HC Karnataka (11.03.2022) in M/s. Soumya Engineering Vs. The Chief Manager Indian Bank [Writ Petition No. 37363/2015 (GM-DRT)] held that;-
Sub-rule (5) of Rule 8 of the Rules does not contemplate to get a fresh valuation report for each and every sale notice. As a valuation report has been obtained 1 year 3 months prior to sale notice, therefore there is no question of obtaining fresh valuation report as contended by the petitioners.
In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser.
However, where the auction is subject to subsequent confirmation by some authority (under a stature or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority.
Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.
Excerpts of the order;
This petition is filed seeking issue of writ of certiorari quashing the order dated 18.08.2015 passed by the Debts Recovery Appellate Tribunal in R.A.
# 2. Heard Sri. C.S. Prasanna Kumar, learned Senior Counsel along with Sri. Ajit Kalyan, learned counsel appearing for the petitioners, Sri. K. Keshava Bhat, learned counsel for respondent No. 1 and Sri. Ashok Haranahalli, learned Senior Counsel along with learned counsel Sri. G. Ravishankar Shastry for legal representatives of respondent No. 2.
# 3. Brief facts of the case are that the petitioner No. 1 is a proprietary firm and petitioner No. 2 is the proprietor of petitioner No. 1 firm. Petitioner No. 2 was the absolute owner in possession of the scheduled property. Respondent No. 1 is the Bank and respondent No. 2 is the purchaser of the scheduled property under the auction sale held on 14.02.2011. The petitioners have availed Over-Draft (O.D.) of Rs.25.01 lakhs, Term Loan-1 (TL) of Rs. 22.61 lakhs and TL-2 of Rs.20.91 lakhs by mortgaging the secured asset. Due to recession in the business the petitioners have incurred heavy loss. Hence, they did not repay as agreed and as a result the loans in question came to be declared as NPA since 24.06.2009. Thereafter demand notice dated 18.08.2009 came to be issued and served on the petitioners. Respondent No. 1 – Bank issued a letter dated 11.03.2009 informing the petitioners to regularize the loan account and if not they will proceed under the SARFAESI Act. Later on respondent No.1 – Bank vide letter dated 25.06.2009 informed the petitioners that the Bank has restructured the loans as per the policy of the Bank and asked the petitioners to get regularize the loan account by paying Rs.3,68,000/- by 27.06.2009. However, in the said letter it is stated that if said amount is not paid within the stipulated period it will slip into NPA. Respondent No. 1 – Bank has also sent an email in this regard on 30.06.2009. Respondent No. 1 – Bank issued possession notices dated 24.10.2009 and 27.10.2009. Thereafter respondent No. 1 – Bank issued sale notice dated 30.10.2009 fixing the auction sale on 08.12.2009. The said auction sale was challenged before the Debt Recovery Tribunal (for short `the DRT’) in S.A. No. 660/2009 and the same came to be dismissed on 11.06.2010 and the review petition was filed before the DRT and the same was also dismissed on 14.09.2010. Subsequently, respondent No. 1 – Bank issued fresh notice dated 03.10.2010 by fixing sale on 03.11.2010 but the same was challenged by the petitioners before this Court in W.P. No. 33006/2010, same was dismissed and writ appeal was preferred and same was also dismissed on 15.12.2010. The said sale has also not taken place. Respondent No. 1 – Bank issued another sale notice dated 12.10.2010 and the same was published in `The Hindu’ newspaper informing to conduct auction on 15.12.2010. S.A. No. 19/2011 came to be filed by the petitioners challenging the sale notice dated 12.11.2010 but meanwhile petitioners opted to challenge the said sale notice before this Court and on account of stay granted by this Court sale has not taken place. Pending disposal of S.A. No. 19/2011 sale notice dated 13.01.2011 was issued fixing the sale of secured asset on 14.02.2011. Petitioners moved the DRT on 11.02.2011 by filing I.A. No. 243/2011. The DRT passed an order as under:
“… … The respondent bank submits that the sale is schedule on 14.02.2011. As the matter is posted for final hearing on 21.02.2011, I am of the view that there can be no stay for opening of tenders. The respondent Bank is permitted to open the tenders and withhold the confirmation until 21.02.2011.”
