The High Court
Case Details
IN THE HIGH COURT OF ORISSA, CUTTACK W.P.(C) No.5049 of 2008 An application under Articles 226 and 227 of the Constitution of India ------------------------- Dillip Kumar Ray ....... Petitioner -Versus- Orissa State Financial Corporation through its Chairman-cum-Managing Director, OMP Square, Cuttack and others. ....... Opp. Parties For Petitioner: - Mr. Bansidhar Baug, Senior Advocate For Opp. Parties: - Mr. Avijit Patnaik, Advocate for opp. party nos. 1 & 2 Mr. P.K. Nayak, Advocate for opp. party nos. 3 & 4 ------------------------- P R E S E N T: THE HONOURABLE MR. JUSTICE S.K. SAHOO AND THE HONOURABLE MR. JUSTICE S.S. MISHRA ----------------------------------------------------------------------------------------------------------------------- Date of Hearing: 09.07.2025 Date of Judgment: 08.08.2025 ----------------------------------------------------------------------------------------------------------------------- S. S. Mishra, J. This writ petition has been filed by the petitioner assailing the action of the Orissa State Page 1 of 26 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 Page 2 of 26 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 Page 3 of 26 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. Page 4 of 26 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-507 It is contended that these decisions prohibit the sale of mortgaged assets under Section 29 of the SFCs Act, 1951 without following due process and uphold the borrower’s right to challenge the arbitrary action of the Corporation. 8. Per contra, learned counsel for the OSFC submitted that the petitioner was a chronic defaulter Page 5 of 26 who failed to repay the dues for over three decades. The petitioner was given several opportunities, including a final opportunity for settlement via OTS vide communication dated 24.04.2006. However, he failed to comply with the terms or deposit the upfront amount, resulting in cancellation of the OTS. 9. It is submitted that due notice was issued and the seizure of the unit was lawful. The sale was preceded by publication in "The Samaj" on 10.03.2008 and offers were received during the BLDC meeting on 19.03.2008. Since only one bidder applied per lot, the properties were sold on “as is where is basis” in accordance with law. Possession was handed over, and registered sale deeds were executed on 26.03.2008 and 08.04.2008. 10. Reliance is placed on Valji Khimji v. Official Liquidator, reported in (2008) 9 SCC 299, to argue that post-sale objections are not to be entertained except on limited grounds like fraud, and also on Jasbir Kaur v. Punjab SIDC and another reported in Page 6 of 26 2001 SCC OnLine P&H 901, wherein Section 29 was held to authorize the sale of mortgaged property for recovery without recourse to Section 31. 11.
Legal Reasoning
Mr. P.K. Nayak, learned counsel for the opposite party nos.3 and 4 submitted that the conduct of the petitioner is reprehensible. He was a persistent defaulter. This could be inferred from the settlement order dated 24.04.2006 issued by the Corporation and the subsequent letter dated 07.07.2006 issued to the petitioner by the Corporation calling upon him to show- cause as to why the OTS offer shall not be withdrawn. Despite multiple opportunities being given to the petitioner, the petitioner never reverted back to the Corporation, rather conveniently ignored all the correspondence. Finally, on 01.03.2007, the OTS proposal was cancelled and the process for auction sale was initiated. Mr. Nayak, learned counsel, has also read out the auction sale notice published by the Corporation in the popular daily “The Samaja”. He has highlighted the portion of the advertisement which reads as under: Page 7 of 26 “the loanee(s)/Guarantor(s)/Mortgager(s) of the industrial assets/vehicles/collateral assets as advertised above are requested to appear in person or through their representative(s) accredited authorized before the DDAC/ BLDC meeting on the date, time and place mentioned in the said for getting notice with their proposal release the assets.” The petitioner or anyone on his behalf did not appear before the Committee. Therefore, on 24.03.2008, the sale was confirmed. The petitioner filed the writ petition without challenging the validity of the auction sale. 12. Mr. Nayak, learned counsel, also pointed out that in between, the petitioner has indulged in the unfair and fraudulent practice of alienating part of the mortgaged property. He has relied upon the additional affidavit dated 24.07.2024 filed by the opposite party nos.1 and 2. The main thrust of the argument of Mr. Nayak, learned counsel, is that once the auction sale is confirmed, it is not open for challenge. He has pointed out that, after confirmation of the sale, the opposite party no.3 has constructed relics centre, mediation hall, Page 8 of 26 science lab, guest house, kitchen room and school hostel over the said land, where the students are being provided free education, food and hostel. The opposite party no.2 has in the meantime sold the said property to number of persons and the property has changed hands, and huge constructions have also taken place in the said property. 