# STATE OF U.P. & ORS v. M/S. SWADESHI POLYTEX LTD. & ORS

- **Citation:** [2008] 9 S.C.R. 85
- **Court:** Supreme Court of India
- **Decided:** 2005-05-02
- **Case number:** Civil Appeal No.3840 of 2008
- **Bench:** rARUN CHATTERJEE, Harjit Singh Bedi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-ors-v-m-s-swadeshi-polytex-ltd-ors-24893
- **Pages:** 22

## Headnote

Uttar Pradesh Zamindari Abolition & Land Reforms
Rules, 1952- rr 246, 273A, 283, 285 and 285A-· Uttar Pradesh
Zamindari Abolition and Land Reforms Act, 1950 - s. 327 - c
Sick company unable to pay wages due to its employees -
Concerned authorities proceeded to recover amounts due, as
arrears of land revenue, by way of attachment and sale of property belonging to company in auction - Auction purchaser, a
Government agency - Company filed writ petition cha/IengD
ing the auction proceedings - High Court allowed the petition
and also passed strictures against the officers of State Government who had been instrumental in arranging the auction
- On appeal, held: Issuance of sale proclamation and auction
notice did not comply with the procedure prescribed under the
E
Act and the Rules - Hence, auction sale vitiated and cannot
be maintained - However, High Court's direction that action
should be initiated against the concerned officers not justified
- Same accordingly expunged - Strictures - Expunging of - .
Service Law.
'
F
Respondent, a sick company, was unable to pay
wages due to its employees. The concerned authorities
proceeded to recover the amounts due as arrears of land
revenue by way of attachment and sale of property belonging to Respondent-company in auction. U.P. State InG
dustrial Development Corporation (UPSIDC), a Government agency, was the auction purchaser. Respondentcompany filed writ petition challenging the entire auction
proceedings. It contended that the issuance of the sale
85
H
86
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A proclamation and the auction notice did not comply with
the procedure prescribed unde,r the Uttar Pradesh
Zamindari Abolition and Land Reforms Act, 1950 and the
Uttar Pradesh Zamindari Aboliti 1on and Land Reforms
Rules, 1952. High Court allowed the writ petition with
B costs and also passed strictures against the officers of
the State Government who had been instrumental in arranging the auction. Hence thr~ present appeal.
Dismissing the appeal, t.he Court
F
c
HELD:1. From a bare rf:ading of the r.246 of the Uttar
Pradesh Zamindari Abolition & Land Reforms Rules, 1952,
it is clear that notice can 'oe served on the agent only if it
is not possible to serve it on the actual defaulter. In the
present case, no attempt whatever had been made to
D serve the notice to the actual defaulter and had been
served on the Chow'kidai ~t the very initial stage. (Par(l
1 O] (97-F,G]
2. There is yet another circumstance which indicates
that the procedure for sale had not been followed. It is
E clear from the rer.:ord that the sale proclamation had been
issued without any valuation of the properties and only
the area of thr; vacant land had been specified therein.
There was a r.lear violation of rs. 283 and 285. R.283 provides for the. estimated value of the property to be deterF mined undr~r the provisions contained in Chapter XV of
the Reven•1.1e Manual. The said Chapter specifies the procedure fo,r valuation of the property in terms of other similar prorierties. It is, however, clear from the record that
the fig•1.1re of 27 Crores, the value of the property which is
G ment;,oned in the advertisement in the newspaper "Amar
Ujal.a" appears to have picked up without any basis as it
is not the case of the UPSIDC that the property had been
va,lued in accordance with the provisions of the Revenue
l\llanual or by a valuer or expert in the field. [Para 11] (97-
'ri, 98-A-E]
..
H
STATE OF U.P. & ORS. v. SWADESHI
87
POLYTEX LTD
3. The question of valuation is of the utmost imporA
tance as it is designed to ensure the best price for the
property and it is essential in this circumstance that wide
publication and notice of the proposed sale should be
given as per r.285-A which postulates a notice of 30 days
between the date of issuance of the sale proclamation and B
the date of auction. In the present case, however, the auction had been held on 2nd May 2005 though the sale proclamation had been issued on 1st April 2005, a

## Text

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[2008] 9 S.C.R. 85
STATE OF U.P. & ORS.
A
v.
M/S. SWADESHI POLYTEX LTD. & ORS.
(Civil Appeal No.3840 of 2008)
MAY16, 2008
B
[rARUN CHATTERJEE AND HARJIT SINGH BEDI, JJ.]
Uttar Pradesh Zamindari Abolition & Land Reforms
Rules, 1952- rr 246, 273A, 283, 285 and 285A-· Uttar Pradesh
Zamindari Abolition and Land Reforms Act, 1950 - s. 327 - c
Sick company unable to pay wages due to its employees -
Concerned authorities proceeded to recover amounts due, as
arrears of land revenue, by way of attachment and sale of property belonging to company in auction - Auction purchaser, a
Government agency - Company filed writ petition cha/IengD
ing the auction proceedings - High Court allowed the petition
and also passed strictures against the officers of State Government who had been instrumental in arranging the auction
- On appeal, held: Issuance of sale proclamation and auction
notice did not comply with the procedure prescribed under the
E
Act and the Rules - Hence, auction sale vitiated and cannot
be maintained - However, High Court's direction that action
should be initiated against the concerned officers not justified
- Same accordingly expunged - Strictures - Expunging of - .
