KERALA FINANCIAL CORPORATIONversusVINCENT PAUL & ANR.

                        [2011) 3 S.C.R. 862


A             KERALA FINANCIAL CORPORATION
                                 v.
                      VINCENT PAUL & ANR.
                  (Civil Appeal No. 3446 of 2003)

                         MARCH 14, 2011
B
         [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/
                                                             8
87 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 authority
0
  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
G         injunction to restrain the KFC from taking any action
          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.
.D ·Sundarvardan, learned senior counsel for respondent No.2 in
    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
E                 having sufficient circulation in that locality.
          (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
          process of sale and everybody has an opportunity          E·
          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 the
8
                   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.