13. We have perused the entire record placed before us and also carefully taken into account the submissions made by learned counsel for both parties before us. From the record, it is evident that the present petitioner has indeed not challenged the auction notice or auction sale in any manner whatsoever. However, after lapse of 13 years, the
Decision
petitioner sought an amendment to the writ petition to challenge the Registered Sale Deed only after the sale was duly conducted as per the provisions of law and the subject property was handed over to the opposite party nos.3 and 4. To appreciate this aspect, the prayer made by the petitioner in the writ petition is important Page 9 of 26 to be reproduced for convenience. The prayer reads thus: “To issue RULE NISI calling upon the Opp. Parties to show cause and if they fail to show cause or show insufficient cause issue appropriate writ, direction, or order quashing Annexures-2 and 9 series and the registered transfer dated 26.03.2008 and deed of 08.04.2008 in favour of the Opp. Party Nos.3 & 4 the OSFC authorities to take a decision on the OTS Application submitted by the petitioner and accept the same. respectively and direct And further be pleased to pass appropriate writ, order preventing the opp. Parties Nos.1 & 2 from disposing of the property of the petitioner’s unit in favour of the opp. Parties No.3 & 4 or any other party in any manner.” direction and 14. This is also eminent from the record that in between, the nature and character of the property has hugely changed, as the auction sale purchaser i.e. the opposite party nos.2 and 3 have either sold the property to many other purchasers or put it to good use. Therefore, on the ground, the change that has taken place assumes relevance for the purpose of deciding the present case. Page 10 of 26 15. Learned counsels appearing for all the parties have taken us to the pleadings and documents before this Court from which it can be safely concluded that none of the parties has indeed largely disputed the factual aspect of the matter. Therefore, the only legal issue remains to be decided in the present matter is regarding invocation of Section 29 of the SFC Act by the Corporation for the purpose of putting the land to public auction instead of undertaking the rigors of the procedure contemplated u/s 31 of the SFC Act, leading to violation of the principle of natural justice. 16. Mr. Baug, learned Senior Advocate, has vehemently submitted on the basis of series of case laws that it was imperative on the part of the Corporation only to resort to Section 31 of the SFC Act for putting the mortgaged collateral land to the public auction. However, the Corporation has chosen a shortcut method by resorting the provisions of Section 29 of the SFC Act so as to deprive the petitioner from Page 11 of 26 being heard before the auction sale. For ready reference, Sections- 29 and 31 of the SFC Act are reproduced below: “29. Rights of Financial Corporation in case industrial of default.—(1) Where any concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the [right to take over the management or industrial possession or both of concern], as well as the [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. the (2) Any transfer of property made by the Financial Corporation, in exercise of its powers [* * *] under sub-section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property. (3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods. (4) [Where any action has been taken against an industrial concern] under the provisions of sub-section (1), all costs, Page 12 of 26 [charges and expenses which in the opinion of the Financial Corporation have been properly incidental it [as incurred] by thereto] shall be recoverable from the industrial concern and the money which is received by it [* * *] shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.] (5) [Where the Financial Corporation has taken any action against an industrial concern] under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of [the concern]. 31. Special provisions for enforcement of claims by Financial Corporation.