[2011) 3 S.C.R. 862 A KERALA FINANCIAL CORPORATION v. VINCENT PAUL & ANR. (Civil Appeal No. 3446 of 2003) MARCH 14, 2011B [P. SATHASIVAM AND DR. B.S. CHAUHAN, JJ.] CONTRACT: c Tender - Non-compliance of conditions - Condition of the tender to deposit 25% of sale price within one week - Letter issued to the sole tenderer to deposit the amount of sale price after adjusting the earnest money - Another letter sent to the bidder that further proceedings could be finalized only after D the temporary injunction was vacated by court - Held: Unless the conditions were fulfilled, the bidder cannot take advantage of mere remittance of a sum towards earnest money - Trial court rightly dismissed the suit for specific perfo mance of agreement of auction sale - High Court in an E effoneous assumption effed in concluding that there was a valid contract and for granting a decree for specific performance - Judgment of High Court set aside - Specific performance of contract - Suit. STATE FINANCIAL CORPORATION ACT, 1951: F

s.29 - Taking over of the borrower firm and attachment. and sale of its security in discharge of debt - Notice inviting tenders published by KFC in a local news paper- Negotiation wit the sole tenderer - Held: KFC has not strictly followed the G procedure in bringing the property to sale - State Government has not framed Rules or guidelines for sale of properties owned by them - Till such formation of Rules or guidelines or orders, KFC is directed to adhere to the directions for sale of properties owned by it, as issued by the H 862 · KERALA FINANCIAL CORPORATION v. VINCENT 863 PAUL & ANR.

Court in the judgment - Contract. A The Kerala Finance Corporation (KFC), for recovery of its loan amount from a firm, took over the borrower firm u/s 29 of the State Financial Corporation Act, 1951, on 11.09.1987. On the same day the firm filed O.S. No. 2194/ 887 with an application for temporary injunction restraining KFC from taking over the firm. KFC invited tenders and held negotiation with sole bidder, namely, the respondent, in respect of the property of the firm, and issued a letter on 31-10-1988 to the respondent expressing the willingness to sell the property for Rs. 8.25 C lakh subject to certain conditions. On 01.11.1988 the firm filed another suit being O.S. No. 2109/88 for injunction to restrain the KFC from taking any action pursuant to the auction/sale proceedings, and the trial court directed to maintain status quo as on 31.10.1988. Eventually, both D the suits were dismissed. The firm filed A.S. No. 56 of 1992 against the dismissal of O.S. No. 2109/88 and A.S. No. 146of1993 against dismissal of O.S. No. 2194of1987. On 6.12.1994 the respondent filed O.S. No.1522/94 for specific performance of agreement of sale. Subsequently, E both the appeals filed by the firm were dismissed. The suit of the respondent was also dismissed and he filed A.S. No. 557 of 2000. On 17.09.2001 the KFC invited fresh tenders for sale of the assets and one 'KKU' offered Rs. 55,55,555/- which was the highest bid. Meanwhile on , F 27 .11.2001, the appeal of the respondent was allowed and his suit for specific performance of agreement of sale was decreed by the High Court. KFC challenged the judgment of the High Court by filing C.A. No. 3446 of 2003, and KKU filed C.A.No. 3450 of 2003. KKU also filed C.A .• G No. 3451 of 2003 against the order of the High Court dismissing his O.P. No. 33834 of 2001. as ·infructuous . . Disposing of the appeals, the Court f-!ELD: 1.1. KFC is incorporated u/s 3 of the State H

864 SUPREME COURT REPORTS (2011) 3 S.C.R. A Financial Corporation Act, 1951; Section 29 of the Act empowers the KFC to attach and sell the security in discharge of debts and provides for speedy recovery. The procedure of attachment and sale of property though available under the Code of Civil Procedure, 1908, it shall B apply only when there is a decree at the instance of any of the parties. In the instant case, the KFC had not proceeded through the Civil Court but has taken independent action u/s 29 of the Act. [para 6-7] [871-G-H; 872-A-B] c 1.2. By notice under Ext. B1, KFC invited tenders from inte·nding buyers for purchase of immovable property attached by it. The last date for submission of tender was 31.10.1988. The respondent submitted a tender quoting an amount of Rs. 7.5 lakh as bidding D amount and the price was, ultimately, fixed at Rs. 8.25 lakh. He also deposited a sum of Rs. 10,000/- for earnest money deposit as stipulated In the tender notice. One of the conditions of tender was that the successful bidder whose bid is accepted should pay 25% of the purchase E price offered within one week, if and when the .tender Is accepted, the balance amount be paid within one month thereafter. By letter dated 31.10.1988 (Ext. A2) issued by the KFC, the respondent was called upon to pay the balance amount [para 8] [872-A-F] F

1.3. Admittedly, on receipt of the communication dated 31.10.1988 from the KFC, the plaintiff did not send any reply In the form of confirmation of the said transaction as provided in clause (1) of Ext. A2. In such G circumstance, it cannot be said that there is a concluded contract between the KFC and the respondent. Undisputedly, KFC sent another letter on 05.11.1988 intimating the plaintiff that further proceedings can be finalized only after vacating the temporary injunction, H ordered by the Munsif Court Inasmuch as the KFC has KERALA FINANCIAL CORPORATION v. VINCENT 865 PAUL & ANR. agreed to sell the property in question for Rs.8.25 lakhs A subject to compliance of three conditions mentioned in Ext A2, unless the other party to the contract, namely, the respondent conveys his willingness within a week with regard to the terms stipulated therein, he cannot take advantage of mere remittance of a sum of Rs.10,000/- B towards Earnest Money Deposit as stipulated in Ext. 81. These aspects have been correctly appreciated by the trial court a·nd it rightly dismissed the suit filed by the respondent. On the other hand, the High Court, on an erroneous assumption as to the communication· dated c 31.10.1988 erred in concluding that there was a valid contract and granted a decree for specific performance. [para 10] [874-D-H; 875-A-D]

1.4. It is not in dispute that while ordering notice in the S.L.P giving rise to C.A. No. 3446 of 2003 filed by the D KFC on 12.04.2002, this Court stayed the execution of the decree for specific performance which ~hows that the land and building and all accessories are with the KFC. The decree for specific performance granted by the High Court cannot be sustained. The judgment and order E passed by the High Court granting decree for specific performance in favour of the respondent and all other sale transactions either in the form of tender or auction in respect of the property in question are set aside. [para 11-12 & 13] [875-G; 876-A-B-C-D; 878-C-D] F 2.1. The KFC has not strictly followed the procedure in bringing the property for sale. Though the KFC has initiated proceedings u/s 29 of the Act, admittedly, the State Government has not framed rules or guidelines in G the form of executive instructions for sale of public properties by way of tender or auction. Till such formation of Rules or guidelines or orders, the KFC is directed to adhere to the following directions for sale of properties owned by it: (i)The decision/ intention to bring : ·····.. , ·. H 866 SUPREME COURT REPORTS [2011] 3 S.C.R.