Service Law.
'
F
Respondent, a sick company, was unable to pay
wages due to its employees. The concerned authorities
proceeded to recover the amounts due as arrears of land
revenue by way of attachment and sale of property belonging to Respondent-company in auction. U.P. State InG
dustrial Development Corporation (UPSIDC), a Government agency, was the auction purchaser. Respondentcompany filed writ petition challenging the entire auction
proceedings. It contended that the issuance of the sale
85
H
86
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A proclamation and the auction notice did not comply with
the procedure prescribed unde,r the Uttar Pradesh
Zamindari Abolition and Land Reforms Act, 1950 and the
Uttar Pradesh Zamindari Aboliti 1on and Land Reforms
Rules, 1952. High Court allowed the writ petition with
B costs and also passed strictures against the officers of
the State Government who had been instrumental in arranging the auction. Hence thr~ present appeal.
Dismissing the appeal, t.he Court
F
c
HELD:1. From a bare rf:ading of the r.246 of the Uttar
Pradesh Zamindari Abolition & Land Reforms Rules, 1952,
it is clear that notice can 'oe served on the agent only if it
is not possible to serve it on the actual defaulter. In the
present case, no attempt whatever had been made to
D serve the notice to the actual defaulter and had been
served on the Chow'kidai ~t the very initial stage. (Par(l
1 O] (97-F,G]
2. There is yet another circumstance which indicates
that the procedure for sale had not been followed. It is
E clear from the rer.:ord that the sale proclamation had been
issued without any valuation of the properties and only
the area of thr; vacant land had been specified therein.
There was a r.lear violation of rs. 283 and 285. R.283 provides for the. estimated value of the property to be deterF mined undr~r the provisions contained in Chapter XV of
the Reven•1.1e Manual. The said Chapter specifies the procedure fo,r valuation of the property in terms of other similar prorierties. It is, however, clear from the record that
the fig•1.1re of 27 Crores, the value of the property which is
G ment;,oned in the advertisement in the newspaper "Amar
Ujal.a" appears to have picked up without any basis as it
is not the case of the UPSIDC that the property had been
va,lued in accordance with the provisions of the Revenue
l\llanual or by a valuer or expert in the field. [Para 11] (97-
'ri, 98-A-E]
..
H
STATE OF U.P. & ORS. v. SWADESHI
87
POLYTEX LTD
3. The question of valuation is of the utmost imporA
tance as it is designed to ensure the best price for the
property and it is essential in this circumstance that wide
publication and notice of the proposed sale should be
given as per r.285-A which postulates a notice of 30 days
between the date of issuance of the sale proclamation and B
the date of auction. In the present case, however, the auction had been held on 2nd May 2005 though the sale proclamation had been issued on 1st April 2005, and served
on the Chowkidar on 21st April 2005 and the publication
made in "Amar Ujala" on 22nd April 2005. The argument c
that as SPL (Respondent-company) had suffered no
prejudice in the auction proceedings, the sale should not
be interfered with, cannot be accepted. [Paras 14, 15] [102D-F, 104-B]
S.J.S.Business Enterprises (P) Ltd. vs. State of Bihar D
(2004) 7 sec 166 - relied on.
4. There is yet another circumstance which vitiates
sale. r.285-D provides that 25% of the amount of the auction money shall be deposited at the fall of the hammer
and the remaining 75% within 15 days. The case of the E
appellants is that the Bank draft for 7.80 Crores had been
deposited by the auction purchasers on 2nd May 2005
i.e., the date of auction but the High Court found that as
the auction had been completed at 1.30 p.m., it would not
have been possible to have received the Bank draft from
F
Kanpur 460 km. away on that date. This finding appears ·
to be correct. It is also found that the balance 75% of the
amount that had been deposited by various Bank drafts
on 18th May 2005 was also beyond the 15 days permissible and the finding of the High Court based on the record G
is that though the drafts were dated 14th May 2005 but
they had, in fact, had been handed over to the concerned
authority only on the 18th May 2005. For this additional
reason as well, the auction sale cannot be maintained.
[Paras 16, 17] (104-B-E, 105~C]
H
88
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
5. Moreover, r.273-A makes the provision under Or.
XXI, r.54 of the CPC applicable to proceedings for attachment which specifically provides for the judgment-debtor
to attend Court on a specified date to take notice of the
date which is fixed for setting the proclamation of the sale.
