department.

7. In this background, a notice of demand under Section 431A of the Companies Act, 1956 dated 21st April, 2006 was al