A the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular language having sufficient circulation in the locality; (ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation B of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the methods:

(a) by obtaining quotations from the persons dealing with c similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or (d) by private treaty. Among these, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State; (iii) The authority0 concerned shall serve on the borrower a notice of 30 days for sale of immovable secured assets; (iv) A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms E the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders; (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public F participation in the process of sale and everybody has an opportunity of making an offer. It becomes a legal obligation on the part of the authority that property be sold in. such a manner that it may fetch the best price;

(vi) The essential ingredients of sale are correct valuation G report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them (vii) H 'Reserve price' means the price with which the public KERALA FINANCIAL CORPORATION v. VINCENT 867 PAUL & ANR. auction starts and the auction bidders are not permitted A to give bids below the said price, i.e., the minimum bid at auction; and (viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale WOllld suffer from material irregularity where the debtor · B suffer substantial injury by the sale. [para 12-13] [876-C-H; 877-A-H; 878-C-E] 2.2. The KFC is directed to first issue the advertisement calling for tenders by way of public auction C by following the directions mentioned above. Before resorting to such recourse, if the KFC has accepted any deposit from any of the parties by way of tender or bid, the same shall be returned within a period of 30 days to ttie respective parties with simple interest@ 9% p.a. from the date of such deposit till it is repaid to the parties D concerned. [para 13] [878-D-E] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3446 of 2003

From the Judgment & Order dated 27.11.2001 of the High E Court of Kerala at Ernakulamin A.S. 557 of 2000 {E). WITH C.A. Nos. 3450 & 3451 of 2003. F Rajendran Nair, V. Giri, C.S.Rajan, R. Sundarvardan, P.V. Dinesh, K.R. Nambiar, Roy Arbraham, Seema Jain, Vikas Garg, Himinder Lal, P.I. Jose, E.M.S. Anam, Fazlin Anam, K.R. Nambiar, Vipin Nair, P.B. Suresh (for Temple Law Firm) for the appearing parties. G The Judgment of the Court was delivered by P. SATHASIVAM, J. 1. These appeals are filed against the judgments and orders dated 27.11.2001 and 22.01.2002 passed by the High Court of Kera!?. ,.,~ i::•nakulam in A.S. No. H 868 SUPREME COURT REPORTS [2011) 3 S.C.R. A 557 of 2000 and O.P. No. 33834 of 2001 respectively. 2. Brief facts: (a) The Kerala Financial Corporation (in short "the KFC"), a Public Sector Undertaking, is a State Financial B Corporation. On 24.10.1977, a loan of Rs.SO lakhs was sanctioned by the KFC to a firm called Cable India (hereinafter referred to as "the Firm") on hypothecation of land and machinery. In view of consistent failure of the firm to repay the loan, on 11.09.1987, the KFC took over the c firm under Section 29 of the State Financial Corporations Act, 1951 (in short "the Act"). On the same day, the Firm filed O.S. No. 2194of1987 with I.A. No. 1776of1987 for temporary injunction restraining the KFC from taking over the firm.

D (b) On 07.10.1988, a notice was published by the KFC in Mathrubhumi Malayalam Daily inviting tenders from intending buyers for purchase of the property. The last date for submission of tender was 31.10.1988. Pursuant to the same, only one bidder, i.e. one Vincent Paul, submitted E the tender quoting an amount of Rs. 7.5 lakhs as bid amount and also deposited the earnest money of Rs. 10,000/- as stipulated in the tender notice. On the same day, after discussion and negotiation between the KFC and Vincent Paul, the KFC issued a letter to the said F Vincent Paul expressing its willingness to sell the property for Rs. 8.25 lakhs subject to certain conditions. (c) By letter dated 01.11.1988, the Firm filed O.S. No. 2109 of 1988 before the Munsiff Court, Thrissur, seeking injunction to restrain the KFC from taking any actionG pursuant to the auction/sale proceedings and on the very same day the learned Judge directed to maintain status quo as on 31.10.1988. (d) By letter dated 05.11.1988, the KFC informed Vincent H KERALA FINANCIAL CORPORATION v. VINCENT 869- PAUL & ANR. [P. SATHASIVAM, J.]

Paul that further proceedings of the sale could be finalized A only after vacating the temporary injunction ordered by the Munsif Court, Thrissur. On 10.11.1988, I.A. No. 1776 of 1987 in O.S. No. 2194 of 1987 filed by the firm was dismissed. On 17.01.1992, O.S. No. 2109 of 1988 was also dismissed and the injunction was vacated. Against the . B said order, on 26.02.1992, the Firm filed A.S. No. 56 of 1992 before the District Judge, Thrissur. In the meantime, on 03.02.1993, the first suit i.e. O.S. No. 2194 of 1987 itself was dismissed. Against the said order, the Firm filed AS. No. 146 of 1993 before the District Judge, Thrissur. c (e) On 06.12.1994, Vincent Paul filed a suit bearing O.S. No. 1522 of 1994 before the subordinate Judge, Thrissur for specific performance of the agreement of sale. Subsequent to the filing of the said suit, the appeals i.e. A.S. No. 56 of 1992 and A.S. No. 146 of 1993 were D dismissed by a common judgment dated 10.04.1995 by the Addi. District Judge, Thrissur. The suit for specific performance i.e. O.S No 1522 of 1994, filed by Vincent Paul was also dismissed by the Sub-ordinate Judge, Thrissur, vide judgment dated 07.03.2000, holding that E there is no concluded contract between the parties so as to entitle the plaintiff to a decree for specific performance. Against the said order, on 18.09.2000, Vincent Paul filed A.S. No. 557 of 2000 before the High Court of Kerala. F

(f) On 17.09.2001, the KFC invited fresh tenders for the sale of assets. One K.K. Ummer Farook responded to the . tender by making an offer of Rs. 55,55,555/- for the land and building which was the highest amount among the four offers received. In the meantime, by judgment dated 27 .11.2001, the Division Bench of the High Court allowed G A.S. No.557 of 2000 filed by Vincent Paul, consequently decreed the suit filed by him. Against the said judgment, ·the KFC filed Civil Appeal No. 3446 of 2003 before this Court by way of special leave petition. Challenging the H 870 SUPREME COURT REPORTS [2011) 3 S.C.R. A same judgment, K.K. Ummer Farook filed Civil Appeal No. 3450 of 2003 before this Court by way of special leave petition. K.K. Ummer Farook also filed O.P. No. 33834 of 2001 before the High Court praying for direction to convey the property being the highest bidder in the second tender B and the same was dismissed as infructuous by the High Court vide judgment dated 22.01.2002. Against the said judgment, K.K. Ummer Farook filed C.A. No. 3451 of 2003 before this Court by way of special leave petition. · 3. Heard Mr. Rajendran Nair, learned senior counsel for C the appellant in C.A.No.3446 of 2003, Mr. V. Giri, learned senior counsel for the appellant in C.A. Nos. 3450 and 3451 of 2003 and Mr. C.S. Rajan, learned senior counsel for respondent No.1 in C.A. Nos. 3446 and 3450 of 2003, Mr. R.