B Concededly, this procedure had not been followed. [Para
12] [98-F]
MM.Shah vs. S.S.A.S.Mahamad & Anr. 1954 SCR 108
- relied on.
c
6. However the High Court's direction that action
should be· initiated against the concerned officers is not
justified and the same is accordingly expunged more particularly as SPL's conduct as well does it no credit. The
directions insofar as the costs are concerned are how0
ever maintained. [Para 20] [106-8,C]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3840
of 2008
From the final Judgment and final Order dated 3.1.2006
E of the High Court of Judicature at Allahabad in W.P. NO. 5160
(MS) of 2005
WITH
C.A. No. 3839 of 2008
F
Dinesh Owivedi, Ashok H. Desai, R.F. Nariman, Rakesh
Dwivedi, P.H. Parekh, D.K. Goswami, Manoj Kumar Dwivedi,
Gunnam Venkateswara Rao, Kamlendra Mishra, Ravi Prakash
Mehrotra, Oeepti R. Mehrotra, Garvesh Kabra, Ranjeeta
Rohatgi, Sameer Parekh, Deeksha Rai (for M/s. Parekh & Co.)
G and Shrish Kumar Misra for the Appearing Parties.
The Judgment.of the Court was delivered by
HARJIT SINGH BEDl,J. 1. Leave granted.
2. Respondent No.1, Mis. Swadeshi Polytex Limited (hereH inafter referred to as "SPL ... , a company registered under the
STATE OF U.P. & ORS. v. SWADESHI
89
POLYTEX LTD [HARJIT SINGH BEDl,J.]
1'
Companies Act, 1956 and presently a sick unit has its regisA
tered Office at Kavi Nagar, Industrial Area, Ghaziabad. Concededly approximately 33% of the shares of the SPL are held
by Swadeshi Cotton Mills Limited, Kanpur (a unit of the National Textile Corporation, a Government Enterprise) about 28%
and 15% by M/s. Paharpur Cooling Towers Limited and some B
financial institutions respectively, and the remaining 23% or so
...
by the general public. It is on record that the CMD of the National Textile Corporation Ltd. is holding the charge of SPL and
steps are underway for the rehabilitation of the company. It appears that till year 1996-97, SPL was doing reasonably well c
whereafter a financial crisis seems to have set in, forcing its
closure on 301h September 1998. As SPL was unable to pay
the wages due to its employees, several applications were filed
by its workmen under the provisions of the Uttar Pradesh Industrial Peace (Timely Payment of Wages) Act, 1978 (hereinafter D
>-
called the 1978 Act). A recovery certificate was thereafter issued under sub-section (1) of Section 3 of the 1978 Act and
pursuant thereto, the Company was called upon to make good
the wages due to the workmen and on its inability to do so, the
authorities proceeded to recover the amounts due as arrears
E
of land revenue. A report was thereafter submitted by the Amin
on 7th January 2005 which was endorsed by the Sub-Divisional
Magistrate, Ghaziabad in his communication dated 101h February 2005, whereupon an attachment notice in Form 73-0 was
...,
issued and a proclamation for the sale of the property on 23'd
February 2005 was also ordered. The proclamation was howF
ever cancelled by the SOM, Ghaziabad and on re-consideration,
an order dated 1st April 2005 was passed and the Tehsildar,
Ghaziabad was directed to hold the auction on 2nd May 2005
after giving wide publicity and after the properties had been
properly valued. A fresh proclamation was accordingly issued G
by the Sub-Divisional Magistrate, Ghaziabad on 1st April 2005
~
itself, without disclosing the details of the properties or their
estimated value as also the date of the auction. An auction notice was, however, published in "Amar Ujala" on the 22nd April
2005 indicating that the estimate value of the properties was H
90
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A about 27 Crores and that the transfer of the property pursuant
y
to the auction would be made on the terms and conditions stipulated by the U.P. State Industrial Development Corporation (hereinafter called the UPSIDC) the present appellant. It is also the
case of the appellant herein that the personal service of the sale
B proclamation was also made on the Chowkidar of the SPL on
21•t April 2005. The auction was in fact held on the stipulated
day i.e. 2nd May 2005 and the UPSIDC was found to be the
....
highest bidder. The recovery certificate issued by the Deputy
Labour Commissioner and the auction notice dated 22nd April
c 2005 was challenged by SPL by way of Writ Petition No. 35005
of 2005 referring to the irregularities in the issuance of the sale
proclamation and the auction notice and it was prayed that the
proceedings be quashed. A reply was filed in response to the
Writ Petition but the petition was ultimately dismissed with the
D observation that repeated attempts to recover the dues had
failed on account of the recalcitrant attitude of SPL and that the
....
procedural defects which had been pointed out could be challenged by filing objections under Rule 285 (i) of the Uttar Pradesh
Zamindari Abolition & Land Reforms Rules, 1952 (hereinafter
E
called the "Rules"). Several objections were accordingly filed
with respect to the auction and the preceding events, but the
Commissioner, Meerut Division, in his order dated 24th June
2005 dismissed the objections. Aggrieved by the order dated
24th June 2005, SPL preferred a revision petition before the
Board of Revenue under section 293 of the U.P. ZamindariAboF lition and Land Reforms Act, 1950 (hereinafter called the "Act")
r
read with Section 219 of the Land Revenue Act but this petition
too was rejected by order dated 9th September 2005. This order was challenged before the Lucknow Bench of the Allahabad
High Court in Writ Petition No.5160/2005 and it was prayed,
G inter-alia, that the aforesaid order and the order dated 24th June
2005 be set aside and that the entire auction proceedings dated
2"d May 2005 be quashed. The High Court in its interim order
"'
dated 201h September 2005 directed the SPL to deposit a sum
of Rs.50 Lacs within a period of 30 days and in the meanwhile,
H directed that the sale be not confirmed. Aggrieved by the order
STATE OF U.P. & ORS. v. SWADESHI
91
POLYTEX LTD [HARJIT SINGH BEDl,J.]
