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High Court of Judicature at Madras
M. VENUGOPAL, J.
T.H. Infrastructure Pvt. Ltd.
Versus
State Industries Promotion Corporation of Tamil Nadu Limited & Another
W.P.No. 31959 of 2012
Decided on: 21-03-2014
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 - SECTION 3 - SECURED CREDITOR - FINANCIAL INSTITUTION - DIFFERENTIAL LAND COST - LEASEHOLD RIGHTS - MODIFIED LEASE DEED - APPROVAL - NOC - SALE OF LEASEHOLD RIGHTS - CHANGE IN MANAGEMENT - POLICY OF NOT COLLECTING DIFFERENTIAL LAND COST - APPROVAL FOR TRANSFER OF LEASEHOLD RIGHTS - DIFFERENTIAL LAND COST DEMANDED - WRIT PETITION - DIRECTIONS TO EXECUTE MODIFIED LEASE DEED WITHOUT INSISTING UPON PAYMENT OF DIFFERENTIAL LAND COST.
Fact of the Case:
The Petitioner purchased the leasehold rights of SPIC Pharmaceuticals Limited through an auction conducted by the 2nd Respondent, ARCIL (Asset Reconstruction Company (India) Ltd.), which had taken over the possession of the immovable properties of SPIC under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The 1st Respondent, SIPCOT, demanded differential land cost from the Petitioner for transferring the leasehold rights, claiming that ARCIL was not a financial institution and hence not covered under the policy of not collecting differential land cost in case of management changes arising out of sale of a unit by financial institutions. The Petitioner challenged this demand, arguing that ARCIL was a financial institution as per the SARFAESI Act and that the sale by ARCIL was equivalent to a sale by a financial institution.
Finding of the Court:
The Court held that ARCIL was a financial institution as defined under Section 2(h)(ia) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 2(m)(ii) of the SARFAESI Act, 2002, and that the sale of leasehold rights by ARCIL was covered under the policy of SIPCOT to not collect differential land cost in case of management changes arising out of sale of a unit by financial institutions. The Court also noted that the 1st Respondent had earlier granted NOC to SPIC to mortgage the leasehold rights in favor of banks, and that it was not open to the 1st Respondent to resile from this approval and demand differential land cost when the leasehold rights were brought to sale for recovery of the amount due to the banks.
Issues: 1. Whether ARCIL was a financial institution as defined under the SARFAESI Act, 2002? 2. Whether the sale of leasehold rights by ARCIL was covered under the policy of SIPCOT to not collect differential land cost in case of management changes arising out of sale of a unit by financial institutions?
Ratio Decidendi: 1. The Court held that ARCIL was a financial institution as defined under Section 2(h)(ia) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 2(m)(ii) of the SARFAESI Act, 2002. The Court noted that ARCIL had obtained a certificate of registration under Section 3(4) of the SARFAESI Act, which made it a financial institution recognized by the Reserve Bank of India. 2. The Court held that the sale of leasehold rights by ARCIL was covered under the policy of SIPCOT to not collect differential land cost in case of management changes arising out of sale of a unit by financial institutions. The Court noted that the policy was intended to encourage investment and economic development, and that it would be unfair to demand differential land cost from the Petitioner when the sale by ARCIL was essentially a sale by a financial institution.
Final Decision: The Court allowed the writ petition and directed the 1st Respondent to execute the Modified Lease Deed in favor of the Petitioner without insisting upon payment of differential land cost.
1. The Petitioner has preferred the instant Writ of Certiorarified Mandamus praying for passing of an order by this Court in calling for the records of the in DII/Cud/SPIC/2012-1 dated 31.10.2012 and to quash the same. Further, it has sought for direction in directing the 1st Respondent to forthwith execute the modified Lease Deed without insisting upon payment of the differential land cost of Rs.9,31,92,765/-for the purposes of executing the modified Lease Deed in respect of the Plot Nos.C 14, C 15, C 16 and C 16A with an extent of 64.49 acres of land at SIPCOT Industrial Complex, Cuddalore in its favour.
2. Writ Facts:
(i) The 1st Respondent established an Industrial Complex at Cuddalore for the purposes of promoting establishment of industries and entered into a Lease Agreement with one M/s. Southern Petrochemical Industries Corporation Limited, (hereinafter called SPIC) on 21.2.1990 in respect of the property at Plot No.C14, C15 and C16 in SIPCOT's Industrial Complex at Cuddalore within the village limits of Kudikadu Village ad-measuring 63.33 acres for a value of Rs.63,33,000/-.
(ii) Also, the 1st Respondent entered into Lease Agreement with SPIC for the property at Plot No.C-16A in SIPCOT's Industrial Complex at Cuddalore within the village limits of Kudikadu Village ad-measuring 1.16 acres for a value of Rs.1,45,000/-. The first Lease Agreement was executed between SIPCOT and SPIC on payment of Rs.33,88,500/-by SPIC being about 50% of the rent agreed upon by the party by way of non-refundable premium and on a condition that SPIC shall pay promptly a sum of Rs.29,44,500/-being the balance of the rent/ premium payable within a period of one year after reserving the rent for 99 years being Rs.100/-from the date of execution of the deed in two equal half yearly instalments, the first instalment falling due on completion of six months from the date of execution of the lease deed. Likewise, the second Lease Agreement was executed on payment of Rs.1,45,000/- being full and complete payment of non-refundable premium. The SPIC paid all the amounts due to the 1st Respondent.
(iii) According to the Petitioner, at the request of SPIC, the 1st Respondent/State Industries Promotion Corporation of Tamil Nadu Limited, Chennai – 8, through letter dated 11.1.1999, granted 'NOC' as requested by SPIC to mortgage the leasehold rights of the land obtained from the 1st Respondent for getting financial assistance from IDBI/EXIM Bank subject to conditions. For the loans taken by SPIC in regard to the instalment payments, defaults were committed. The SPIC took loans from several other banks and as such, the banks, who had advanced loans to SPIC, had formed a consortium for realisation of their dues out of the Secured Assets of SPIC.
(iv) The 2nd Respondent is a Securitisation Company registered to carry on the business of securitisation or asset reconstruction under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Section 3 of the SARFAESI Act, inter alia, provides that a securitisation or reconstruction company registered under the said Section of the SARFAESI Act may act as an agent for any bank or financial institution for the purpose of recovery of the dues from the borrowers on such payment or charges as may be mutually agreed upon between the parties. As such, whenever any security creditor/Bank assigns their debt in favour of ARCIL for realisation, ARCIL will have all the powers of a secured creditor under the provisions of the SARFAESI Act and proceed against the borrower. Therefore, the sale of the secured assets by ARCIL would be equivalent to a sale by any financial institution/Bank.
(v) The Industrial Development Bank of India had assigned the debts relating to M/s SPIC to the 2nd Respondent and the 2nd Respondent issued notice under Rule 6(2) and 8(6) of the Security Interest (Enforcement) Rules, 2002 on 17.05.2011 to M/s. SPIC informing them about the sa
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