·Sundarvardan, learned senior counsel for respondent No.2 in.D C.A.No.3446/2003 and respondent No.3 in C.A.No.3450 of 2003. 4. During the course of hearing, Mr. P.V. Dinesh, learned counsel appearing for the KFC filed additional affidavit stating E that the KFC, formed in 1953, is a statutory Corporation constituted under the Act and more than 95% of the shares are held and controlled by the State Government. The Board is constituted under Section 10 of the Act. According to him, the Managing Director is appointed by the State Government and F its Chairman is the nominee of Small Industries Development Bank of India (in short "SIDBI") and substantial re-finance is granted from SIDBI for sanctioning loans. He pointed out that the procedure for the sale is as per the standing orders and recovery policy as approved by the Board from time to time and G the recovery policy may change every year for settlement of NPA loan accounts. According to the procedure that was followed in 1988, a sale proclamation shall be published in a local daily newspaper in Vernacular language with details of property and date of opening tender or auction. The tender has H to be submitted to the Managing Director at the Head Office KERALA FINANCIAL CORPORATION v. VINCENT 871 PAUL & ANR. [P. SATHASIVAM, J.]

and the opening of tender/auctioning has to be conducted at A the Head Office. The sale will be confirmed by the Managing Director. Officers of the Corporation will value the properties and 80% of that valuation will be considered as upset price for the purpose of sale of properties. B 5. He further pointed out the procedure which has been followed in the present case. He stated that the notice to defaulter/promoter under Section 29 was issued and thereafter, the assets were taken by the Branch/District Manager authorized by Managing Director. Valuation of assets was C done by the officers of KFC. Land valuation was done by the Legal Officer in consultation with Village Officer concerned and by conducting local enquiry for fixing market value. Valuation of building, plant and machinery was done by Technical Officer •based on the norms approved by the Institute of Engineers. The -tender notice was published in two newspapers for the sale of D •the property.

6. Though these details have been furnished by the counsel •for the KFC during the course of hearing, the fact remains that lthe State Government has not framed rules or guideline& for E isale of public properties by way of tender or auction. KFC is •incorporated under Section 3 of the Act. Section 29 of the Act empowers the KFC to attach and sell the security in discharge :>f debts. It gives KFC the right to take over possession of the 1Security offered while taking the loan and the right to transfer/ F t>ale the same as if KFC is the owner. The money acquired after t>uch transfer/sale of the secured property shall be used in -:1ischarge of debts due to KFC including all expenses incurred ..JY it. The residue amount, if any, is to be paid to the person entitled. Section 31 of the Act also provides the same remedy G -lut the procedure goes through the District Judge. In terms of •his Section, KFC has to apply to the District Judge in whose 1urisdiction the property may lie for an order of sale. However, =Section 29 provides for speedy recovery. 7. The procedure of attachment and sale of property H 872 SUPREME COURT REPORTS (2011] 3 S.C.R. A though available under the Code of Civil Procedure, 1908, it shall apply only when there is a decree at the instance of any of the parties. In the present case, the KFC had not proceeded through the Civil Court but has taken independent action under Section 29 of the Act.

8 8. Coming to the decree for specific performance granted by the High Court in favour of Vincent Paul, by notice under Ex. 81, KFC invited tenders from intending buyers for purchase of immovable property attached by them. The last date for submission of tender was 31.10.1988. Vincent Paul submitted C a tender quoting an amount of Rs. 7.5 lakhs as bidding amount. He also deposited a sum of Rs.10,000/- for earnest money deposit as stipulated in the tender notice. One of the conditions of tender was that the successful bidder whose bid is accepted should pay 25% of the purchase price offered within one week, D if and when the tender is accepted, the balance amount be paid within one month thereafter. When the tender was opened on 31.10.1988, the amount quoted by Vincent Paul was noticed as the highest one. After discussion and negotiation between the KFC and Vincent Paul, the price was ultimately fixed at Rs. E 8.25 lakhs. Thereafter, letter dated 31.10.1988 (Ex. A2) was issued by the KFC to Vincent Paul calling upon him to pay the balance amount of Rs.8.15 lakhs after appropriating Rs.10,000/- paid by him towards Earnest Money Deposit. According to Vincent Paul-the plaintiff, as per Ex. A2 the plaintiff F has to deposit 25% of the amount payable within a week thereof i.e., on or before 05.11.1988 and the balance amount within one month thereafter. It is his grievance that inasmuch-as the defendant- KFC did not abide by the agreement to selll despite his compliance, he filed suit for specific performance. G On the other hand, it was contended by the defendant-KFC thatl there was no concluded contract and Ex. A2 has not bee111 accepted by the plaintiff. According to them, Ex. 81 was onl~ a tender notice and the suit for specific performance is no• maintainable and in any event is barred by limitation since i· H was filed only in 1994. Though the trial Court accepted the cas9 KERALA FINANCIAL CORPORATION v. VINCENT 873

PAUL & ANR. [P. SATHASIVAM, J.] of the defendant and dismissed the suit, the High Court in A appeal filed by the plaintiff granted decree for specific performance. 9. Whether the plaintiff-Vincent Paul has made out a case for discretionary relief of specific performance? For this, it is 8 useful to refer the letter dated 31.10.1988 of the KFC addressed to Vincent Paul which reads as under: "KERALA FINANCIAL CORPORATION HEAD OFFICE: VELLAYAMBALAM, TRIVANDRUM- C 695 033 No. BL.1158/R/88 Date: 31.10.1988 Shri Vincent Paul Pellissery House P.O. Ammadam, D Trichur. Sir, Sub: Sale of the assets of M/s Cables India Punkunnam, Trichur. E Ref: Your tender letter dated 31.10.1988 and further discussion with us. With reference to the above we may inform that we are agreeable to sell the assets viz. the landed properties F comprised in Sy. Nos. 1856/6 (19 cents) and 1856/7 (43 cents) together with building thereon and machinery including the electrical fittings and accessories for Rs.8,25,000/- subject to compliance of the following conditions:- G 1. 25% of the sale consideration should be remitted to us within a week from the date <>f confirmation of the transaction. H 874 SUPREME COURT REPORTS [2011] 3 S.C.R. A 2. The balance should be remitted in a lump sum within one month from the date of remittance of the initial payment. 3. All the formalities in this regard should be complied within two months.B