.,,
dated 201n September 2005, the employees of the SPL filed a A
Special Leave Petition and in its order dated 5th December
2005, this Court directed that if the writ petition was not disposed of in the course of the week, the interim order passed by
the High Court would stand vacated. The High Court, however,
in its judgment dated 3rd January 2006 allowed the writ petition
B
with costs of Rs.50,000/- and also passed strictures against
the officers of the State Government who had been instrumental in arranging the auction. It is against this order that three
Special Leave Petitions have been filed which are SLP (Civil)
No.3272/2006 (U.P. State Industrial Development Corporation c
& Anr. Vs. M/s. Swadeshi Plytex Ltd. & Ors.), SLP (Civil)
No.2858/2006 (M/s. Swadeshi Polytex Ltd. Karamchari Kalyan
Sangh vs. Mis. Swadeshi Polytex Ltd. & Ors.) and SLP (Civil)
No.21002/2006 (State of U.P. & Ors. Vs. M/s Swadeshi Polytex
Ltd. & Ors). All these matters are being disposed of by this judgD
ment with the basic facts being taken from the first mentioned
appeal.
3. The learned Single Judge, at the very first instance, dealt
with the preliminary objections raised during the course of the
hearing that in view of the Division Bench judgments of the High
E
Court dated 131n January 2005, 4tn May 2005 and 261n May 2005,
it was not open to the SPL to contend at this stage that the recovery proceedings including the procedure adopted was not
maintainable in law. The Court observed that W.P. No.50571/
2002 had been filed by M/s. Paharpur Cooling Towers Pvt. Ltd.
F
and Ors. in which SPL had been arrayed as respondent No.6
and the proceedings relating to the issuance of the recovery
certificates by the Deputy Labour Commissioner under subsection (1) of Section 3 of the 1978 Act had been questioned,
but the Division Bench had dismissed the Writ Petition observG
ihg that as the petitioner therein i.e. M/s. Paharpur Cooling Tower
Pvt. Ltd. was pursuing the matter with the Company Law Board
and had availed of an alternative remedy, the writ petition was
not maintainable. The Court also observed that the matter had
been taken by M/s. Paharpur Cooling Towers Ltd to the SuH
92
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A preme Court and an interim order dated 7th February 2005 had
'r
been made directing the petitioner to deposit a sum of Rs.5/-
Crore in favour of the Registrar General of this Court, but this
amount had not been deposited and the Special Leave Petition had been dismissed on 24th February 2005. The Court acB cordingly held that in this view of the matter, it was clear that no
order against SPL had been made by this Court in the above
mentioned SLP. The learned Judge then went into the scope
and effect of W.P.No.35005/2005 filed by SPL impugning the
auction notice dated 22nd April 2005 and observed that this
c petition had been dismissed with the observation that it would
be open to SPL to avail of the alternative remedy available under rule 285(i) of the Rules. The Bench also noted that the third
writ petition, filed by one Jitendra Khaitan (Writ Petition
No.36736/2005) once again challenging the validity of the aucD tion notice dated 22nd April 2005 had been filed and this writ
petition too had been dismissed with the observation, inter-alia,
"""
that in the light of the order in Writ Petition No.35005/2005, the
petitioner herein could also avail the alternative remedy by filing objections under rule 285(i) of the Rules. The Court accordE
ingly rejected the prayer of the respondents before it that in view
of the aforesaid writ petitions, the writ petition was not maintainable. The Court then examined the submission as to whether
the procedure envisaged for recovery of arrears under the Act
and the Rules had been observed and in case they had been
breached, the effect thereof and after examining the various
F provisions threadbare, held that the Act and Rules prescribed a
~
procedure for the recovery of arrears of land revenue and that
before a recovery certificate could be issued, the defaulter was
required to be effectively served, that the Rules in question were
mandatory and required strict compliance and in conclusion
G highlighted that there was no material on record to show that
any attempt had been made to serve the demand notice on
SPL, and service on the Chowkidar was clearly not proper ser-
'r
vice on the defaulter. The Court also observed that auction sale
was liable to set aside for the additional reason that a clear 30
H days notice of the proposed auction had not been given even if
STATE OF U.P. & ORS. v. SWADESHI
93
POLYTEX LTD [HARJIT SINGH BEDl,J.]
