advocatemmmohan

My photo

ADVOCATEMMMOHAN -  Practicing both IN CIVIL, CRIMINAL AND FAMILY LAWS,Etc.,

WELCOME TO LEGAL WORLD

WELCOME TO MY LEGAL WORLD - FOR KNOWLEDGE IN LAW & FOR LEGAL OPINIONS - SHARE THIS

Friday, April 25, 2014

Rules 8 and 9 of SARFAESI Act - between public notice and sale there must be gap of 30 days - Mandatory one - DRT - single judge High court not upheld - D.B. set aside the sale - Apex court confirmed the same and further directed the borrower to make the loss good with in two months failing which Bank at liberty to proceed with sale as per law =Vasu P. Shetty …. Appellant (s) Versus M/s Hotel Vandana Palace & Ors. …. Respondent (s)= 2014 ( April.Part ) judis.nic.in/supremecourt/filename=41445

   Rules 8 and 9 of SARFAESI Act - between public notice and sale there must  be gap of 30 days - Mandatory one - DRT - single judge High court not upheld - D.B. set aside the sale - Apex court confirmed the same and further directed the borrower to make the loss good with in two months failing which Bank at liberty to proceed with sale as per law =

 Respondent No. 1 herein had taken loan from Syndicate Bank (hereinafter
     to be referred as the 'Bank'). Because of its default in  repaying  the
     said  loan,  the  bank  took  action  under  the  provisions   of   the
     Securitization and Re-construction of Financial Asset  and  Enforcement
     of Security Interest Act, 2002  (SARFAESI  Act). =
 the Division Bench has set aside the sale of the property
     in favour of the appellant. The reason given is that the public  notice
     issued for the said sale  was  defective  as  30  days  time  which  is
     mandatorily required under Rules 8 and 9 of SARFAESI Act was not given.
     Concededly  the  public  notice  was  published  in  the  newspaper  on
     28.4.2006, fixing the date for sale as 8.5.2006, inviting tenders  from
     prospective buyers at 2.00 p.m. on 6.5.2006.=
  3. This fact that insufficient notice was given,  is,  therefore,  not  in
     dispute. Legal position about the mandatory nature of Rule  8  &  9  is
     also  not  agitated.  Notwithstanding  this   legal   possession,   the
     appellants viz auction purchaser as well as the Bank maintain that  the
     sale  was  valid  because  of  the  reason  that  delay  was   entirely
     attributable to the  borrower  who  by  its  conduct  waived  the  said
     mandatory requirement of the Rules. In this backdrop, the question that
     arises for consideration is as to whether there could be  a  waiver  of
     the aforesaid mandatory condition?  If so, whether this waiver  can  be
     discerned in the present case? 
whether  by
     implied or express actions,  the  borrower  has  waived  the  aforesaid
     mandatory requirement when the property was put  to  sale.  We  do  not
     find, nor it is suggested, even the slightest move on the part  of  the
     borrower in this regard which may amount to waiver  either  express  or
     implied. On the contrary, when notice dated  27.4.2006  was  published,
     the  borrower  immediately  filed  the  Writ  Petition  6471  of   2006
     challenging the auction notice. Thus, its conduct, far from waiving the
     aforesaid requirement, was to confront  the  bank  by  questioning  its
     validity. It is a different matter that it had  to  withdraw  the  said
     writ petition in view of availability of alternate remedy. Immediately,
     it filed application under Section 18 of the SARFAESI  Act.  There  is,
     thus, not even an iota of material suggesting any waiver on the part of
     the borrower.
     26.    The moment we find that the mandatory requirement of  the  Rules
     had not been waived by  the  borrower,  consequences  in  law  have  to
     follow. As held in Mathew Varghese’s case, when there is  a  breach  of
     the said mandatory requirement the sale is to be treated  as  null  and
     void. Moreover, the appellant have no answer to many other  infirmities
     pointed out by the High Court. We, therefore, are of the  opinion  that
     present appeals lack merit.=