Leaving the amount of Rs.10,000/- remitted on 31.10.1988, the balance consideration amounting to Rs.8, 15,000/- should be remitted to the Corporation to execute the sale deed and transfer the possession to you. c Yours faithfully, Sd/- MANAGER (RECOVERY)"

D 10. According to the plaintiff-Vincent Paul, it was agreed to by him as to the offer of Rs. 8.25 lakhs by the KFC and in view of the fact that he has remitted a sum of Rs.10,000/- on 31.10.1988 as Earnest Money Deposit, he was ready to pay the balance amount but the sale was not completed due to E failure on the part of the KFC. Learned senior counsel for Vincent Paul submitted that communication dated 31.10.1988 is a concluded contract and no further confirmation is required in this regard and the plaintiff has to pay the balance amount and the KFC has to execute the sale deed and transfer the F possession to him. The stand taken by the learned senior counsel for Vincent Paul was totally denied by the KFC by submitting that the communication dated 31.10.1988 is not absolute but subject to confirmation by Vincent Paul within a-week. Admittedly on receipt of the communication dated• G 3·1.10.1988 from the KFC, the plaintiff had not sent any reply-in the form of confirmation of the said transaction as provided• in clause (1) of Ex. A2. In such circumstance, it cannot be. contended that there is a concluded contract between the KFC and Vincent Paul. After 31.10.1988, KFC sent another letter or H OS.11.1988 intimating the plaintiff that further proceedings car KERALA FINANCIAL CORPORATION v. VINCENT 875 PAUL & ANR. [P. SATHASIVAM, J.] I

be finalized only after vacating the temporary injunction ordered A by the Munsif Court, Thrissur. The said letter has not been disputed by Vincent Paul. Inasmuch as the KFC has agreed to sell the property in question for Rs.8.25 lakhs subject to compliance of three conditions mentioned in Ex. A2, unless the other party to the contract, namely, Vincent Paul conveys his B willingness within a week with regard to the terms stipulated ·therein, he cannot take advantage of mere remittance of a sum of Rs.10,000/- towards Earnest Money Deposit as stipulated in Ex. B1. These aspects have been correctly appreciated by the trial Court and it rightly dismissed the suit filed by Vincent c Paul. On the other hand, the High Court, on an erroneous assumption as to the communication dated 31.10.1988 concluded that there was a valid contract and granted a decree for specific performance. We are unable to accept the reasoning of the High Court for granting decree for specific D' performance in favour of Vincent Paul. 11. During the pendency of the appeal filed by Vincent Paul in the High Court, the KFC invited fresh tenders for the sale of assets of the Firm on 17.09.2001. One K.K. Ummer Farook responded to the tender by making an offer of Rs. 55~55,555/ E

- for the land and building which was the highest amount among the four offers received. By letter dated 17.11.2001, the KFC informed K.K. Ummer Farook that they are unable to proceed with the sale in view of the pendency of A.S. No. 557 of 2000 before the High Court. In the meantime, by judgment dated F 27.11.2001, the Division Bench of the High Court allowed A.S. · No.557 of 2000 filed by Vincent Paul, consequently decreed the suit filed by him. Against the said judgment, the KFC filed Civil Appeal No. 3446 of 2003 and K.K. Ummer Farook filed Civil Appeal No. 3450 of 2003 before this Court by way of G special leave petition. K.K. Ummer Farook also filed O.P. No . . 33834 of 2001 before the High Court praying for direction to convey the property being the highest bidder in the second tender and the same was dismissed as infructous by the High Court vide judgment dated 22.01.2002. Against the said H 876 SUPREME COURT REPORTS [2011] 3 S.C.R. A judgment, K.K. Limmer Farook filed C.A. No. 3451 of 2003 before this Court. It is not in dispute that while ordering notice in the S.L.P.(C) No 7072 of 2002 (C.A. No. 3446 of 2003) filed by the KFC even on 12.04.2002, this Court stayed the execution of the decree for specific performance which shows that the B land and building and all accessories are with the KFC and the same position continues even today.

12. We have already concluded that the decree for specific performance granted by the High Court cannot be sustained. We also observed in the earlier part of our judgment that though C the KFC has initiated proceedings under Section 29 of the Act, admittedly, the State has not framed Rules or guidelines in the form of executive instructions for sale of properties owned by them. Tiii such formation of Rules or guidelines or orders as mentioned above, we direct the KFC to adhere the following D directions for sale of properties owned by it: (i) The decision/intention to bring the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular language having sufficient circulation in that locality.E (ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the F reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) by obtaining quotations from the persons dealing G with similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or H KERALA FINANCIAL CORPORATION v. VINCENT 877 PAUL & ANR. [P. SATHASIVAM, J.] (d) by private treaty. A

Among the above modes, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State. B (iii) The authority concerned shall serve to the borrower a notice of 30 days for sale of immovable secured assets. (iv) A highest bidder in public auction cannot have a c right to get the property or any privilege, unless the authority confirms the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders. D (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the E· process of sale and everybody has an opportunity of making an offer. It becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. (vi) The essential ingredients of sale are correct F valuation report and fixing the reserve price. In case proper valuation has not been made and the . reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not G worth purchase by them. (vii) Reserve price means the price with which the public auction starts and the auction bidders are not permitted to give bids below the said price, i.e., the H '

878 SUPREME COURT REPORTS [2011] 3 S.C.R. A minimum bid at auction. (viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale would suffer from material irregularity where the8 debtor suffer substantial injury by the sale. 13. In view of our discussion and conclusion, we are satisfied that the KFC has not strictly followed the above procedure in bringing the property for sale. Accordingly, we set C aside the judgment and order passed by the High Court granting decree for specific performance in favour of Vincent Paul and all other sale transactions either in the form of tender or auction in respect of the property in question. We direct the KFC to first issue the advertisement calling for tenders by way D of public auction by following the directions mentioned above. Before resorting to such recourse, if the KFC has accepted any deposit from any of the parties by way of tender or bid, the same shall be returned within a period of 30 days to the respective parties with simple interest @ 9% p.a. from the date E of such deposit till it is repaid to the parties concerned. 14. All the appeals are disposed of on the above terms. R.P. Appeals disposed of.

