Failure to follow the proper statutory procedure under Section 31 of the State Financial Corporations Act for the sale of mortgaged property constitutes a violation of the borrower's rights, but in this case, lack of evidence of mortgage validated the sale.

JUDGMENT :

S. S. Mishra, J.

This writ petition has been filed by the petitioner assailing the action of the Orissa State Financial Corporation (hereinafter referred to as “OSFC” or “the Corporation”) in proceeding with the sale of his industrial unit under Section 29 of the State Financial Corporations Act, 1951, and seeks quashing of the consequential registered sale deeds executed in favour of Opposite Party Nos.3 and 4. The petitioner also seeks a direction to the Corporation to consider his One Time Settlement (OTS) proposal and accept the same in terms of the order dated 04.10.2005 passed by this Court in W.P.(C) No.5324 of 2002.

2. Mr. Bansidhar Baug, learned Senior Advocate appearing for the petitioner, Mr. Avijit Patnaik, learned counsel for opp. party nos. 1 & 2, Mr. P.K. Nayak, learned counsel for opp. party nos. 3 & 4 have been heard in extenso.

3. The facts giving rise to the present writ petition are not much in dispute. The petitioner had availed an initial term loan of Rs.2,35,000/- in 1974 from the OSFC for setting up an Ice Factory and Cold Storage under the name and style "LA-Glace Ice Factory and Cold Storage". Additional loans aggregating Rs.1,12,000/- were disbursed from 1987 to 1993. Although the latter loans were repaid, the original loan remained unpaid, eventually leading to the account becoming Non-Performing Asset (NPA).

4. On 25.02.2002, OSFC issued a recall notice under Section 30 of the Act, directing the petitioner to clear his dues within 20 days, failing which the Corporation would take recourse under Section 29 of the SFCs Act, 1951. On 23.10.2002, OSFC took possession of the mortgaged assets, including land, building, and machinery, and issued a seizure inventory. Subsequent notice dated 20.11.2002 demanded repayment of Rs.13,56,150/-.

5. The petitioner alleged that despite a pending application for OTS in terms of this Court’s earlier order dated 04.10.2005, the Corporation proceeded to issue a sale notice on 10.03.2008. Thereafter, without conducting a proper auction, the Corporation negotiated the sale of Lot No.1 and Lot No.2 properties to Opposite Party Nos.4 and 3 respectively. Sale deeds were executed on 26.03.2008 and 08.04.2008. The petitioner was not served any notice of the negotiated sale. Upon learning of the sale, the petitioner filed this writ petition on 02.04.2008.

6. Learned counsel for the petitioner submitted that the impugned sale deeds were executed without adherence to the statutory requirement of conducting a public auction and without providing a reasonable opportunity to the petitioner. It is submitted that the sale under Section 29 , bypassing Section 31 of the SFC Act, is impermissible when the property is mortgaged. It is further contended that since the mortgage was created by deposit of title deeds under Section 58 (f) of the Transfer of Property Act, there was no registered mortgage deed, yet the mortgage is valid and binding.

7. The petitioner further submitted that he was never served with a notice for the negotiated sale and that the property was undervalued and sold at throwaway prices to single bidders without competitive bidding. The sale of Lot No.1 (land and building) was for Rs.6,08,500/-, which was later resold, and the building demolished, causing irreversible loss. The petitioner relied on several decisions including:

Karnataka State Financial Corporation v. N. Narasimahaiah and others , (2008) 5 SCC 176

Subhransu Sekhar Padhi v. Gunamani Swain and others , AIR 2015 SC 542

Gunamani Swain and others v. Orissa State Financial Corporation and others , AIR 2011 Orissa 83

Prasana Kumar Rath v. Odisha State Financial Corporation & another, 2025 (I) ILR-CUT-