'(
the service on the Chowkidar was held to be appropriate. The
A
Court also held that the sale proclamation issued on 2nd May
2005 was not valid and did not comply with the provisions of
rule 285, 286 and 283 of the Rules and that the proclamation
·that had been issued was only of Rs.1.10 Crores and did not
provide for the full amount as envisaged under rule 245, which
B
>-
provided an opportunity to the defaulter to make good the payment so as to avoid the sale of the property. The Court also held
that on facts, it was impossible for the auction-purchaser i.e.,
the UPSIDC to have procured the Bank Drafts from the Punjab
National Bank, Kanpur on the day of the auction so as to make c
the deposit of the 25% of the sale price at the fall of the hammer
as the auction had been conducted at Meerut, about 460 Kms.
away from Kanpur and that the balance 75% of the amount due
on the auction had also been deposited late i.e. on 18th May
>
2005 which again was contrary to rule 285-D of the rules. The D
Court also observed that it appeared that the property had been
sold at a price far below its market price and in conclusion,
passed strictures against the district authorities which had conducted the auction and sale of the property in question thus
quashing the order dated gth September 2005 passed by the
E
Board of Revenue, the order dated 24th June 2005 of the Commissioner as well as the auction sale proceedings dated 2nd
May 2005 conducted by the Tehsildar, Ghaziabad with costs of
Rs.50,000 and all consequential relief, and a direction that it
...
would be open for the State Government to recover the costs
from the salary of the officers who were responsible "for the
F
auction of the property in question in such unruly manner" by
holding an enquiry and that the Chief Secretary was advised to
take appropriate action against the defaulting officers.
4. Before we embark on an examination of the contenG
tions raised by the learned counsel for the parties, we deem it
.,
appropriate to refer to certain supervening and material tactors. It is the admitted position that the workmen at whose instance the initial process of sale of the property had been initiated, have entered into ~n agreement dated 3rn January 2008
H
94
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A with SPL and the entire due amount due to them and something
')'
more has since been paid. It is also clear that the auction-purchaser is the UPSIDC, which is a Government agency and is
the owner of the land over which the super-structure of SPL has
been built.
B
5. In this background, the learned counsel for the appellants has submitted that the findings recorded by the High Court
;
were erroneous as it was clear from the record that despite
numerous opportunities given to SPL to make the payments
due to their own workmen, no serious attempt had been made
c to do so and that on the contrary, every attempt had been to
forestall the payment. It has been pointed out that the had suddenly woken up to its obligations and made full payment after
the decision in the writ petition to take advantage of the huge
spurt in the price of real estate in Ghaziabad and the surroundD ing areas. It has been pleaded that there was absolutely no ir-
....
regularity in the procedure relating to the auction and the finding of the High Court that the sale price appeared to be undervalued was also not based on any relevant material. It has also
been pleaded that no substantial injury had been caused to SPL,
E as the recovery certificate initially had been issued in the year
2002 and had been challenged by the associates of SPL or by
SPL itself and despite the fact that in the case of the SLP filed
by M/s. Paharpur Cooling Towers Ltd., this Court had directed
that a sum of Rs.5 Crore be deposited before the Registrar
F General, the order had not been complied with and the SLP
~
had been dismissed proving a lack of intention on the part of
the SPL or its associates to make the payment. It has finally
been pleaded that the UPSIDC had deposited a sum of
Rs.32.20 Crores in May 2005 and the sale had thereafter been
G confirmed in its favour and the possession transferred, and that
if this amount plus interest of 18% was taken into account, the
amount now due to the appellant would be almost 48 Crores, in
~
case the order was to be set aside.
6. The learned counsel for the respondents have, however.
H supported the judgment of the High Court. It has been espe-
STATE OF U.P. & ORS. v. SWADESHI
95
POLYTEX LTD [HARJIT SINGH BEDl,J.]
'1'
cially emphasized that the workers due having been discharged
A
by SPL, it did not lie on the State Government or a State Government undertaking, the appellant herein, to still pursue the
matter doggedly in this Court. It has been reiterated that the
property in question had not been properly valued, as provided
by rule 283 of the Rules and that the notice of the proclamation
B
'>
has also not been served on the SPL or on any of its functionaries and had in fact been served to the Chowkidar and that too,
about a week before the auction whereas a minimum notice
period of 30 days ought to have been given. It has further been
pleaded that the auction purchaser i.e., the UPSIDC had not
deposited 25% of the sale price and/or the balance of 75% of c
the amount within 15 days, as required under rule 245 of the
Rules and this too was a ground which was relevant in determining the propriety of the sale of the auction.
~
7. As would be clear, the arguments pressed by the learned D
counsel for both the sides pertain to the procedure adopted for
the auction. Sub-section (1) of Section 3 of the 1978 Act provides that in case the occupier of an industrial establishment is
in default of payment of wages in excess of Rs.50,000/-, the
Labour Commissioner may forward to the Collector a certifiE
cate under his signatures specifying the wages due from the
establishment concerned and that the Collector shall accordingly proceed to realize the amounts due as arrears of land revenue. Admittedly the recovery certificate had been issued and
"'
sent to the Collector, Ghaziabad by the Labour Commissioner
F
under section 3(1) and it is in this situation that the proceedings
against the SPL had been set in motion. Section 279 of the Act
provides for the recovery of arrears of land revenue by various
methods including an attachment and sale of the immovable
property of the defaulter in respect of the arrears due. Section G
280 stipulates that as soon as the land revenue had become
~
due, a writ of demand may be issued by the Tehsildar calling
upon the defaulter to pay the amount within a specified time
and under section 284, the property of the defaulter may also
be attached. Section 327 provides for the modes of service of H
96
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A the notice on the defaulter and reads as under:
,. ..