[2011) 3 S.C.R. 862 A KERALA FINANCIAL CORPORATION v. VINCENT PAUL & ANR. (Civil Appeal No. 3446 of 2003) MARCH 14, 2011B [P. SATHASIVAM AND DR. B.S. CHAUHAN, JJ.] CONTRACT: c Tender - Non-compliance of conditions - Condition of the tender to deposit 25% of sale price within one week - Letter issued to the sole tenderer to deposit the amount of sale price after adjusting the earnest money - Another letter sent to the bidder that further proceedings could be finalized only after D the temporary injunction was vacated by court - Held: Unless the conditions were fulfilled, the bidder cannot take advantage of mere remittance of a sum towards earnest money - Trial court rightly dismissed the suit for specific perfo mance of agreement of auction sale - High Court in an E effoneous assumption effed in concluding that there was a valid contract and for granting a decree for specific performance - Judgment of High Court set aside - Specific performance of contract - Suit. STATE FINANCIAL CORPORATION ACT, 1951: F

s.29 - Taking over of the borrower firm and attachment. and sale of its security in discharge of debt - Notice inviting tenders published by KFC in a local news paper- Negotiation wit the sole tenderer - Held: KFC has not strictly followed the G procedure in bringing the property to sale - State Government has not framed Rules or guidelines for sale of properties owned by them - Till such formation of Rules or guidelines or orders, KFC is directed to adhere to the directions for sale of properties owned by it, as issued by the H 862 · KERALA FINANCIAL CORPORATION v. VINCENT 863 PAUL & ANR.

Court in the judgment - Contract. A The Kerala Finance Corporation (KFC), for recovery of its loan amount from a firm, took over the borrower firm u/s 29 of the State Financial Corporation Act, 1951, on 11.09.1987. On the same day the firm filed O.S. No. 2194/ 887 with an application for temporary injunction restraining KFC from taking over the firm. KFC invited tenders and held negotiation with sole bidder, namely, the respondent, in respect of the property of the firm, and issued a letter on 31-10-1988 to the respondent expressing the willingness to sell the property for Rs. 8.25 C lakh subject to certain conditions. On 01.11.1988 the firm filed another suit being O.S. No. 2109/88 for injunction to restrain the KFC from taking any action pursuant to the auction/sale proceedings, and the trial court directed to maintain status quo as on 31.10.1988. Eventually, both D the suits were dismissed. The firm filed A.S. No. 56 of 1992 against the dismissal of O.S. No. 2109/88 and A.S. No. 146of1993 against dismissal of O.S. No. 2194of1987. On 6.12.1994 the respondent filed O.S. No.1522/94 for specific performance of agreement of sale. Subsequently, E both the appeals filed by the firm were dismissed. The suit of the respondent was also dismissed and he filed A.S. No. 557 of 2000. On 17.09.2001 the KFC invited fresh tenders for sale of the assets and one 'KKU' offered Rs. 55,55,555/- which was the highest bid. Meanwhile on , F 27 .11.2001, the appeal of the respondent was allowed and his suit for specific performance of agreement of sale was decreed by the High Court. KFC challenged the judgment of the High Court by filing C.A. No. 3446 of 2003, and KKU filed C.A.No. 3450 of 2003. KKU also filed C.A .• G No. 3451 of 2003 against the order of the High Court dismissing his O.P. No. 33834 of 2001. as ·infructuous . . Disposing of the appeals, the Court f-!ELD: 1.1. KFC is incorporated u/s 3 of the State H

864 SUPREME COURT REPORTS (2011) 3 S.C.R. A Financial Corporation Act, 1951; Section 29 of the Act empowers the KFC to attach and sell the security in discharge of debts and provides for speedy recovery. The procedure of attachment and sale of property though available under the Code of Civil Procedure, 1908, it shall B apply only when there is a decree at the instance of any of the parties. In the instant case, the KFC had not proceeded through the Civil Court but has taken independent action u/s 29 of the Act. [para 6-7] [871-G-H; 872-A-B] c 1.2. By notice under Ext. B1, KFC invited tenders from inte·nding buyers for purchase of immovable property attached by it. The last date for submission of tender was 31.10.1988. The respondent submitted a tender quoting an amount of Rs. 7.5 lakh as bidding D amount and the price was, ultimately, fixed at Rs. 8.25 lakh. He also deposited a sum of Rs. 10,000/- for earnest money deposit as stipulated In the tender notice. One of the conditions of tender was that the successful bidder whose bid is accepted should pay 25% of the purchase E price offered within one week, if and when the .tender Is accepted, the balance amount be paid within one month thereafter. By letter dated 31.10.1988 (Ext. A2) issued by the KFC, the respondent was called upon to pay the balance amount [para 8] [872-A-F] F

1.3. Admittedly, on receipt of the communication dated 31.10.1988 from the KFC, the plaintiff did not send any reply In the form of confirmation of the said transaction as provided in clause (1) of Ext. A2. In such G circumstance, it cannot be said that there is a concluded contract between the KFC and the respondent. Undisputedly, KFC sent another letter on 05.11.1988 intimating the plaintiff that further proceedings can be finalized only after vacating the temporary injunction, H ordered by the Munsif Court Inasmuch as the KFC has KERALA FINANCIAL CORPORATION v. VINCENT 865 PAUL & ANR. agreed to sell the property in question for Rs.8.25 lakhs A subject to compliance of three conditions mentioned in Ext A2, unless the other party to the contract, namely, the respondent conveys his willingness within a week with regard to the terms stipulated therein, he cannot take advantage of mere remittance of a sum of Rs.10,000/- B towards Earnest Money Deposit as stipulated in Ext. 81. These aspects have been correctly appreciated by the trial court a·nd it rightly dismissed the suit filed by the respondent. On the other hand, the High Court, on an erroneous assumption as to the communication· dated c 31.10.1988 erred in concluding that there was a valid contract and granted a decree for specific performance. [para 10] [874-D-H; 875-A-D]

1.4. It is not in dispute that while ordering notice in the S.L.P giving rise to C.A. No. 3446 of 2003 filed by the D KFC on 12.04.2002, this Court stayed the execution of the decree for specific performance which ~hows that the land and building and all accessories are with the KFC. The decree for specific performance granted by the High Court cannot be sustained. The judgment and order E passed by the High Court granting decree for specific performance in favour of the respondent and all other sale transactions either in the form of tender or auction in respect of the property in question are set aside. [para 11-12 & 13] [875-G; 876-A-B-C-D; 878-C-D] F 2.1. The KFC has not strictly followed the procedure in bringing the property for sale. Though the KFC has initiated proceedings u/s 29 of the Act, admittedly, the State Government has not framed rules or guidelines in G the form of executive instructions for sale of public properties by way of tender or auction. Till such formation of Rules or guidelines or orders, the KFC is directed to adhere to the following directions for sale of properties owned by it: (i)The decision/ intention to bring : ·····.. , ·. H 866 SUPREME COURT REPORTS [2011] 3 S.C.R.