# 4. On 21.02.2011 case came to be called before the Registrar of DRT, Bengaluru, and there was no sitting of the Presiding Officer and the case was adjourned on 28.03.2011. On 14.03.2011 the petitioners filed I.A. No. 506/2011 before the Registrar seeking to extend the above referred interim order and served copy on the respondent No. 1 – Bank and on the same day objection also came to be filed by respondent No. 1 – Bank to the said I.A. No. 506/2011. On 08.12.2011 respondent No. 1 – Bank has filed a memo before the DRT stating that respondent No. 1 – Bank has confirmed the sale on 19.03.2011 in favour of respondent No. 2. Auction sale was held on 14.02.2011 and respondent No. 2 was declared as successful bidder and respondent No. 2 deposited 25% of the sale amount on 15.02.2011. Sale was confirmed on 28.02.2011 and respondent No. 2 deposited remaining 75% of sale price on 19.03.2011. Petitioners filed I.A. No. 1493/2011 seeking to set aside the sale. The Tribunal had taken up I.A. No. 1493/2011 along with the main matter. The DRT dismissed S.A. No. 19/2011 and I.A. No. 1493/2011 by order dated 22.08.2012. The petitioners challenged the said order before the Debts Recovery Appellate Tribunal (for short `the DRAT’) Chennai in R.A. (SA) No. 170/2012. The said R.A. (SA) No. 170/2012 came to be dismissed by order dated 18.08.2015. The petitioners have sought for quashing of the said order passed by DRAT passed in R.A. (SA) No. 170/2012 in this petition.
# 5. Respondent No.1 has filed its statement of objections and so also respondent No. 2 has filed their statement of objections.
# 6. The learned senior counsel for petitioners would contend that respondent No. 1 ought to have obtained fresh valuation report of the property prior to issue of sale notice dated 13.01.2011 as provided under sub-rule (5) of Rule 8 of the Securitisation Interest (Enforcement) Rules, 2002 (for short `the Rules’). The description of the property is not properly shown in the sale notice and it violates sub-rule (7) of Rule 8 of the Rules. He would further contend that the sale of the property took place on 14.02.2011 and 25% of the amount of sale price was deposited on 15.02.2011 and it violates sub-rule (3) of Rule 9 of the Rules as it stood prior to 04.11.2016. He would further contend that the purchaser has not deposited the balance amount of 75% within 15 days of confirmation of sale and it violates sub-rule (4) of Rule 9 of the Rules. On the above points, placed reliance on the following decisions:
i. Rao Mahmood Ahmed Khan Vs. Sh. Ranbir Singh and others, AIR 1995 SC 2195
ii. Mathew Varghese Vs. N, Amritha Kumar and others, AIR 2015 SC 50
iii. Vasu P. Shetty Vs. M/s. Hotel Vandana Palace and others AIR 2014 SC 1947
# 7. The learned Senior counsel appearing for the legal representatives of respondent No. 2 would contend that the purchaser was ready with 25% of the bid amount on the date of sale and the Authorized Officer has not accepted as he was in dilemma to accept or not as there was stay order issued by the DRT and in that regard he intended to get clarification and therefore the purchaser has deposited 25% of the amount on the next date, i.e., on 15.02.2011 and therefore, it does not violate sub-rule (3) of Rule 9 of the Rules. He further contends that the Authorized Officer has power to extend the period beyond 15 days under sub-rule (4) of Rule 9 of the Rules for receipt of balance sale price from the date of confirmation of sale. The confirmation of sale came to be issued on 28.02.2011 and the balance sale amount has been deposited on 19.03.2011 and it is within the extended period by the Authorized Officer. It is his further contention that petitioners sold the property to Shabin Taj and Chand Pasha under sale agreement dated 23.01.2014 for sale consideration of Rs.95,00,000/- and has received advance sale consideration of Rs.93,00,000/-. On considering the sale consideration under the said sale agreement the sale price in the auction dated 14.02.2011 at Rs.65,00,100/- is proper. On looking to the petitions filed by the petitioners and their conduct it can be said without hesitation that it is nothing but dilatory tactics adopted by them to defeat the claim of the bank.
