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Wednesday, January 7, 2015

CIVIL APPEAL NO. 51 OF 2015 (Arising out of SLP(C) No.22775 of 2012) M/s Swati Ferro Alloys Pvt. Ltd. ... APPELLANT VERSUS Orissa Industrial Infrastructure Development Corporation (IDCO) & Ors. ... RESPONDENTS


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                         CIVIL APPEAL NO. 51 OF 2015
                  (Arising out of SLP(C) No.22775 of 2012)

M/s Swati Ferro Alloys Pvt. Ltd.                   ... APPELLANT


Orissa Industrial Infrastructure
Development Corporation (IDCO) & Ors.              ... RESPONDENTS

                               J U D G M E N T


      Leave granted.
2.    This appeal has been  preferred  by  the  appellant-M/s.  Swati  Ferro
Alloys Pvt. Ltd. against the judgment dated 18th April, 2012 passed  by  the
Division Bench of High Court of Orissa  at  Cuttack  in  WP(C)  No.16790  of
2008. By the  impugned  judgment,  the  High  Court  observed  and  held  as
      "Admittedly the land in question belongs to  IDCO  and  the  same  was
leased out in favour of one M/s Prachi Vanijya (P)  Ltd.  for  manufacturing
of Konark Fans, which was mortgagable right in  favour  of  OSFC  and  other
financial institutions.
      Latter on M/s Prachi Vanijya changed its  name  to  M/s  Eastern  Fan.
Opposite parties 3 to 6 are the legal heirs of one Satya Narayan Swain,  who
was stated to be one of the partners of said M/s Eastern Fan  and  according
to the petitioner, said Satya Narayan Swain had agreed to transfer the  land
in favour of the petitioner.
       Learned  counsel  for  the  IDCO  seriously  disputed  the  aforesaid
transaction and submits that though the opposite parties  3  to  6  are  the
legal heirs of one of the partners of the M/s  Eastern  Fan,  the  said  M/s
Eastern Fan has not been made a party.
      Counsel for the opposite parties 3  to  5  also  dispute  transaction.
Learned counsel for OSFC submits that they have no role to play as the  land
till date belongs to IDCO.
      This writ application is full disputed facts and the  prayer  made  in
the writ application cannot be granted in a proceeding under Article 226  of
the Constitution of India as factual disputes  cannot  be  decided  in  this
      The writ application is accordingly dismissed.
      It is open for the parties to approach  the  Civil  Court,  if  it  so