Before we part with,  it  is  imperative  to  mention  that  the
     purchaser has paid a sum of Rs.1.86 crores towards purchase of property
     and Rs.30 lakh towards moveable items to the Bank. He  has  also  spent
     Rs.1,86,335/- towards registration fee and Rs.15,62,400/- towards stamp
     duty. In addition, dues towards municipal  tax,  Sales  Tax  liability,
     dues of Employees State Insurance Corporation, Employees Provident Fund
     and Belgaum Industrial Cooperative Bank have also been  paid.  A  total
     whereof comes to Rs. 49,91,000/-. These were  the  liabilities  of  the
     borrower.  In this way, total amount of Rs. 2,83,39,735/-  is  paid  by
     the purchaser. He has also discharged municipal tax  liability  in  the
     sum of Rs.2,86,078/- for the period 1.4.2007 to 31.3.2009. As  we  have
     affirmed the order of the High Court setting aside the sale,  we  grant
     two months time to the borrower to discharge the  entire  liability  of
     the Bank. The borrower shall also reimburse the amount of  registration
     fee and stamp duty to the purchaser. The direction to pay  this  amount
     is given having regard to  the  conduct  of  the  borrower  on  earlier
     occasions.  If  the  borrower  pays  the  amount  due  to   the   Bank,
     registration charges, stamp duty as well as amount of encumbrances paid
     by the purchaser, which was the liability of the borrower i.e. a sum of
     Rs.49,91,000/- + 2,86,078/-, the property shall  revert   back  to  the
     borrower. If the aforesaid amounts are not paid  within  the  aforesaid
     two months, the Bank shall be at liberty to proceed with  the  sale  of
     the property following due procedure under the law. In so  far  as  the
     purchaser is concerned, he shall be refunded entire amount spent by the
     purchaser, as mentioned above. We have consciously not granted interest
     to the purchaser on the aforesaid amount, as the purchaser has, in  the
     meantime, utilized the property in question.
 28. Subject to the above, the appeals are dismissed.

2014 ( April.Part ) judis.nic.in/supremecourt/filename=41445
SURINDER SINGH NIJJAR, A.K. SIKRI
                                                              REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 4679 OF 2014
      [Arising out of Special Leave Petition (CIVIL) No. 35168 OF 2011]




     Vasu P. Shetty                                     …. Appellant (s)


     Versus


     M/s Hotel Vandana Palace & Ors.                    …. Respondent (s)


     With
     C.A.No.4680/2014
     (@ SLP(C) No. 6226 of 2012)




                               J U D G M E N T




     A.K. SIKRI, J.


  1. Leave granted.
  2. Respondent No. 1 herein had taken loan from Syndicate Bank (hereinafter
     to be referred as the 'Bank'). Because of its default in  repaying  the
     said  loan,  the  bank  took  action  under  the  provisions   of   the
     Securitization and Re-construction of Financial Asset  and  Enforcement
     of Security Interest Act, 2002  (SARFAESI  Act).  After  taking  formal
     possession of the mortgaged property which was given as  a  surety  for
     due discharge of the loan, the said  property  was  put  to  sale.  The
     appellant  herein  was  the  highest  bidder  whose  bid  was  accepted
     resulting into issuance of  the  sale  certificate.  Respondent  No.  1
     (hereinafter referred to as the 'borrower') challenged the said sale by
     filing application  before  the  Debt  Recovery  Tribunal  (DRT).  This
     application was dismissed. The borrower filed Writ Petition before  the
     High Court of Karnataka against the order of DRT.  The  learned  Single
     Judge dismissed the Writ Petition as  well.  Undeterred,  the  borrower
     appealed against the order of the learned Single Judge.  This  time  it
     triumphed, as the Division Bench has set aside the sale of the property
     in favour of the appellant. The reason given is that the public  notice
     issued for the said sale  was  defective  as  30  days  time  which  is
     mandatorily required under Rules 8 and 9 of SARFAESI Act was not given.
     Concededly  the  public  notice  was  published  in  the  newspaper  on
     28.4.2006, fixing the date for sale as 8.5.2006, inviting tenders  from
     prospective buyers at 2.00 p.m. on 6.5.2006.
  3. This fact that insufficient notice was given,  is,  therefore,  not  in
     dispute. Legal position about the mandatory nature of Rule  8  &  9  is
     also  not  agitated.  Notwithstanding  this   legal   possession,   the
     appellants viz auction purchaser as well as the Bank maintain that  the
     sale  was  valid  because  of  the  reason  that  delay  was   entirely
     attributable to the  borrower  who  by  its  conduct  waived  the  said
     mandatory requirement of the Rules. In this backdrop, the question that
     arises for consideration is as to whether there could be  a  waiver  of
     the aforesaid mandatory condition?  If so, whether this waiver  can  be
     discerned in the present case?  Before we  answer  these  questions  it
     would be apposite to have a thorough glimpse of the facts on record.
  4. The borrower had availed a loan of Rs.  1,84,70,000/-.  This  loan  was
     obtained from the bank to construct a hotel in  a  prominent  place  in
     Belgaum. The borrower has constructed the hotel at the said place for a
     land measuring 1825.25 sq. mtrs. with a built up area  of  4749.64  sq.
     mtrs. At the time of sanction of the loan, the premises were valued  at
     Rs. 3.16 crores. As mentioned above, the borrower committed default  in
     the repayment of these financial facilities granted to it. Notice under
     Section 13(2) of the SARFAESI Act to  take  formal  possession  of  the
     property was issued. Thereafter, the Authorised  Officer  of  the  Bank
     (Respondent No. 2)under SARFAESI Act proceeded to sell  this  property.
     Property could not be sold in the first attempt and  the  efforts  were
     fructified only when it was  put  to  auction  third  time.  Since  the
     earlier endeavour made by the Authorised Officer  are  used  as  shield
     against the borrower's attack on sale in question, it becomes necessary
     to take a note of these attempts as well.