# 8. The learned counsel for respondent No. 1 would contend that immediate deposit of 25% of the sale price on the date of sale is in the beneficial interest of the Bank and merely depositing the same on the next date of the sale does not give any right to the borrower. He further contends that the auction purchaser’s interest is to be protected unless fraud is alleged. In support of his contentions, reliance was placed on the following decisions:
i. Sadashiv Prasad Singh Vs. Harendar Singh and others (2015) 5 SCC 574
ii. Janatha Textiles and others Vs. Tax Recovery Officer and another (2008) 12 SCC 582
# 9. We have carefully considered the arguments advanced by the learned counsel appearing for the parties and perused the material on record.
# 10. As per sub-rule (5) of Rule 8 of the Rules, the Authorized Officer has to obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the price of the property and may sell the whole or any part of such immovable secured property by the methods mentioned in the sub-rule. The sale notice has been issued for the first time on 30.10.2009. Prior to that, on 28.10.2009 valuation report has been obtained and on that basis reserve price has been fixed. Thereafter two sale notices were issued on 03.10.2010 and 12.11.2010 but the sale did not fructify due to the proceedings initiated by the petitioners. Thereafter, the sale notice dated 30.01.2011 has been issued wherein the reserve price of the property is fixed at Rs.65,00,000/-. 1 year 3 months prior to the said sale notice the valuation of the property has been obtained from the approved valuer. Sub-rule (5) of Rule 8 of the Rules does not contemplate to get a fresh valuation report for each and every sale notice. As a valuation report has been obtained 1 year 3 months prior to sale notice, therefore there is no question of obtaining fresh valuation report as contended by the petitioners.
# 11. The description of the secured asset in the sale notice dated 13.01.2009 and earlier sale notice is the same which was mentioned in the mortgage deed and also the sale agreement executed by the petitioners in favour of Shabin Taj and Chand Pasha. On perusal of the said description of the property one can easily identify the same. Therefore, the contention of the petitioners that no proper description is stated in the sale notice does not merit consideration.
# 12. The Apex Court in the case of Rao Mahmood Ahmed Khan Vs. Sh. Ranbir Singh and others, supra, by considering Rules 285-D and 285-E of the Land Reform Rules being similar to the provisions of Order XXI Rules 84, 85 and 86 of CPC has held that deposit of 25% of the purchase money immediately on the person being declared as a purchaser and the payment of balance within 15 days of the sale are mandatory and upon non-compliance with these provisions there is no sale at all. In the said case Rule 285-D contemplates deposit by cash and not by cheque and it is held that deposit of cheque is not a valid tender.
# 13. The Apex Court in the case of Mathew Varghese Vs. N. Amritha Kumar and others supra held that:
“40. The above principles laid down by this Court also makes it clear that though the recovery of the public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that it should not frustrate the Constitutional Right, as well as the Human Right of a person to hold a property and that in the event of a fundamental procedural error occurred in a sale, the same can be set aside.”
# 14. The Apex Court in the case of Vasu P. Shetty Vs. M/s. Hotel Vandana Palace and others supra, is held as under:
“14. As noted above this Court also examined Rule 8 and 9 of the Rules 2002. On a detailed analysis of Rules 8 and 9(1), it has been held that any sale effected without complying with the same would be unconstitutional and therefore null and void.”
# 15. Learned counsel for the petitioners relying on the Apex Court decisions referred to supra contends that the sale is in violation of sub-rules (3) and (4) of Rule 9 of the Rules and therefore it is void and therefore on that ground sale in favour of respondent No. 2 requires to be set aside.
# 16. Sub Rules (3) and (4) of Rule 9 of the Rules as they stood in the year 2011 (prior to 2016) reads thus:
“3. On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty five per cent of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again.
4. The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.”
# 17. The sale notice is dated 13.01.2011 and sale was held on 14.02.2011. Respondent No. 2 was declared as successful bidder for Rs.65,00,100/-. Respondent No. 2 was ready to deposit 25% of the amount of sale price but the Authorized Officer did not accept the same as he was in dilemma to accept the said deposit or not in view of the stay order issued by the DRT which is noted supra. On the next day i.e. on 15.02.2011 after the Authorized Officer got the clarification, he accepted 25% of the amount of sale price from respondent No. 2. Therefore, respondent No. 2 purchaser is not a defaulter in depositing 25% of the sale price to set aside the sale which is otherwise valid.