A the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular language having sufficient circulation in the locality; (ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation B of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the methods:

(a) by obtaining quotations from the persons dealing with c similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or (d) by private treaty. Among these, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State; (iii) The authority0 concerned shall serve on the borrower a notice of 30 days for sale of immovable secured assets; (iv) A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms E the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders; (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public F participation in the process of sale and everybody has an opportunity of making an offer. It becomes a legal obligation on the part of the authority that property be sold in. such a manner that it may fetch the best price;

(vi) The essential ingredients of sale are correct valuation G report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them (vii) H 'Reserve price' means the price with which the public KERALA FINANCIAL CORPORATION v. VINCENT 867 PAUL & ANR. auction starts and the auction bidders are not permitted A to give bids below the said price, i.e., the minimum bid at auction; and (viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale WOllld suffer from material irregularity where the debtor · B suffer substantial injury by the sale. [para 12-13] [876-C-H; 877-A-H; 878-C-E] 2.2. The KFC is directed to first issue the advertisement calling for tenders by way of public auction C by following the directions mentioned above. Before resorting to such recourse, if the KFC has accepted any deposit from any of the parties by way of tender or bid, the same shall be returned within a period of 30 days to ttie respective parties with simple interest@ 9% p.a. from the date of such deposit till it is repaid to the parties D concerned. [para 13] [878-D-E] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3446 of 2003

From the Judgment & Order dated 27.11.2001 of the High E Court of Kerala at Ernakulamin A.S. 557 of 2000 {E). WITH C.A. Nos. 3450 & 3451 of 2003. F Rajendran Nair, V. Giri, C.S.Rajan, R. Sundarvardan, P.V. Dinesh, K.R. Nambiar, Roy Arbraham, Seema Jain, Vikas Garg, Himinder Lal, P.I. Jose, E.M.S. Anam, Fazlin Anam, K.R. Nambiar, Vipin Nair, P.B. Suresh (for Temple Law Firm) for the appearing parties. G The Judgment of the Court was delivered by P. SATHASIVAM, J. 1. These appeals are filed against the judgments and orders dated 27.11.2001 and 22.01.2002 passed by the High Court of Kera!?. ,.,~ i::•nakulam in A.S. No. H 868 SUPREME COURT REPORTS [2011) 3 S.C.R. A 557 of 2000 and O.P. No. 33834 of 2001 respectively. 2. Brief facts: (a) The Kerala Financial Corporation (in short "the KFC"), a Public Sector Undertaking, is a State Financial B Corporation. On 24.10.1977, a loan of Rs.SO lakhs was sanctioned by the KFC to a firm called Cable India (hereinafter referred to as "the Firm") on hypothecation of land and machinery. In view of consistent failure of the firm to repay the loan, on 11.09.1987, the KFC took over the c firm under Section 29 of the State Financial Corporations Act, 1951 (in short "the Act"). On the same day, the Firm filed O.S. No. 2194of1987 with I.A. No. 1776of1987 for temporary injunction restraining the KFC from taking over the firm.

D (b) On 07.10.1988, a notice was published by the KFC in Mathrubhumi Malayalam Daily inviting tenders from intending buyers for purchase of the property. The last date for submission of tender was 31.10.1988. Pursuant to the same, only one bidder, i.e. one Vincent Paul, submitted E the tender quoting an amount of Rs. 7.5 lakhs as bid amount and also deposited the earnest money of Rs. 10,000/- as stipulated in the tender notice. On the same day, after discussion and negotiation between the KFC and Vincent Paul, the KFC issued a letter to the said F Vincent Paul expressing its willingness to sell the property for Rs. 8.25 lakhs subject to certain conditions. (c) By letter dated 01.11.1988, the Firm filed O.S. No. 2109 of 1988 before the Munsiff Court, Thrissur, seeking injunction to restrain the KFC from taking any actionG pursuant to the auction/sale proceedings and on the very same day the learned Judge directed to maintain status quo as on 31.10.1988. (d) By letter dated 05.11.1988, the KFC informed Vincent H KERALA FINANCIAL CORPORATION v. VINCENT 869- PAUL & ANR. [P. SATHASIVAM, J.]

Paul that further proceedings of the sale could be finalized A only after vacating the temporary injunction ordered by the Munsif Court, Thrissur. On 10.11.1988, I.A. No. 1776 of 1987 in O.S. No. 2194 of 1987 filed by the firm was dismissed. On 17.01.1992, O.S. No. 2109 of 1988 was also dismissed and the injunction was vacated. Against the . B said order, on 26.02.1992, the Firm filed A.S. No. 56 of 1992 before the District Judge, Thrissur. In the meantime, on 03.02.1993, the first suit i.e. O.S. No. 2194 of 1987 itself was dismissed. Against the said order, the Firm filed AS. No. 146 of 1993 before the District Judge, Thrissur. c (e) On 06.12.1994, Vincent Paul filed a suit bearing O.S. No. 1522 of 1994 before the subordinate Judge, Thrissur for specific performance of the agreement of sale. Subsequent to the filing of the said suit, the appeals i.e. A.S. No. 56 of 1992 and A.S. No. 146 of 1993 were D dismissed by a common judgment dated 10.04.1995 by the Addi. District Judge, Thrissur. The suit for specific performance i.e. O.S No 1522 of 1994, filed by Vincent Paul was also dismissed by the Sub-ordinate Judge, Thrissur, vide judgment dated 07.03.2000, holding that E there is no concluded contract between the parties so as to entitle the plaintiff to a decree for specific performance. Against the said order, on 18.09.2000, Vincent Paul filed A.S. No. 557 of 2000 before the High Court of Kerala. F

(f) On 17.09.2001, the KFC invited fresh tenders for the sale of assets. One K.K. Ummer Farook responded to the . tender by making an offer of Rs. 55,55,555/- for the land and building which was the highest amount among the four offers received. In the meantime, by judgment dated 27 .11.2001, the Division Bench of the High Court allowed G A.S. No.557 of 2000 filed by Vincent Paul, consequently decreed the suit filed by him. Against the said judgment, ·the KFC filed Civil Appeal No. 3446 of 2003 before this Court by way of special leave petition. Challenging the H 870 SUPREME COURT REPORTS [2011) 3 S.C.R. A same judgment, K.K. Ummer Farook filed Civil Appeal No. 3450 of 2003 before this Court by way of special leave petition. K.K. Ummer Farook also filed O.P. No. 33834 of 2001 before the High Court praying for direction to convey the property being the highest bidder in the second tender B and the same was dismissed as infructuous by the High Court vide judgment dated 22.01.2002. Against the said judgment, K.K. Ummer Farook filed C.A. No. 3451 of 2003 before this Court by way of special leave petition. · 3. Heard Mr. Rajendran Nair, learned senior counsel for C the appellant in C.A.No.3446 of 2003, Mr. V. Giri, learned senior counsel for the appellant in C.A. Nos. 3450 and 3451 of 2003 and Mr. C.S. Rajan, learned senior counsel for respondent No.1 in C.A. Nos. 3446 and 3450 of 2003, Mr. R.