  5. First notice for auction was published on 11.9.2004 fixing the  auction
     date as 15.10.2004. Reserve Price was fixed at Rs.  3.50  crores.  This
     notice, admittedly, was for more than  30  days.  At  that  stage,  the
     borrower filed the Writ Petition in the High Court challenging the said
     notice 3 days before the proposed sale i.e. on 12.10.2004.  Though  the
     High Court did not grant stay against the scheduled auction, it granted
     stay against confirmation of sale. As per the appellant, in view of the
     said partial stay order, nobody came  forward  to  participate  in  the
     auction and the exercise went into futility.
  6. The Writ Petition filed by the borrower was dismissed by the High Court
     on 28.2.2005 upholding notice  dated  27.7.2004  issued  under  Section
     13(4) of the SARFAESI Act. In the meantime, it came to  the  notice  of
     the Authorised Officer of the bank that there were encumbrances in  the
     form of statutory liabilities to the tune of Rs. 43,01,100/- payable by
     the borrower and, therefore, the Reserve Price fixed at Rs. 3.50 crores
     had to be reduced. The borrower was informed about it. The Bank  issued
     fresh notice on 9.3.2005 for auction of the  property  fixing  date  of
     auction as 21.3.2005 with reduced Reserve Price at Rs. 2.39 crores.
  7. In the auction held on 21.3.2005 the highest offer which  was  received
     was in the sum of Rs. 2.25 crores which was less than even the  reduced
     reserve price. It can well be discussed that this sale notice was for a
     period of less than 30 days. Be as it may, the bank wrote letter  dated
     28.6.2005 to the borrower asking it to convey its consent for the  sale
     of property for a sum of Rs. 2.25 crores which  was  the  highest  bid.
     However, the borrower did  not  respond  to  this  letter.  Thereafter,
     another letter dated 16.8.2005 written by the bank stating the  reasons
     as to why it was constrained to reduce the Reserve Price.
  8. The borrower did not accede to the request of  the  Bank.  Instead,  on
     15.11.2005, the borrower expressed its intention to settle  the  matter
     by making the proposal under One Time Settlement (OTS)  scheme  of  the
     RBI. It was followed by letter dated 8.1.2006 by the  borrower  to  the
     Bank requesting for OTS at Rs.  2,13,93,320/-.  This  proposal  of  the
     borrower  was  sanctioned  by  the  Bank  on  8.2.2006   with   further
     stipulation that the amount would  be  paid  on  or  before  31.3.2006.
     Cheque of Rs. 20 lakhs which was given by the borrower along  with  its
     OTS proposal was encashed by the Bank and was credited to the 'No  Lien
     Account'. However, on 31.3.2006, instead of paying the  amount  as  per
     the agreed OTS, the borrower requested for extension of time giving its
     own reasons. Time was extended upto 15.4.2006 for  payment  as  a  last
     chance. However, on 14.4.2006 another request for extension of time  by
     two months was made which was followed by letter dated 22.4.2006 to the
     same effect. This time the Bank rejected the request  of  the  borrower
     vide letter  dated  25.4.2006.  As  a  consequence,  the  OTS  did  not
     fructify.
 9. On failure of OTS due to the fault  of  the  borrower,  the  Authorised
    Officer of the Bank sprung into action and took steps for the  sale  of
    the property, in question. Notice  dated  27.4.2006  was  published  in
    Indian Express (English) and in Tarun Bharat (Marathi) on 7.5.2006  for
    the acution  of  the  property.  The  Auction  date  was  published  as
    8.5.2006. Auction was held on 8.5.2006 wherein the bid of the appellant
    in the sum of Rs. 2.16 crores being  the  highest,  was  accepted.  The
    appellant paid 25 percent of the bid amount and the balance amount  was
    paid on 24.5.2006. The appellant also made payment for the encumbrances
    to the concerned statutory authorities which was  in  the  sum  of  Rs.
    49.91 lakhs. In this way  the  appellant  made  total  payment  of  Rs.
    283,39,735/-. On receiving the full consideration as per  the  auction,
    sale deed  conveying  the  property  was  executed  in  favour  of  the
    appellant on 26.5.2006 followed by issue of the sale certificate.
 10. It would be relevant to mention here that the borrower  had  filed  the
     Writ Petition 6471/2006 challenging the  auction  notice.  However,  it
     withdrew this Writ Petition on 1.6.2006 with liberty to avail alternate
     remedy to challenge the auction that is provided  under  SARFAESI  Act.
     Thereafter, it filed the appeal under Section 18 of  the  SARFAESI  Act
     before the DRT. This appeal was dismissed by the DRT on  5.7.2007  with
     the observations that the borrower was only adopting dilatory  tactics.
     This order was challenged by the borrower in the form of writ  petition
     filed before the High Court of Karnataka, Circuit Bench,  Dharwad.  The
     learned Single  Judge  echoed  the  reasoning  given  by  the  DRT  and
     dismissed the Writ Petition vide orders dated 19.9.2011.  Against  this
     order, the borrower approached the Division Bench by filing intra court
     appeal which has been allowed by the High Court. The sale  in  question
     is set aside.
 11. The High Court took into consideration provisions of the  sub-Rule  (5)
     and (6) of Rule 8 as well as Rule 9 of these Rules which are as under:
           “Rule 8 Sale of immovable secured assets:


           (5)   Before effecting sale of the immovable  property  referred
           to in sub-rule (1) of rule 9 the Authorised Officer shall obtain
           valuation 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 following methods:-


               (a)    By obtaining quotations from the persons dealing with
               similar secured assets or otherwise interested in buying the
               such assets;
               (b)    By inviting tenders from the public.
               (c)    By holding public auction; or
               (d)    By private treaty.


        6) The authorised officer shall serve to the borrower a notice of 30
           days for sale of the immovable  secured  assets,  under  sub-rule
           (5):
           Provide that if the sale of  the  such  secured  asset  is  being
           effected either inviting tenders from the public or  by   holding
           public auction, the secured creditor shall cause a public  notice
           in two leading  newspapers  one  in  vernacular  language  having
           sufficient circulation in the locality by setting out  the  terms
           of sale, which shall include:


               (a)    The decription of the immovable property to be  sold,
               including the details  of  the  encumbrances  known  to  the
               secured creditor;
               (b)    The secured debt for recovery of which  the  property
               is to be sold.
            c) Reserve price, below which the property may not be sold.
               (d)    Time and place of public auction or  the  time  after
               which sale by any other mode shall be completed.
               (e)    Depositing earnest money as may be stipulated by  the
               secured creditor.
               (f)     Any  other  thing  which  the   authorised   officer
               considers it material for a purchaser to know  in  order  to
               judge the nature and value of the property.


