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IN THE ALLAHABAD HIGH COURT
Devi Prasad Singh, Satish Chandra, JJ.
R. D. CEMENTS INDUSTRIES PVT. LTD.
Versus
COLLECTOR/D. M., LUCKNOW AND OTHERS
Misc. Bench Nos. 6345 of 2002 and 9080 of 2007
Decided On: Decided On : 17-03-2010
The court held that the auction and sale of the property in question was illegal and void due to non-compliance with statutory provisions and substantial illegality. The court also held that the petitioner UPCL was liable to pay the deferred trade tax and that the transfer of property during the pendency of the writ petition was void. The court further held that the petitioner UPCL had abused the process of law and was liable for payment of exemplary costs.
Fact of the Case:
The petitioner UPCL had participated in an auction sale of immovable property of UPCL fixing September 25, 2007 as date of auction. It was mentioned that the sale shall be conducted in pursuance of the recovery certificate issued by PICUP for the sum of Rs. 2,85,21,351 plus recovery charges. The recovery officer had proceeded on leave on September 24, 2007 and the power was delegated to Naib Tahsildar, Mohanlalganj, by the Tahsildar, Mohanlalganj, Lucknow. M/s. R.D. Cement participated in the auction held on September 25, 2007 and deposited the security amount to the tune of rupees five lakhs and rupees one lakh respectively for both, movable and immovable property. In the auction, M/s. R.D. Cement was declared highest bidder for Rs. 19.50 lakhs with regard to movable property and Rs. 110 lakhs for immovable property. It has been admitted at Bar that the district authorities had obtained valuation certificate from the approved valuer, namely, Sri Yogendra Kumar who in his report, ascertained the price of immovable property to the tune of Rs. 10,62,000 whereas, building and boundary wall were valued at Rs. 6,10,000. The Revenue Inspector and the Lekhpal valued the land measuring 2.85 hectares at Rs. 1,01,95,200. Thus, the movable property was valued at Rs. 1,08,05,200. The total movable property was valued to Rs. 10,62,650. It may be noted that bid of M/s. R.D. Cement for movable property was Rs. 19,50,000 whereas for immovable property it was Rs. 11,00,0,000. The bid in favour of M/s. R.D. Cement was finalised on September 25, 2007 and the entire sale amount was deposited by M/s. R.D. Cement by bankers cheque of Rs. 16,50,000 and in cash to the tune of Rs. 3,10,000, totalling Rs. 19,60,000.
Finding of the Court:
The court found that the auction and sale was held in violation of statutory provisions, Rules as well as the judgment of this court and the honourable Supreme Court in the case of Swadeshi Polytex Limited [2008] 12 SCC 596. In absence of publication of estimated value in two widely circulated newspaper, the auction and sale in favour of M/s. R.D. Cement Industries, seems to have not been done in accordance with statutory provisions and suffers from substantial illegality. The court also found that the petitioner UPCL was liable to pay the deferred trade tax and that the transfer of property during the pendency of the writ petition was void. The court further found that the petitioner UPCL had abused the process of law and was liable for payment of exemplary costs.
Issues: Whether the auction and sale of the property in question was legal and valid.
Ratio Decidendi: The court held that the auction and sale of the property in question was illegal and void due to non-compliance with statutory provisions and substantial illegality. The court also held that the petitioner UPCL was liable to pay the deferred trade tax and that the transfer of property during the pendency of the writ petition was void. The court further held that the petitioner UPCL had abused the process of law and was liable for payment of exemplary costs. The court relied on the following principles of law in reaching its decision: (i) The provisions of the U.P. Zamindari Abolition and Land Reforms Rules have got statutory force in view of the judgment of the honourable Supreme Court in Swadeshi Polytex Limited [2008] 12 SCC 596. It is mandatory to publish the estimated cost of property in two widely circulated newspapers and the auction and sale may be held with 30 days clear notice and 25 per cent of the auction money must be deposited in cash in compliance with Rules. Non-compliance with Rules, makes the auction and sale illegal and void. (ii) Under section 52 of the Transfer of Property Act, 1882, property cannot be transferred during the pendency of a writ petition. (iii) A party who abuses the process of law is liable for payment of exemplary costs.