"327. Mode of service of notice.- Any notice or other
document required or authorised to be served under this
Act may be served either -
B
(a)
by delivering it to the person on whom it is to be
served, or
.-
(b)
by leaving it at the usual or last known place of abode
of that person, or
c
(c)
by sending it in a registered letter addressed to that
person at his usual or last known place of abode, or
(d)
in case of an incorporated company or body by
delivering it or sending it in a registered letter
addressed to the Secretary or other principal
D
functionary of the company or body at its principal
.....
office, or
(e)
in such other manner as may be laid down in the
Code of Civil Procedure, 1908.
E
8. Section F of Chapter 10 of the Rules deals with the coercive procedure which can be adopted by the Collector to recover the amounts as arrears of land revenue.
9. Rules 235 and 236authorize the Tehsildarto issue citaF
tions, writs and warrants etc. as per the prescribed form
whereas Rules 241 and 245 provide as to how the citation is to
~
be issued and writ of demand for the purpose of land revenue.
Rule 246 provides for the service of the writ or citation shall, if
possible, be made on the defaulter personally, but if service
cannot be made on the defaulter, it can be made on the agent
G and sub-rule thereof further postulates that personal service shall
be made by delivery to the defaulter or the agent of the foil of
the writ of citation and with the sanction of the Collector such
.,,
writs of demand may also be served as registered post. Rule
247-A also refers to a warrant of arrest which may be executed
H by a duly authorized person for the recovery of the arrears anc1
STATE OF U.P & ORS. v. SWADESHI
97
POLYTEX LTD [HARJIT SINGH BEDl,J]
Rule 247-8 (1) deals with the situation that where a defaulter at A
the time of his arrest pays the entire amount of arrears specified in the warrant of arrest to the process-server or to authorized officer, the defaulter will not be arrested. Rules 272, 272A, 272-8, 273, 273-A, 278 and 285-C deal with the procedure
for the attachment of the land which is proposed to be sold and
8
Rule 273-A postulates that the procedure envisaged in Order
"'
XXI, Rule 54 of the Code of Civil Procedure must be followed at
the time of attachment. Rule 285-C also provides that in case
the defaulter pays the arrears of land revenue in respect of the
land proposed to be sold on any day before the fixed day of the c
sale, the sale officer on being satisfied shall stay the sale. Rules
282 and 283 when read together provide that in the proclama-.
tion of sale to be issued in Form Z.A. 74, it will be incumbent on
the Collector to give the estimated value of the property calculated in accordance with the rules in Chapter XV of the Rev0
enue Manual.
10. We now examine the primary arguments in the background of the above provisions. The question arises as to
whether the provisions for the attachment and sale of the property had been followed scrupulously, as would be necessary in
E
such a case. We notice that the learned Single Judge has examined the matter and has concluded that there was no material on record to show that proper procedures had been
adopted. A positive finding has been arrived at on facts that the
Tehsildar or the Collector had even attempted to serve the deF
mand notice personally or by registered post on SPL, as called
upon under Section 327 of the Act and Rule 246, as the notice
had been served on the Chowkidar who could not be said to be
an agent of SPL. It must also be noticed from a bare reading of
the Rule 246 that the notice can be served on the agent only if it G
is not possible to serve it o.n the actual defaulter. In the present
case, we find that no attempt whatever had been made to serve
the notice to the actual defaulter and had been served on the
Chowkidar at the very initial stage.
, 11. There is yet another circumstance which indicates that
H
98
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A the procedure for sale had not been followed. It appears from
,..
the record that the notice of citations for appearance and demand had been issued on 11th January 2005 and on 1•t April
2005, the Sub-Divisional Magistrate had passed an order for
the valuation of the properties as well as for wide publicity of the
B auction and sale of the property in question and the Tehsildar,
Ghaziabad had been appointed as the auction officer and the
auction had been fixed for the 2nd May 2005. It is clear from the
record that the sale proclamation had been issued on 1st April
2005 without any valuation of the properties and only the area
c of the vacant land had been specified therein and it was this
notice that had been served on the Chowkidar on the 21st April
2005 and publication had been made in the newspaper "Amar
Ujala" on the 22nd April 2005. There has, thus, been a clear violation of the Rules 283 and 285 ibid. Rule 283 provides for tl=le
D estimated value of the property to be determined under the provisions contained in Chapter XV of the Revenue Manual. The
said Chapter specifies the procedure for valuation of the property in terms of other similar properties. It is, however, clear from
the record that the figure 27 Crores, the value of the property
E
which is mentioned in the advertisement in the "Amar Ujala",
appears to have picked up without any basis as it is not the
case of the UPSIDC that the property had been valued in accordance with the provisions of the Revenue Manual or by a
'·
valuer or expert in the field.