·Sundarvardan, learned senior counsel for respondent No.2 in.D C.A.No.3446/2003 and respondent No.3 in C.A.No.3450 of 2003. 4. During the course of hearing, Mr. P.V. Dinesh, learned counsel appearing for the KFC filed additional affidavit stating E that the KFC, formed in 1953, is a statutory Corporation constituted under the Act and more than 95% of the shares are held and controlled by the State Government. The Board is constituted under Section 10 of the Act. According to him, the Managing Director is appointed by the State Government and F its Chairman is the nominee of Small Industries Development Bank of India (in short "SIDBI") and substantial re-finance is granted from SIDBI for sanctioning loans. He pointed out that the procedure for the sale is as per the standing orders and recovery policy as approved by the Board from time to time and G the recovery policy may change every year for settlement of NPA loan accounts. According to the procedure that was followed in 1988, a sale proclamation shall be published in a local daily newspaper in Vernacular language with details of property and date of opening tender or auction. The tender has H to be submitted to the Managing Director at the Head Office KERALA FINANCIAL CORPORATION v. VINCENT 871 PAUL & ANR. [P. SATHASIVAM, J.]

and the opening of tender/auctioning has to be conducted at A the Head Office. The sale will be confirmed by the Managing Director. Officers of the Corporation will value the properties and 80% of that valuation will be considered as upset price for the purpose of sale of properties. B 5. He further pointed out the procedure which has been followed in the present case. He stated that the notice to defaulter/promoter under Section 29 was issued and thereafter, the assets were taken by the Branch/District Manager authorized by Managing Director. Valuation of assets was C done by the officers of KFC. Land valuation was done by the Legal Officer in consultation with Village Officer concerned and by conducting local enquiry for fixing market value. Valuation of building, plant and machinery was done by Technical Officer •based on the norms approved by the Institute of Engineers. The -tender notice was published in two newspapers for the sale of D •the property.

6. Though these details have been furnished by the counsel •for the KFC during the course of hearing, the fact remains that lthe State Government has not framed rules or guideline& for E isale of public properties by way of tender or auction. KFC is •incorporated under Section 3 of the Act. Section 29 of the Act empowers the KFC to attach and sell the security in discharge :>f debts. It gives KFC the right to take over possession of the 1Security offered while taking the loan and the right to transfer/ F t>ale the same as if KFC is the owner. The money acquired after t>uch transfer/sale of the secured property shall be used in -:1ischarge of debts due to KFC including all expenses incurred ..JY it. The residue amount, if any, is to be paid to the person entitled. Section 31 of the Act also provides the same remedy G -lut the procedure goes through the District Judge. In terms of •his Section, KFC has to apply to the District Judge in whose 1urisdiction the property may lie for an order of sale. However, =Section 29 provides for speedy recovery. 7. The procedure of attachment and sale of property H 872 SUPREME COURT REPORTS (2011] 3 S.C.R. A though available under the Code of Civil Procedure, 1908, it shall apply only when there is a decree at the instance of any of the parties. In the present case, the KFC had not proceeded through the Civil Court but has taken independent action under Section 29 of the Act.

8 8. Coming to the decree for specific performance granted by the High Court in favour of Vincent Paul, by notice under Ex. 81, KFC invited tenders from intending buyers for purchase of immovable property attached by them. The last date for submission of tender was 31.10.1988. Vincent Paul submitted C a tender quoting an amount of Rs. 7.5 lakhs as bidding amount. He also deposited a sum of Rs.10,000/- for earnest money deposit as stipulated in the tender notice. One of the conditions of tender was that the successful bidder whose bid is accepted should pay 25% of the purchase price offered within one week, D if and when the tender is accepted, the balance amount be paid within one month thereafter. When the tender was opened on 31.10.1988, the amount quoted by Vincent Paul was noticed as the highest one. After discussion and negotiation between the KFC and Vincent Paul, the price was ultimately fixed at Rs. E 8.25 lakhs. Thereafter, letter dated 31.10.1988 (Ex. A2) was issued by the KFC to Vincent Paul calling upon him to pay the balance amount of Rs.8.15 lakhs after appropriating Rs.10,000/- paid by him towards Earnest Money Deposit. According to Vincent Paul-the plaintiff, as per Ex. A2 the plaintiff F has to deposit 25% of the amount payable within a week thereof i.e., on or before 05.11.1988 and the balance amount within one month thereafter. It is his grievance that inasmuch-as the defendant- KFC did not abide by the agreement to selll despite his compliance, he filed suit for specific performance. G On the other hand, it was contended by the defendant-KFC thatl there was no concluded contract and Ex. A2 has not bee111 accepted by the plaintiff. According to them, Ex. 81 was onl~ a tender notice and the suit for specific performance is no• maintainable and in any event is barred by limitation since i· H was filed only in 1994. Though the trial Court accepted the cas9 KERALA FINANCIAL CORPORATION v. VINCENT 873

PAUL & ANR. [P. SATHASIVAM, J.] of the defendant and dismissed the suit, the High Court in A appeal filed by the plaintiff granted decree for specific performance. 9. Whether the plaintiff-Vincent Paul has made out a case for discretionary relief of specific performance? For this, it is 8 useful to refer the letter dated 31.10.1988 of the KFC addressed to Vincent Paul which reads as under: "KERALA FINANCIAL CORPORATION HEAD OFFICE: VELLAYAMBALAM, TRIVANDRUM- C 695 033 No. BL.1158/R/88 Date: 31.10.1988 Shri Vincent Paul Pellissery House P.O. Ammadam, D Trichur. Sir, Sub: Sale of the assets of M/s Cables India Punkunnam, Trichur. E Ref: Your tender letter dated 31.10.1988 and further discussion with us. With reference to the above we may inform that we are agreeable to sell the assets viz. the landed properties F comprised in Sy. Nos. 1856/6 (19 cents) and 1856/7 (43 cents) together with building thereon and machinery including the electrical fittings and accessories for Rs.8,25,000/- subject to compliance of the following conditions:- G 1. 25% of the sale consideration should be remitted to us within a week from the date <>f confirmation of the transaction. H 874 SUPREME COURT REPORTS [2011] 3 S.C.R. A 2. The balance should be remitted in a lump sum within one month from the date of remittance of the initial payment. 3. All the formalities in this regard should be complied within two months.B