3.    The factual matrix of the case is as follows:
       The  1st  respondent-Orissa  Industrial  Infrastructure   Development
Corporation ('IDCO' for short) allotted Plot  no.  C/9,  Industrial  Estate,
Cuttack on 18.3.1982 in favour of a partnership firm-M/s Prachi Vanijya  (P)
Ltd. on hire-purchase basis.  A mortgage in favour of 2nd  respondent-Orissa
State Financial Corporation by M/s Prachi Vanijya was  allowed  by  the  1st
respondent to secure loan. The 1st respondent intimated the  2nd  respondent
on 27.11.1986 that the plot is transferred in favour of M/s  Prachi  Vanijya
(P) Ltd. subject to payment of  outstanding  amount  of  Rs.97,888/-  as  on
4.    The case of the appellant is that the assets  of  M/s  Prachi  Vanijya
(P) Ltd. comprising of land and building, shed and fan machines situated  at
C/9, Industrial Estate, Cuttack were purchased along with a  loan  liability
of Rs.6,60,000/- of the 2nd respondent by M/s Eastern Fans on 5.12.1987,  of
which Sri Satya Narayan Swain was the Managing Partner. M/s  Prachi  Vanijya
requested the 1st respondent to give no objection to change its name as  M/s
Eastern Fan.  The 1st respondent vide its letter  dated  5.12.1987  informed
that it has no objection to  change  of  the  name  subject  to  receipt  of
recommendation from the 2nd respondent.
5.    The 2nd respondent on 16.12.1987 intimated that it  has  agreed  to  a
change in name of M/s Prachi Vanijya to M/s Eastern Fans.   Thus,  Plot  No.
C/9,  Industrial  Estate,  Cuttack  along  with  the  loan   liability   was
transferred in the name of the M/s Eastern Fans, a  partnership  firm.  Ever
since the transfer of assets in favour of Eastern Fans, the  unit  was  non-
functional and the loan amount of 2nd respondent against  Eastern  Fans  had
mounted and it had become impossible for Sri Satya Narayan Swain to run  M/s
Eastern Fans due to excessive paucity of funds.  Sri Swain  thus  approached
and persuaded Sri Purushottam Lal Kandoi, Director of the appellant company-
M/s Swati Ferro Alloys Pvt. Ltd. for relieving him of  the  loan  burden  of
2nd respondent.
6.    Pursuant to discussion between the parties, the appellant company  was
incorporated on 22.3.1989 with three  Directors,  namely,   Sri  Purushottam
Lal Kandoi, Sri Rakesh Jajodia and Sri Satya  Narayan  Swain  with  a  share
capital of Rs.5,00,000/-.  The object of the Company  was,  inter  alia,  to
undertake manufacturing Ferro Alloys.
7.    On  the  request  of  appellant  company  and  M/s  Eastern  Fans,  on
26.4.1989 the 1st respondent gave permission to  accommodate  the  appellant
company in the premises aforesaid for a period of 2 years.  It was  mutually
agreed on 6.7.1989 that the appellant-company will take over the  term  loan
liability of M/s Eastern Fans as against the complete transfer  of  all  its
assets in favour  of  the  appellant  company.   A  Board  resolution  dated
6.7.1989 was passed resolving that all liabilities of M/s Eastern Fans  with
the 2nd respondent as on said date be taken by the appellant  company  along
with all the assets  including  the  land.   The  Managing  Partner  of  M/s
Eastern Fans, Sri Satya Narayan Swain, who was  also  the  Director  of  the
appellant company at that time was authorized to negotiate and finalize  the
said matter with 2nd respondent.  The Managing Partner  of  the  partnership
firm M/s Eastern Fan wrote letters dated 10.7.1989 and 11.7.1989 to the  2nd
respondent intimating that the appellant company  will  take  responsibility
to clear the term loan along with accrued interest by taking over the  fixed
assets of M/s Eastern Fans i.e. the land along with shed and the  plant  and
machinery.  2nd respondent acted on the letters  written  by  Satya  Narayan
Swain and accordingly by letter dated 9.1.1990  agreed  that  the  appellant
company shall take over the entire assets and  liabilities  of  M/s  Eastern
Fan. The appellant company was asked to pay a sum of Rs.1,00,000/-  as  down
payment towards the loan  liability  outstanding  against  M/s  Eastern  Fan
(Prachi Vanijya), which was duly done.
8.    A revised sanction letter was issued by 2nd  respondent  on  21.3.1990
further clarifying that the appellant company was allowed to take  over  the
entire assets and liabilities along with  the  accrued  interest  and  other
statutory dues.