—(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment [then, without prejudice the provisions of to Section 29 of this Act and of Section 69 of Page 13 of 26 generally the Transfer of Property Act, 1882 (4 of the Financial 1882)], any officer of Corporation, specially or authorized by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:— (a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the [Financial Corporation] as security for the loan or advance; or [(aa) for enforcing the liability of any surety; or] (b) for transferring the management of the industrial Financial Corporation; or concern the to (c) for an ad interim injunction restraining the industrial concern from transferring or its machinery or plant or removing equipment the from industrial concern without the permission of is the Board, where apprehended. the premises of removal such (2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.” 17. Reading of the aforementioned provisions u/s 29 make it abundantly clear that on failure of the borrower (industrial concerned) to abide by the terms Page 14 of 26 of agreement enter with the Corporation, the Corporation has power under the Act to take over the management or possession or both of all the industrial concerned and not the property in question i.e. the mortgaged property. However, Section 31 makes it clear that, if the borrower fails to comply with the terms of its agreement with the Corporation or the Corporation requires the industrial concerned to make immediate payment of the loan amount or the loan amount advance under Section 30 and the industrial concerned fails to make such payment, then without prejudice to the provisions under Section 29 of the Act and Section 69 of the Transfer of Properties Act, 1882, any officer of the Financial Corporation authorized by the Board may apply to the District Judge within the limits of whose jurisdiction the industrial concerned carries whole or substantial part of its business for an order for sale of the property pledged, mortgaged, hypothecated or assigned to the financial corporation as a security for the loan or advance. The procedure Page 15 of 26 contemplated under Sections 29 and 31 of the Act has been widely discussed by various judgments of the Hon’ble Supreme Court and different High Courts. 18. It is no more res integra that for the purpose of putting a mortgaged property up for public auction, the Corporation is obliged to follow the procedure contemplated under Section 31 of the SFC Act. 19. Therefore, the first ingredient to be satisfied regarding the applicability of procedure under Section 29 of the SFC Act or 31 of the Act is to ascertain as to whether the property in subject was mortgaged, pledged, hypothecated or assigned to the Financial Corporation in lieu of the loan or advance extended to the industrial concerned or not. In the present case, the petitioner could not place before the Court, despite repeated directions, the mortgaged deed/pledge document of the property in subject. The petitioner, by taking us to different documents, intended us to draw an inference that the land in subject was mortgaged. In Page 16 of 26 absence of any mortgaged deed placed on record, it is difficult to draw an inference on the basis of the transactional documents to infer that the land was pledged or mortgaged by the industrial concerned while availing the loan or advance by the Corporation. 20. Mr. Baug, learned Senior Advocate for the petitioner, sought to infer the existence of a mortgage in respect of Lot No.2 (the tank/pond) by relying upon certain correspondences, including (i) the letter dated 23.10.2002 issued under Section 29 of the Act referring to an alleged mortgage deed dated 03.12.1996 and 31.03.2000 and inventory list showing land mortgaged to the Corporation, (ii) the letter dated 20.11.2002 addressed to the petitioner with copy to the alleged mortgager, and (iii) subsequent notices addressed to the petitioner with copies forwarded to Smt. Pramoda Kumari Ray, reiterating the contents of the earlier letters and describing her as the guarantor. However, this Court, after hearing the matter and upon a careful Page 17 of 26 perusal of the materials placed on record, found that there was no registered mortgage deed produced nor any definitive proof of creation of mortgage strictly in accordance with Section 58(f) read with Section 59 of the Transfer of Property Act, 1882. The so-called mortgage was merely attempted to be established by way of correspondence and not through any substantive or conclusive legal instrument. Accordingly, realizing the absence of proper proof of mortgage in the eyes of law, this Court vide order dated 27.07.2023 directed the petitioner to