In liquidated firm’s land auction, Punjab government lost 125 crore, says Advocate General

The PSIEC did not stake a claim to Rs 161 crore as the unearned profit to be paid on the sale of the property. It, instead, agreed to claim Rs 45.28 crore as 50 per cent of the sale value. The decision was taken in the 293rd meeting of the Board of Directors of PSIEC, without referring the matter to the Finance Department or to the AG for a second opinion, Nanda said.

In January 2020, the PSIEC not only agreed to sell the leased land, but it also agreed to a reduced amount of Rs 90.56 crore (down from Rs 161 crore) as unearned increase income of which the Commission would get only 50 per cent (Rs 45 crore) and a reduced amount of Rs 8.54 crore (down from Rs 9.77 crore) as enhanced compensation in the auction to be conducted by Asset Reconstruction Co (ARCIL).

The PSIEC only proceeded on a legal opinion by a private advocate, which did not examine the nature of charge over the lease rights held by Punjab Infotech as per the lease deed. Despite the financial and legal implications involved, the matter was never referred to the Finance Department or to the AG office. The sale was advertised based on this reduced rate on Jan 4, 2020, and GRG Developers was declared successful bidder days later on February 17.

A month later, on March 20, the then MD PSIEC Sumit Jarangal had recommended that the transaction be approved by the government by saying, “The Advocate has advised in no unambiguous terms that it is in the interest of the corporation to accept the same as in case the payments are made in accordance with sections 529 A of the 1956 Act, the Corporation may be at loss and may not even be able to recover the amount, which has been offered by ARCIL as the Corporation is the only unsecured creditor of JCT Electronics Limited (in liquidation)”.

On March 23, the then ACS Industries Vini Mahajan had put up the note stating that the approval of both Boards can be taken post facto. On March 26, during the Covid lockdown, the Minister of Industries and Commerce, Sunder Sham Arora had approved the decision and PSIEC issued a letter communicating the same to the bidder.

The AG, in his legal opinion, has written, “To my mind, neither the officers of Punjab Infotech and PSIEC nor the Department of Industries performed due diligence to ascertain the manner/procedure for arriving at a valuation of unearned increase income and far from asserting the rights under the lease deed, proceeded solely in the above arbitrary manner. Given the way the file was presented for approval to the state government – “It is in the financial interest of the Corporation to accept the same” – giving it an emergent colour warranting immediate action, the approval so given by the state government on March 26, after taking approval from MD PSIEC, ACS Department of Industries and Minister of Industries, the PSIEC had issued a letter to GRG Developers and ARCIL.”

On May 11, the GRG Developers offered to make the payments directly to PSIEC and hence a suggestion was made by it to enter into a tripartite agreement in August 2020, which was accepted by the Corporation in principle and conveyed to ARCIL on August 18. However, Punjab Infotech objected stating that any fresh MoUs or agreements will entail fresh contractual obligations on parties, the full impact of which may not be envisaged at this juncture.

The AG has said that despite the red flag rightly raised by Punjab Infotech and despite the matter regarding the tripartite agreement and unearned increase being under consideration by the Board of Directors of Punjab Infotech, which was categorically informed to PSIEC, it proceeded to take the approval of the state government.

“It would appear from the file that Board of Punjab Infotech did not accord its post-facto approval rather suggested that the matter be referred to AG, Punjab, which was not eventually done. It was also suggested that the view of the Finance Department be taken. At this stage itself, the matter regarding approval to enter into tripartite agreement entailing financial implications on account of unearned increase income ought to have been referred by PSIEC to Finance Department and to AG for legal opinion and ought to have stopped any further proceedings in the matter. However, contrary to this, the Board of Directors of PSIEC had met on October 21 and decided,” the AG has said.

He added, “I also specifically note that the above important decision was taken in the absence of senior officials, leave of absence having been granted to Sibin C, IAS, Director, Ravinder Kumar Advocate, Director and Harmesh Chander, Director of the Corporation. Surinder Kaur Warainch joined the Board meeting through video-conferencing. However, Tarsem Kaushal, Additional Director attended the meeting on behalf of Alok Shekhar, DIC.”

The legal opinion was sought by Chief Minister Capt Amarinder Singh after Finance Department had objected to the deal. The Finance Department had sought the opinion asking if the deal was legally tenable and if PSIEC can resume the property by buying back the leasehold rights given to JCT Electronics.

Pending the legal opinion and objection by the Finance Department, the government had put on hold accepting of payment from GRG Developers. The affected party has now moved court.

Industries Minister Sunder Sham Arora, when contacted, said he will not speak on the issue as the matter is in court.

The AG has, however, opined that even if the lease deeds were to be cancelled and resumption proceedings initiated, the tripartite agreement would be argued and treated as a novation of the lease to contend that its terms stand substituted with the terms of the tripartite agreement.

“Be that it may and although financial loss and prejudice to strong legal rights has taken place, now much water has flown under the bridge.” the AG has said, adding it would likely be contended as wrongful termination of tripartite agreement exposing the government to litigation and damages in law.