F
12. Moreover, Rule 273-A makes the provision under Or-
..
der XXI, Rule 54 of the CPC applicable to proceedings for at1
tachment and Rule 1-A of Rule 54 specifically provides for the
<
judgment-debtor to attend court on a specified date to take nolice of the date which is fixed for setting the proclamation of the
G sale. Concededly, this procedure had not been followed. The
learned counsel for the respondent has also disputed the valuation of the property by the UPSIDC and has referred us to the
pleadings in the writ petition and in particular to paragraphs 26
and 30 thereof. These paragraphs are reproduced below:
H
"That the auction was held on 2.5.2005 but in the furd
STATE OF U.P. & ORS. v. SWADESHI
99
POLYTEX LTD [HARJIT SINGH BEDl,J.]
neelam no time of auction was provided. Even the A
description of the land sought to be auctioned, has not
been provided in the furd neelam. Six bidders, had
participated in the auction, out of which only U.P. State
Industrial Development Corporation was the major bidder
in competition with one M/s. Suder Steel Pvt. Ltd. The s
property worth Rs.56.00 Crores as per the rate list issued
by the U.P. State Industrial Development Corporation has
been auctioned for petty amount of Rs.32.00 Crores and
odd. In the open market, rate of the property in question
could fetch atleast Rs.100 Crores. This is apparent from c
the letter dated .26.4.2005 issued by Shri Mahak Singh,
District Manager, UPSIDC. The circle rate of the land of
the area fixed by UPSIDC is effective from 9.4.2005 is
Rs.3000/- per sq.meter, by which calculation, cost of the
land in question comes to Rs.56.42 Crores approx., D
whereas the same has been sold only @ Rs.1700/- per
sq.meter, amounting to Rs. 32.20 Crores, to the UPSIDC.
A true copy of the furd neelam letter dated 26.4.2005 issued
by District Manager, UPSIDC are annexed herewith as
Annexure No.23A & 24 to this Writ Petition.
That as per the newspaper clipping published in The Times
E
of India property section, New Delhi edition dated
25.6.2005, the land price in Kavi Nagar, Ghaziabad is Rs.
11,000/- per sq.mt. The petitioner has suffered a substantial
injury and loss in the auction held by the District
F
Administration of a prime property situated at Kavi Nagar,
Ghaziabad Industrial Area, Ghaziabad @ Rs.1700/- per
sq.mt. a true copy of the newspaper clipping dated
25.6.2005 is annexed herewith asAnnexure No.27 to this
Writ Petition."
The replies to the paragraphs are given in SLP(C} No.3272
of 2006:
"That in reply to the contents of paras 23 to 25 of the writ
petition which are not correct, hence denied. It is submitted
G
H
A
8
100
SUPREME COURT REPORTS
[2008] 9 S.C.R.
that the petitioner had full knowledge about the auction,
and the auction has not held much higher to the present
circle rate. It is further submitted that the rate offered and
accepted by the deponent is of developed land whereas,
the present land is a lease land on 99 years of which
already 35 years had expired and it is undeveloped area
for which maximum rate has been got in the auction held
on 2.5.2005."
13. Shri Nariman, the learned senior counsel for the respondents, therefore, appears to be right in contending that the
C specific averments made by SPL in the writ petition have not
been denied by the respondent and it was therefore open to
SPL to contend that the property had not been properly valued
and that the sum of Rs.27 crores represents not even half the
market price. In Gajraj Jain vs. State of Bihar (2004) 7 SCC
D 151 while dealing with a case under the State Financial CorpoE
F
G
H
rations Act, this is was what this Court had to say:
"In the light of the aforesaid judgment of this Court, the
issue which arises for determination is -
whether
Respondent 2 Corporation acted reasonably and in
accordance with Section 29 of the 1951 Act in transferring
the assets of the Company on 19.3.2002 and in entering
into agreement for safe with Respondent 4 on 26.4.2002.
As stated above, Respondent 2 Corporation had a
paramount first charge on the assets of the flour mill
whereas Central Bank of India had the second charge
thereon. There is a difference between a charge and a
mortgage. In the case of a charge under Section 100 of
the TP Act, there is no transfer of interest in the property.
A charge is not a jus in rem. It is jus ad rem. It creates a
right of payment out of the property/fund charged with the
debt or out of proceeds of the realization of such property,
a phrase used in Section 29(1) of the 1951 Act. A charge
as defined under Section 100 of the TP Act may be
enforced by safe [See Mulla: Civil Procedure Code (151h
Edn.). p.2420]. We have discussed the concept of charge
y
•,
I
STATE OF U.P. & ORS. v. SWADESHI
101
POLYTEX LTD [HARJIT SINGH BEDl,J.]
as it has a direct bearing on the interpretation of Section A
29 of the 1951 Act.