Leaving the amount of Rs.10,000/- remitted on 31.10.1988, the balance consideration amounting to Rs.8, 15,000/- should be remitted to the Corporation to execute the sale deed and transfer the possession to you. c Yours faithfully, Sd/- MANAGER (RECOVERY)"

D 10. According to the plaintiff-Vincent Paul, it was agreed to by him as to the offer of Rs. 8.25 lakhs by the KFC and in view of the fact that he has remitted a sum of Rs.10,000/- on 31.10.1988 as Earnest Money Deposit, he was ready to pay the balance amount but the sale was not completed due to E failure on the part of the KFC. Learned senior counsel for Vincent Paul submitted that communication dated 31.10.1988 is a concluded contract and no further confirmation is required in this regard and the plaintiff has to pay the balance amount and the KFC has to execute the sale deed and transfer the F possession to him. The stand taken by the learned senior counsel for Vincent Paul was totally denied by the KFC by submitting that the communication dated 31.10.1988 is not absolute but subject to confirmation by Vincent Paul within a-week. Admittedly on receipt of the communication dated• G 3·1.10.1988 from the KFC, the plaintiff had not sent any reply-in the form of confirmation of the said transaction as provided• in clause (1) of Ex. A2. In such circumstance, it cannot be. contended that there is a concluded contract between the KFC and Vincent Paul. After 31.10.1988, KFC sent another letter or H OS.11.1988 intimating the plaintiff that further proceedings car KERALA FINANCIAL CORPORATION v. VINCENT 875 PAUL & ANR. [P. SATHASIVAM, J.] I

be finalized only after vacating the temporary injunction ordered A by the Munsif Court, Thrissur. The said letter has not been disputed by Vincent Paul. Inasmuch as the KFC has agreed to sell the property in question for Rs.8.25 lakhs subject to compliance of three conditions mentioned in Ex. A2, unless the other party to the contract, namely, Vincent Paul conveys his B willingness within a week with regard to the terms stipulated ·therein, he cannot take advantage of mere remittance of a sum of Rs.10,000/- towards Earnest Money Deposit as stipulated in Ex. B1. These aspects have been correctly appreciated by the trial Court and it rightly dismissed the suit filed by Vincent c Paul. On the other hand, the High Court, on an erroneous assumption as to the communication dated 31.10.1988 concluded that there was a valid contract and granted a decree for specific performance. We are unable to accept the reasoning of the High Court for granting decree for specific D' performance in favour of Vincent Paul. 11. During the pendency of the appeal filed by Vincent Paul in the High Court, the KFC invited fresh tenders for the sale of assets of the Firm on 17.09.2001. One K.K. Ummer Farook responded to the tender by making an offer of Rs. 55~55,555/ E

- for the land and building which was the highest amount among the four offers received. By letter dated 17.11.2001, the KFC informed K.K. Ummer Farook that they are unable to proceed with the sale in view of the pendency of A.S. No. 557 of 2000 before the High Court. In the meantime, by judgment dated F 27.11.2001, the Division Bench of the High Court allowed A.S. · No.557 of 2000 filed by Vincent Paul, consequently decreed the suit filed by him. Against the said judgment, the KFC filed Civil Appeal No. 3446 of 2003 and K.K. Ummer Farook filed Civil Appeal No. 3450 of 2003 before this Court by way of G special leave petition. K.K. Ummer Farook also filed O.P. No . . 33834 of 2001 before the High Court praying for direction to convey the property being the highest bidder in the second tender and the same was dismissed as infructous by the High Court vide judgment dated 22.01.2002. Against the said H 876 SUPREME COURT REPORTS [2011] 3 S.C.R. A judgment, K.K. Limmer Farook filed C.A. No. 3451 of 2003 before this Court. It is not in dispute that while ordering notice in the S.L.P.(C) No 7072 of 2002 (C.A. No. 3446 of 2003) filed by the KFC even on 12.04.2002, this Court stayed the execution of the decree for specific performance which shows that the B land and building and all accessories are with the KFC and the same position continues even today.

12. We have already concluded that the decree for specific performance granted by the High Court cannot be sustained. We also observed in the earlier part of our judgment that though C the KFC has initiated proceedings under Section 29 of the Act, admittedly, the State has not framed Rules or guidelines in the form of executive instructions for sale of properties owned by them. Tiii such formation of Rules or guidelines or orders as mentioned above, we direct the KFC to adhere the following D directions for sale of properties owned by it: (i) The decision/intention to bring the property for sale shall be published by way of advertisement in two leading newspapers, one in vernacular language having sufficient circulation in that locality.E (ii) Before conducting sale of immovable property, the authority concerned shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the F reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) by obtaining quotations from the persons dealing G with similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; or (c) by holding public auction; or H KERALA FINANCIAL CORPORATION v. VINCENT 877 PAUL & ANR. [P. SATHASIVAM, J.] (d) by private treaty. A

Among the above modes, inviting tenders from the public or holding public auction is the best method for disposal of the properties belonging to the State. B (iii) The authority concerned shall serve to the borrower a notice of 30 days for sale of immovable secured assets. (iv) A highest bidder in public auction cannot have a c right to get the property or any privilege, unless the authority confirms the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the bidders. D (v) In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the E· process of sale and everybody has an opportunity of making an offer. It becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. (vi) The essential ingredients of sale are correct F valuation report and fixing the reserve price. In case proper valuation has not been made and the . reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not G worth purchase by them. (vii) Reserve price means the price with which the public auction starts and the auction bidders are not permitted to give bids below the said price, i.e., the H '

878 SUPREME COURT REPORTS [2011] 3 S.C.R. A minimum bid at auction. (viii) The debtor should be given a reasonable opportunity in regard to the valuation of the property sought to be sold, in absence thereof the sale would suffer from material irregularity where the8 debtor suffer substantial injury by the sale. 13. In view of our discussion and conclusion, we are satisfied that the KFC has not strictly followed the above procedure in bringing the property for sale. Accordingly, we set C aside the judgment and order passed by the High Court granting decree for specific performance in favour of Vincent Paul and all other sale transactions either in the form of tender or auction in respect of the property in question. We direct the KFC to first issue the advertisement calling for tenders by way D of public auction by following the directions mentioned above. Before resorting to such recourse, if the KFC has accepted any deposit from any of the parties by way of tender or bid, the same shall be returned within a period of 30 days to the respective parties with simple interest @ 9% p.a. from the date E of such deposit till it is repaid to the parties concerned. 14. All the appeals are disposed of on the above terms. R.P. Appeals disposed of.