9.    According to the appellant, pursuant to the  aforesaid  letters  dated
9.1.1990 and 21.3.1990, the appellant  company  became  the  owner  of  Plot
No.C/9, Industrial Estate, Cuttack. All the assets and  liabilities  of  M/s
Eastern Fan were taken over by the appellant company on 31.3.1990 by  making
a down payment of Rs.1,00,000/-. The assets of M/s Eastern  Fan  became  the
assets of the appellant company which were reflected in  the  balance  sheet
of the appellant company.
10.   Further case of the appellant  is  that  the  appellant  company  took
additional term loan  from  2nd  respondent  for  Rs.11,37,000/-  which  was
sanctioned on 31.3.1992 on the said basis the  appellant  company  has  full
rights over the plot in question. A memorandum of  deposit  of  title  deeds
for mortgaging the assets of the appellant company  to  2nd  respondent  was
executed on 25.7.1992. On the very same day i.e.  on  25.7.1992  a  deed  of
hypothecation  was  signed  between  the  appellant  company  and  the   2nd
respondent to  furnish  security  towards  the  loan  of  Rs.20,48,284.14/-.
According to appellant the said deed of hypothecation was on  the  basis  of
security of (a) an  equitable  mortgage  of  borrower's  property  with  all
buildings  and  structures  thereon  and  fixed  machineries   situated   at
Industrial Estate, Khapuria, Cuttack and (b) hypothecation of  all  tangible
moveable property. The said deed covers the first term loan  in  consequence
of takeover of M/s Eastern Fans of Rs.9,11,284.00/- and the additional  term
loan of Rs.11,37,000/- for new Ferro Alloys Plant  of  the  appellant,  both
amounting to Rs.20,48,284.14/-  and  clearly  refers  to  the  Plot  No.C/9,
Industrial Estate, Cuttack  with  land  and  building.  Thus,  according  to
appellant, for all purposes the appellant company was treated  as  an  owner
of the Plot No.C/9, Industrial Estate, Cuttack.
11.   From the record we find that the appellant company has  also  setup  a
fresh  unit  for  making  Ferro  Alloys  in  aluminium  thermic  process  on
27.5.1997 and also taken facility of Letter of Credit  from  State  Bank  of
India for Rs.1,50,000/- in the year 1992, which was renewed every year.   It
has also been sanctioned cash credit limit of Rs.40 lakhs by the State  Bank
of India in the year 1992 and the same was extended every year, as  apparent
from letter dated 27.5.1997.
12.   2nd respondent also accepted the  execution  of  Tripartite  Agreement
with the State Bank of India  by  letter  dated  29.1.1998.  The  Tripartite
Agreement clearly states that 2nd respondent had in its  custody  the  title
deeds relating to the property of the appellant  company.  It  appears  that
the appellant persuaded the 2nd respondent for transfer of lease  right  and
title of the appellant since it has taken all the assets of the  partnership
firm of M/s Eastern Fans.  In support of this, the appellant company  relied
upon letter dated 23.12.2003 issued by the 2nd respondent duly  recommending
the transfer of title of the plot in favour of the appellant. The  grievance
of the appellant company is that despite  several  representations  made  to
1st respondent between 2003 and 2008 no action was taken by it  to  transfer
the title of the said plot in favour of the appellant company.
13.   As no action was taken, the appellant company moved  before  the  High
Court seeking transfer of the right in their favour, wherein  the  aforesaid
observation was made by the Division Bench of the  High  Court  by  impugned
judgment dated 18th April, 2012.
14.   Learned counsel for the appellant submits that all the facts  as  were
pleaded in  the  writ  petition  were  not  disputed  by  the  1st  and  2nd
respondents. It was contended that refusal of  1st  respondent  to  transfer
the lease of the Plot No.C/9, Industrial Estate, Cuttack in  favour  of  the
appellant is wrong, arbitrary and highly illegal and the  same  was  subject
to judicial review under Article 226 of the Constitution of  India  and  the
High Court erred in dismissing the writ petition holding  disputed  question
of fact merely  because  3rd  to  5th  respondents  have  opposed  the  writ
petition with a mala  fide  intention  for  their  vested  interests,  which
cannot be a ground for the High Court to dismiss the writ  petition  without
giving any reasons.