In the present case, it has been urged that absence of
valuation report and the reserved bid does not vitiate the
sale. We do not find met in this argument. In the case of
S.J.S. Business Enterprises (P) Ltd. it has been held that 8
the financial corporation, in the matter of sale under Section
29, must act in accordance with the statute and must not
act unreasonably. In this case, the Corporation fails on
both the counts. It has neither complied with the provisions
of sub-sections (1) and (4) of Section 29, nor has it acted C
fairly. The test of reasonableness has been laid down in
the above judgment in which it is held that reasonableness
to be tested against the dominant consideration to secure
the best price. Value or price is fixed by the market. In the
case of a going concern, one has to value the assets D
shown in the balance sheet (Datta,S.: Valuation of Real
Property,p.198). In our view, if the object of Section 29 of
the Act is to obtain the best possible price then the
Corporation ought to have called for the valuation report.
This has not been done. There is no inventory of assets E
produced before us. The mortgaged assets of the
Company could be sold on itemi.zed basis or as a whole,
whichever is found on valuation to be more profitable. No
particulars in that regard have been produced before us.
...
If publicity and maximum participation is to be attained
F
then the bidders should know the details of the assets (or
itemized value). In the absence of the proper mechanisam
the auction-sale becomes only a pretence. Further, in this
case, the Corporation advanced Rs.90 Lakh to the
Company. At that time, it must have valued the assets. G
Nouch report has been produced. Lastly, in this case, the
price of the assets is pegged to the dues of the Corporation
and Central Bank of India. The assets are agreed to be
sold to Respondent 4 not for the market price but against
repayment of dues of the Corporation plus a promise to H
102
SUPREME COURT REPORTS.
[2008] 9 S.C.R.
A
discharge the liability of Central Bank of India. Therefore,
y
the Corporation, Respondent 2, has not acted reasonably.
It has not taken any steps to secure the best price. In fact,
it has failed to protect the interest of Central Bank of India,
which is having the second charge on the assets
B
transferred to Respondent 4 as well as the mortgagor
which would be entitled to the balance of the sale proceeds,
if any. It was contended that as the bids were withdrawn,
the offer of Respondent 4 was accepted. Even assuming
for the sake of argument, that there were no offers except
c
the offer of respondent 4, it shows that value of the assets
was Rs.198.8l) lakhs (i.e. Rs.28.85 lakhs + Rs.170 Lakhs).
,.
No reason has been given why Respondent 2 did not
insist on downright payment of Rs.198.85 lakhs."
14. The question of valuation is to our mind of the utmost
D importance as it is designed to ensure the best price for the
property and it is essential in this circumstance that wide publication and notice of the proposed sale should be given as per
Rule 285-A which postulates a notice of 30 days between the
date of issuance of the sale proclamation and the date of aucE tion. It can hardly be over emphasized that the proper valuation
of the property and wide publicity of the proposed auction is
intimately linked with the. price that the auction fetches. As already mentioned above, the auction had been held on 2nd May
2005. The sale proclamation had been issued on the 1st April
F 2005, and served on the Chowkidar on the 21st April 2005, the
).
publication made in "Amar Ujala" on 22nd April 2005 whereas
rule 285 itself postulates a notice period of 30 days to be counted
from the date of issuance of the sale proclamation. While dealing with a similar situation, this is was what this Court had to
G say in S.J.S.Business Enterprises (P) Ltd. vs. State of Bihar
(2004) 7 sec 166:
"We are of the view that the sale effected in favour of
Respondent 6 cannot be sustained. It is axiomatic that the
statutory powers vested in State financial corporation under
H
the State Financial Corporations Act must be exercised
STATE OF U.P. & ORS. v. SWADESHI
103
POLYTEX LTD [HARJIT SINGH BEDl,J.]
bona fide. The presumption that public officials will
A
discharge their duties honestly ar;id in accordance with
the law may be rebutted by establishing circumstances
which reasonably probabilise the abuse of that power. In
such event it is for the officer concerned to explain the
circumstances which are set up against him. If there is no s
credible explanation forthcoming the court can assume
that the impugned action was improper. (See Pannalal
Binjraj v. Union of India, AIR at p.409.) Doubtless some of
the restrictions placed on State financial corporations
. exercising their powers under section 29 of the State c
Financial Corporations Act, as prescribed in Mahesh
Chandra v. Regional Manager, U.P.Financial Corpn. Are
no longer in place in view of the subsequent decision in
Haryana Financial Corpn. Vs. Jagdamba Oil Mills.
However, in overruling the decision in Mahesh Chandra 0
this Court has affirmed the view taken in Chairman and
managing Director, SIPCOT v. Contromic {P) Ltd. and
said that in the matter of sale under section 29, State
financial corporations must act in accordance with the
statute and must not act unfairly i.e. unreasonably. If they
do, their action can be called into question under Article
E
226. Reasonableness is to be tested against the dominant
consideration to secure the best price for the property to
be sold.
·
''This can be achieved only when there is a maximum
F
public participation in the process of sale and everybody
has an opportunity of making an offer. Public auction after
adequate publicity ensures participation of every person
who is interested in purchasing the property and generally
secures the best price."
Adequate publicity to ensure maximum participation of
bidders in turn requires that a fair and practical period of
time must be given to purchasers to effectively participate
G
in the sale.