produce valid proof of mortgage in respect of Lot No.2. The said order was passed in light of the insufficiency of the petitioner’s claim and the requirement of legal sanctity under the Transfer of Property Act. The relevant portion of the aforesaid order is extracted herein below:- “2. Mr. B. Baug, learned counsel appearing for the petitioner contended that the land (Lot-II), measuring Ac.0.790 dec. of the unit of M/s. Laa Glace Ice Factory and Cold Storage, Kalupadaghar, Khurda is a pond and the mortgaged property, showing undue Page 18 of 26 that as per haste, has been auctioned and sold on the very same day, i.e., 24.03.2008. It is further contended the provisions contained in Section-29 of the State Financial the mortgaged Corporations Act, 1951, property, being a pond, cannot be auctioned or sold by the opposite parties. 3. On perusal of the record, it appears that nothing has been placed on record to indicate that the said property, i.e., Lot-II is a pond and has been mortgaged. Therefore, learned counsel for the petitioner seeks time to produce relevant documents to satisfy this Court that Lot-II is a mortgaged property.” 21. Therefore, although we agree with the legal proposition propounded by Mr. Baug that once the property is pledged or mortgaged by the industrial concerned with the Corporation even the failure on the part of industrial borrower to make good the payment, the mortgage or pledged property could only be dealt with the procedure contemplated under Section 31 of the SFC Act but not under Section 29 of the SFC Act. In that regard, Mr. Baug, learned Senior Advocate, has relied upon the following judgments : (1) Karnataka State Financial Corporation vs. N. Narasimahaiah and others, reported in (2008) 5 SCC 176. Page 19 of 26 (2) & others, reported in AIR 2015 Supreme Court 542. Subhransu Sekhar Padhi vs. Gunamani Swain (3) Gunamani Swain & others vs. Orissa State Financial Corporation & others, reported in AIR 2011 Orissa 83. (4) Prasana Kumar Rath vs. Odisha State Financial Corporation & another, reported in 2025 (I) ILR-CUT-507. All the above judgments cited by Mr. Baug, learned Senior Advocate on the question of applicability of Section 31 of the SFC Act, are good law and are binding. However, on the facts of the present case, the applicability of the ratio laid down by the Hon’ble Supreme Court and this Court, as cited above, is distinguishable due to the lack of documentary support. 22. It is found from the record that on 10.03.2008, the public auction notice was advertised through a widely circulated newspaper. The loanee/ guarantor/mortgager of the industrial assets was requested to appear in person or through their representative before the Branch Level Disposal Committee Meeting on 19.03.2008. The petitioner conveniently avoided the meeting to get the unit Page 20 of 26 released or to give better offer than the prospective buyers. Therefore, the Corporation had sold the assets on 19.03.2008 for a sale consideration of Rs.12,25,000/- for Lot-1 property in favour of one Kalpana Mohapatra and Lot-2 property in favour of Aurobindo Matruseba Trust for Rs.1,65,000/-. The auction purchasers have paid the entire sale consideration, took over the possession of the asset on 24.03.2008. One of the auction purchasers has now put the land to use for its philanthropic purposes, whereas the other auction purchaser has sold the property. 23. In the judgment of the Hon’ble Supreme Court in the matter of Valji Khimji and Company vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. & others, reported in (2008) 9 SCC 299, it is held as under: “30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction- purchaser. However, where the auction is Page 21 of 26 subject to subsequent confirmation by some authority (under a statute or terms of the auction), the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud. the present case, 31. In the auction having been confirmed on 30-7-2003 by the Court, it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by anyone in this case.” In the present case, the petitioner has not even assailed the validity of the auction notice, as apparent from the prayer made in the writ petition. Therefore, the petitioner has indeed waived its right and is now estopped from challenging the legality of the recovery adopted by the Corporation and the consequent auction conducted by it. The development that unfolded in the present case changed the factual scenario of the entire case. The Hon’ble Supreme Court, in the matter of Arce Polymers Private Limited vs. Alphine Pharmaceuticals Private Limited & others, Page 22 of 26 reported in (2022) 2 SCC 221, has settled the law in that regard. 