Final Decision: The court dismissed both writ petitions with costs. The court also directed the petitioner UPCL to pay exemplary costs of Rs. 10,00,000 (ten lakhs) within a period of one month. The court further directed the district authorities to proceed with fresh auction in the light of the observations made in the judgment, expeditiously where parties may also participate.
Devi Prasad Singh :- The brief facts giving rise to the present writ petitions filed under article 226 of the Constitution of India, relate to repayment of loan by the borrower to the Pradeshiya Industrial and Investment Corporation, Uttar Pradesh (in short, "the PICUP"), as well as auction and sale of the industry on account of default of payment of loan.
Originally, M/s. U.P. Asbestos Limited (in short, "the UPAL") was engaged in manufacture and sale of asbestos sheets and cement from its industry situate at Mohanlalganj, Lucknow. It was enjoying the benefit of trade tax exemption under section 4A of the Trade Tax Act, 1948 for a period of eight years, vide letter dated October 23, 2000. Against the said exemption, under section 8(2A) tax deferment liability was granted and against that, the PICUP granted "interest-free trade tax deferment loan" to UPAL for the periods 1996-97 to 1999-2000. The properties were mortgaged and the second charge was created by the UPAL on all their movable and immovable assets, like assets of asbestos and cement unit.
UPAL sold its cement unit situate at Mohanlalganj, Lucknow to M/s. U.P. Cement Limited (in short, "the UPCL") after obtaining due permission from PICUP with the rider that second charge on the property of UPAL shall continue with PICUP and the UPCL shall not claim benefit of the deferment loan for the period subsequent to the sale of cement unit to UPCL in terms of original agreement between the UPAL and the PICUP.
Subject to the above condition, a Memorandum of Understanding (in short, the MOU) was executed between the UPAL and UPCL. The cement unit of UPAL was sold to UPCL for Rs. 400 lakhs. Out of the sale consideration, Rs. 275 lakhs of balance amount of the term loan along with interest from the date of transfer of loan, was agreed to be paid by the UPCL to Industrial Development Bank of India (in short, the IDBI). The balance of amount of Rs. 125 lakhs was agreed to be paid to UPAL in instalments by November 26, 1999. Under the MOU dated July 27, 1999, the UPCL was to get possession of the cement unit after payment of sale consideration including expenses regarding compliance with formalities.
However, UPCL applied to PICUP, vide letter dated August 23, 2000 and then to the Principal Secretary, Tax and Registration, Government of U.P., vide another letter dated October 3, 2000 for transfer of interest-free trade tax deferment loan which was already availed of by UPAL. The request was rejected by PICUP, vide letter dated October 9, 2000. The PICUP sent another letter dated October 12, 2000 to the Principal Secretary, Tax and Registration (in short, "the PST and R") against transfer of loan already availed of by UPAL. The PST and R, vide letter dated October 18, 2000 advised the PICUP that there is no difficulty in transferring the loan already availed of by UPAL in favour of UPCL subject to rider that UPCL should provide necessary security.
Keeping in view the advice of the State Government (letter dated October 18, 2000), the PICUP by means of the letter dated October 23, 2000, agreed for transfer of interest-free trade tax deferment loan which was already availed of by UPAL before transferring the unit to UPCL with certain riders mentioned in the letter but the UPCL failed to fulfil the condition imposed by the Government in its letter dated October 23, 2000.
Instead of fulfilling the condition as per letter dated October 23, 2000, the UPCL, inter alia, requested the Principal Secretary, Trade Tax and Registration, vide its letter dated January 8, 2001, to grant relief of adjusting the loan availed of by the UPAL towards balance amount paid to UPCL by UPAL and to execute the sale-deed in favour of the UPCL. The PST and R, vide its letter dated January 11, 2001 informed that UPAL has been granted loan by PICUP on its cement unit and since the cement unit has been sold to UPCL, the benefit and liability of cement unit should also be transferred to UPCL. The PST and R
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