15.   Respondents have disputed the claim of the appellant to  transfer  the
land in the name of the appellant company.
16.   From the bare pleading of the case and the record, we find that  there
is disputed question of  fact  about  the  ownership  of  the  Plot  No.C/9,
Industrial Estate, Cuttack.  Therefore, the  High  Court  was  justified  in
dismissing the same and directing the parties to approach  the  Civil  Court
for resolving such dispute.
17.   From the pleading and record the following fact emerges:
   The 1st respondent-IDCO allotted Plot no.C/9, Industrial Estate,  Cuttack
on 18.3.1982 in favour of M/s  Prachi  Vanijya  (P)  Ltd.  on  hire-purchase
basis  subject to payment of  outstanding  amount  of  Rs.9,78,880/-  as  on
30.11.1986. The appellant has pleaded that the  land  along  with  building,
shed and fan machines situated  at  C/9,  Industrial  Estate,  Cuttack  were
purchased from the 2nd respondent by  M/s  Eastern  Fans  on  5.12.1987,  of
which Sri Satya Narayan Swain was the Managing Partner  along  with  a  loan
liability of Rs.6,60,000/- of the 2nd respondent.  It is  not  clear  as  to
how M/s Eastern Fans purchased the land from  M/s  Prachi  Vanijya,  if  the
land was  originally  taken  from  1st  respondent  on  hypothecation  basis
subject to payment of Rs.9,78,880/-.  From letter of M/s Eastern  Fan  dated
10.7.1989, Annexure P-5 (Page 31), we find that the  said  M/s  Eastern  Fan
intended to setup plant of Ferro alloy in their  factory  premises  at  C/9,
Industrial Estate, Khapuria, Cuttack and therefore it  was  decided  between
themselves and M/s Swati Ferro Alloys Pvt. Ltd. that  the  appellant-Company
will take responsibility to clear the term  loan  paid  by  2nd  respondent-
Orissa State Financial Corporation   along with  accrued  interest.  In  the
said letter, it was  intimated  that  M/s  Eastern  Fan  intended  to  start
manufacturing activities under the name and style of M/s Swati Ferro  Alloys
Pvt. Ltd. The appellant company was thereby incorporated by M/s Eastern  Fan
for the said purpose. Letter dated 9.1.1990 issued by 2nd  respondent-Orissa
State  Financial  Corporation  to  the  appellant  company  shows  that  the
appellant company was intimated that entire assets and  liabilities  of  M/s
Prachi Vanijya was transferred to the appellant company  and  the  same  was
agreed upon by the appellant company on certain terms and conditions.
   Letter dated 23.12.2003 written by 2nd respondent-Orissa State  Financial
Corporation to the Managing Director, IDCO, indicates that M/s  Eastern  Fan
availed loan from 2nd respondent and mortgaged the leasehold land in  favour
of 2nd respondent as security.
Letter dated 26.4.1989  written  by  1st  respondent-IDCO   shows  that  the
appellant-company -M/s  Swati  Ferro  Alloys  Pvt.  Ltd.  was  allowed  only
accommodation inside the premises of M/s Eastern  Fan  for  a  period  of  2
years and they have not given permission for transfer of the land.

18.   We agree with the observation of  the  High  Court  that  this  matter
involves disputed question  of  fact.  Despite  the  same,  prima  facie  it
appears that neither original borrower nor the present  appellant  does  any
business in the land in question, except for taking loan against  the  land.
In this background while we upheld the impugned judgment dated  18th  April,
2012 passed by the Division Bench of High Court  of  Orissa  at  Cuttack  in
WP(C) No.16790 of 2008, we are  of  the  opinion  that  the  respondent-IDCO
should inquire into the matter to  find  out  as  to  whether  the  land  is
properly used by one or other party for  the  purpose  it  was  open  or  by
opening different firms or companies in different names  in  same  premises,
they are availing loan mortgaging the same very land. For such  inquiry  the
respondent-IDCO  will  issue  notice  to  the  2nd  respondent-Orissa  State
Financial Corporation, appellant-M/s  Swati  Ferro  Alloys  Pvt.  Ltd.,  M/s
Eastern Fan and any other party who may be interested.  On such  enquiry  it
will be open for the competent authority to pass an appropriate order.
19.   The appeal is dismissed with aforesaid observations.

                                               (SUDHANSU JYOTI MUKHOPADHAYA)

                                 (V. GOPALA GOWDA)
JANUARY 6, 2015.

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