        9. Time  of  same,  issues  of  sale  certificate  and  delivery  of
           possession, etc.-


           (1)   No sale of immovable property under these rules shall  take
           place before the expiry of 30 days from the  date  on  which  the
           public notice of sale is published in newspapers as  referred  to
           in the proviso to sub-rule (6) or notice of sale has been  served
           to the borrower.
           (2)   The sale shall be confirmed in favour of the purchaser who
           has offered the highest sale price  in  his  bid  or  tender  or
           quotation or offer  to  the  Authorised  Officer  and  shall  be
           subject to confirmation by the secured creditor.
           Provided that no sale under this rule shall be confirmed, if the
           amount offered by sale price is less  than  the  reserve  price,
           specified under sub-rule (5) of Rule 9.
           Provided further that if the authorised officer fails to  obtain
           a price higher than the reserve price, he may, with the  consent
           of the borrower and the secured creditor effect the sale at such
           price.
           (3)   On every sale of immovable property, the  purchaser  shall
           immediately pay a deposit of 25 percent of  the  amount  of  the
           sale price, to the property shall forthwith be sold again.
           (4)   The balance amount of purchase price payable shall paid by
           the purchaser  to  the  Authorised  Officer  on  or  before  the
           fifteenth day of confirmation of sale of the immovable  property
           or such extended period as may be agree upon in writing  between
           the parties.
           (5)   In default of payment within the period mentioned in  sub-
           rule (4), the deposit shall be forfeited and the property  shall
           be resold and the defaulting purchaser shall forfeit  all  claim
           to the property or to any part of the sum for which  it  may  be
           subsequently sold.
           (6)   On confirmation of sale by the secured creditor and if the
           terms of payment have been complied with, the Authorised Officer
           exercising the power of sale shall issue a certificate  of  sale
           of the immovable property in favour of the purchaser in the form
           given in Appendix V to these rules.
           (7)   Where the  immovable  property  sold  is  subject  to  any
           encumbrances, the authorised officer may,  if  the  thinks  fit,
           allow the purchaser to deposit with him the encumbrances and any
           interest due thereon together with such additional  amount  that
           may be sufficient to meet the  contingencies  or  further  cost,
           expenses and interest as may be  determined  by  him.  [Provided
           that if after meeting the  cost  of  removing  encumbrances  and
           contingencies there is any surplus available out  of  the  money
           deposited by the purchaser such surplus shall  be  paid  to  the
           purchase within fifteen days from the date  of  finalisation  of
           the sale.
           (8)   On such deposit of money for discharge of the encumbrances
           the Authorised Officer shall issue or  cause  the  purchaser  to
           issue notices to the persons interested in or  entitled  to  the
           money deposited with him and take  steps  to  make  the  payment
           accordingly.
           (9)   The authorised officer shall deliver the property  to  the
           purchaser free from encumbrances known to the  secured  creditor
           on deposit of money as specified in sub-rule (7) above.
           (10)  The certificate of sale issued under  sub-rule  (6)  shall
           specifically mention that whether the  purchaser  has  purchased
           the immovable secured asset free from any encumbrances known  to
           the secured creditor or not.”


     12.    The High Court  has  found  the  following  informaties  in  the
     conduct of the impugned sale:-
           (i)   Before bringing the property for sale  vide  notice  dated
           28.4.2006 and 5.5.2006 fresh valuation of the property from  the
           accrued valuer was not obtained by the Bank  when  the  property
           worth crores had to be sold.  There was infraction  of  sub-rule
           (5) of Rule 8 which is mandatory.
           (ii)  30 days notice as required under sub-rule 6 of Rule 8  was
           not given thereby committing breach of this mandatory  provision
           as well.
      iii) According to the High Court publication in Tarun Bharat  Marathi
           language was effected just one day prior from receiving from the
           prospective buyers. However,  publication  in  Marathi  language
           cannot be considered as vernacular language as the Belgaum is in
           Karnataka where the  vernacular  language  is  Kannada  and  not
           Marathi.
       iv) As per the sale notice, the appellant was  required  to  deposit
           entire sale consideration  within  15  days  from  the  date  of
           confirmation of the sale. In the counter, the  Bank  has  stated
           that the appellant has made the payment within the time  allowed
           by the Authorised Officer. When the sale  consideration  is  Rs.
           2.16 crores, the bank  was  required  to  give  details  of  the
           payment made by the appellant  in  order  to  hold  whether  the
           payment was made within the time  stipulated  in  the  sale  and
           whether the time was extended by the Officer  by  accepting  the
           reasonable  cause  shown  by  the  purchaser  and  whether   the
           purchaser is bonafide purchaser or not. Unfortunately, the  bank
           has failed to produce these documents.