# 18. This is the fourth time auction sale held on 14.01.2011 and respondent No. 2 purchaser deposited 25% of the auction money on 15.02.2011 and the Authorized Officer confirmed the sale of the property in favour of respondent No. 2 on 28.02.2011. Respondent No. 2 deposited the remaining 75% of the sale price on 19.03.2011. Respondent No. 2 was directed to deposit balance 75% of the sale price within 15 days from 28.02.2011. Respondent No. 2 deposited 75% of balance sale price on 19.03.2011 beyond the period of 15 days as per sub-rule (4) of Rule 9 of the Rules. The learned counsel for respondent No. 2 submitted that the Authorized Officer extended the period and accepted the sale price beyond 15 days i.e., on 19.03.2011 (19th day) and he had authority to extend the period. Sub-rule (4) of Rule 9 of the Rules provides for extension of the period. Therefore, there is no violation of sub-rule (3) of Rule 9 of the Rules. The Apex Court in the case of Sadashiv Prasad Singh Vs. Harendar Singh and others supra, has held as under:
“18. On the same subject, and to the same end, the learned counsel placed reliance on another judgment rendered by this Court in Janatha Textiles V. Tax Recovery Officer, (2008) 12 SCC 582 wherein the conclusions drawn in Ashwin S. Mehta case came to be reiterated. In the above judgment, this Court relied upon the decision of the Privy Council and of this Court in Nawab Zain-ul-Abdin Khan V. Mohd. Asghat Ali Khan (1887-88) 15 IA 12, Janak Rag V. Gurial Singh AIR 1967 SC 608, Gurjoginder Singh V. Jaswant Kaur (1994) 2 SCC 368, Padanathil Rugmini Amma V. P.K. Abdulla (1996) 7 SCC 668, as also, on Ashwin S. Mehta (2006) 2 SCC 385 in order to conclde, that:) Janatha Textiles case, SCC P.586, para 18),
“18. It is an established principle of law that in a third party auction-purchaser’s interest in the auctioned property continues to be protected notwithstanding that the underlying decree is subsequently set aside or otherwise.”
It is, therefore, that this Court in its ultimate analysis observed s under: (Janatha Textiles case (2008) 12 SCC 582, SCC pp. 588-89 para 20)
“20. Law makes a clear distinction between a stranger who is a bona fide purchaser of the property at an auction-sale and a decree-holder purchaser at a court auction. The strangers to the decree are afforded protection by the court because they are not connected with the decree. Unless the protection is extended to them the Court sales would not fetch market value or fair price of the property. ” (emphasis supplied)
On the issue as has been dealt with in the foregoing paragraph, this Court has carved out one exception. The aforesaid exception came to be recorded in Valji Khimji and Co. Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., (2008) 9 SCC 299, wherein it was held as under: (SCC p. 305, paras 30-31)
“30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a stature or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.
31. In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by anyone in this case ” (emphasis supplied)
19. It is, therefore, apparent that the rights of an auction-purchaser in the property purchased by him cannot be extinguished except in cases where the said purchase can be assailed of fraud or collusion.”
# 19. In the present case no fraud or collusion between the creditor and purchaser has been alleged and therefore the interest of the purchaser of the property at an auction sale requires to be protected. Considering all these aspects the DRT and DRAT have rightly rejected the petition and appeal filed by the petitioners. The power of judicial review conferred on the High Court under Article 227 of the Constitution is confined only to see whether the Court below or Tribunal has proceeded within its parameters or not to correct errors of all kinds in the decision. This does not vest the High Court with any unlimited prerogative to correct all species of hardship or wrong decision made by the Court or Tribunal within the limits of its jurisdiction. It must be restricted to cases of grave dereliction of duty and flagrant abuse of fundamental principle of law or justice, or where grave injustice would be done unless the High Court interferes. The power conferred on the High Court under Article 227 of the Constitution is to advance justice and not to thwart it. The very purpose of such constitutional power is that no man should be subjected to injustice by violating the law. These procedural or technical objections should not frustrate the course of justice. The DRT and DRAT have proceeded within their parameters and there is no fundamental abuse of principle of law. We do not find any grounds to interfere with the orders passed by the DRT and DRAT.
In the result, we pass the following;
O R D E R
a. Writ petition is dismissed.
b. The petitioner is at liberty to withdraw the amount deposited, if any, before this Court after due identification. If so deposited, the said amount shall be transferred to the petitioner through RTGS after the details of the bank accounts are furnished by the learned counsel for the petitioner.
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