24. It is also reflected from the record that during the follow-up action and inspection, it has been discovered that the petitioner had already sold a portion of the mortgaged land. The alienation of the mortgaged land is duly recorded in the mutation proceedings in favour of certain individuals from the locality. It has come to light that the petitioner and his mother have sold part of the mortgaged property by executing the Registered Sale Deed dated 11.10.1999 in favour of one Sukanta Kumar Palai. The said transaction includes 14 decimals of Plot No.132 and 22 decimals of Plot No.133, which is reflected in the Record of Rights. Such alienation of the property by the petitioner or at the instance of the petitioner is an act of suppression of material facts before this Court. The Hon’ble Supreme Court, in the case of K.D. Sharma vs. Steel Authorities of India Ltd. & others, reported in (2008) 12 SCC 481, has held as under: Page 23 of 26 “In the case on hand, the appellant has not come forward with all the facts. He has chosen to state the facts in the manner suited to him by giving an impression to the writ court that an instrumentality of State (SAIL) has not followed doctrine of natural justice and fundamental principles of fair procedure. This is not proper. Hence, on that ground alone, the appellant cannot claim equitable relief. But we have also considered the merits of the case and even on merits, we are convinced that no case has been made out by him to interfere with the action of SAIL, or the order passed by the High Court.” The law is well settled in this regard. It is expected that every litigant should approach the Court with clean hands. Concealment and suppression of facts entails the petitioner to get no relief. This case is one of such cases of suppression of facts before this Court. 25. Reading of the documents, pleadings of the present matter apparently gives an impression that the development unfolded in the present case and the facts entangled are largely disputed facts. Therefore, segregation of the admitted facts from those of the disputed facts arising from the sequence of events unfolded from the transaction ranging for about three Page 24 of 26 decades is a herculean task. The writ Court shall not venture into the task of separating chaff from the grain. In Gunwant Kaur v. Municipal Committee, Bhatinda reported in (1969) 3 SCC 769, the Hon’ble Supreme Court observed that the Courts may decline to entertain or grant relief in a writ petition if the subject matter requires complex factual determination or where the determination of disputed questions of fact is needed. The Hon’ble Supreme Court held thus- to entertain “14. The High Court observed that they will not determine disputed question of fact in a writ petition. But what facts were in dispute and what were admitted could only be determined after an affidavit in reply was filed by the State. The High Court, however, proceeded to dismiss the petition in limine. The High Court is not deprived of its petition jurisdiction in 226 merely under Article considering the petitioners right to relief questions of fact may fall to be determined. In a petition under Article 226 the High Court has jurisdiction to try issues both of fact and law. Exercise of the jurisdiction is, it is true, discretionary, but the discretion judicial must be exercised on sound principles. When raises petition questions of fact of a complex nature, which may for their determination require oral evidence to be taken, and on that account because the a Page 25 of 26 the High Court is of the view that the dispute may not appropriately be tried in a writ petition, the High Court may decline to try a petition. Rejection or a petition in limine will normally be justified, where the High Court is of the view that the petition is frivolous or because of the nature of the claim made, dispute sought to be agitated, or that the petition against the party against whom relief is claimed is not maintainable or that the dispute raised thereby is such that it would be inappropriate to try it in the writ jurisdiction, or for analogous reasons.” 26. Having regard to the conspectus of the entire discussions above, we are unable to grant any writ in favour of the petitioner. 27. The Writ is declined. S.K. Sahoo, J. I agree. .......................... S.S. Mishra, J. ................................ S. K. Sahoo, J. Orissa High Court, Cuttack Dated the 8th August, 2025/Subhasis Mohanty Signature Not Verified Digitally Signed Signed by: SUBHASIS MOHANTY Designation: Personal Assistant Reason: Authentication Location: High Court of Orissa, Cuttack. Date: 13-Aug-2025 11:08:27 Page 26 of 26