     13.    We may point out, at the outset, that the opinion  of  the  High
     Court on the interpretation of sub-Rules (5)and (6)of  Rule  8  of  the
     Rules is flawless. In this behalf it would be pertinent to mention that
     there is an imprimatur of this court as identical meaning  is  assigned
     to these provisions. In the case  of  Mathew  Varghese  v.  M.  Amritha
     Kumarr & Ors.; 2014 (2) SCALE 331.  The  aforesaid  judgment  has  been
     followed by this very Bench of the Court  in  C.A.  No.  3865  of  2014
     titled as J. Rajiv Subramaniyan & Anr. v. M/s Pandiyas &  Ors.  decided
     on March 14, 2014, wherein the earlier referred case has been discussed
     in the following manner:-
           “12. This Court in the case of Mathew  Varghese  Vs.   M.Amritha
           Kumar  & Ors. examined the procedure required to be followed  by
           the banks or  other  financial  institutions  when  the  secured
           assets  of  the   borrowers  are   sought   to   be   sold   for
           settlement  of    the    dues    of    the       banks/financial
           institutions.    The    Court    examined    in    detail    the
           provisions  of  the  SARFAESI  Act,  2002.   The   Court    also
           examined   the  detailed  procedure  to  be  followed   by   the
           bank/financial  institutions under the Rules, 2002.  This  Court
            took  notice  of  Rule   8,   which       relates  to  Sale  of
           immovable secured assets and Rule 9  which  relates to  time  of
           sale, issue of sale certificate and delivery of  possession etc.
            With  regard  to  Section  13(1),  this  Court  observed   that
           Section 13(1) of SARFAESI Act, 2002 gives a  free  hand  to  the
           secured creditor, for  the  purpose  of  enforcing  the  secured
            interest  without  the intervention of Court or Tribunal.   But
           such  enforcement  should  be strictly in  conformity  with  the
           provisions  of  the  SARFAESI  Act,   2002.  Thereafter,  it  is
           observed as follows:-


                           “A reading of Section13(1), therefore,  is  clear
                to  the  effect that while  on  the  one  hand  any  SECURED
                CREDITOR may be   entitled  to  enforce  the  SECURED  ASSET
                created in its favour  on  its  own without resorting to any
                court proceedings  or  approaching   the           Tribunal,
                such enforcement should  be  in  conformity  with  the other
                provisions of the SARFAESI Act.”


           13.    This  Court  further  observed   that    the    provision
           contained  in Section 13(8) of the   SARFAESI   Act,   2002   is
           specifically  for  the protection of the borrowers  in  as  much
           as, ownership  of  the  secured assets is a constitutional right
           vested in the borrowers and protected   under  Article  300A  of
           the  Constitution  of  India.   Therefore,  the secured creditor
           as a trustee of the secured asset can not  deal  with  the  same
           in any manner it likes and such an asset can  be   disposed   of
           only in the  manner  prescribed  in  the  SARFAESI  Act,   2002.
           Therefore,     the creditor should ensure that the borrower  was
           clearly put on notice of the date and time by which  either  the
           sale  or  transfer  will  be effected in order  to  provide  the
           required opportunity to the   borrower   to  take  all  possible
           steps for retrieving  his  property.   Such  a  notice  is  also
           necessary to ensure that the process of sale will  ensure   that
           the secured assets will be sold to   provide   maximum   benefit
           to  the borrowers.  The notice is also necessary to ensure  that
            the  secured creditor or  any  one  on  its   behalf   is   not
           allowed  to  exploit  the situation  by  virtue  of  proceedings
           initiated  under  the   SARFAESI   Act,  2002.   Thereafter,  in
           Paragraph 27, this Court observed as follows:-


                “27. Therefore, by virtue of  the   stipulations   contained
                under  the   provisions   of   the    SARFAESI    Act,    in
                particular, Section 13(8), any sale or transfer of a SECURED
                 ASSET,   cannot  take  place  without  duly  informing  the
                borrower of the  time  and date of such sale or transfer  in
                order to enable the borrower  to  tender  the  dues  of  the
                SECURED CREDITOR with all costs,  charges and  expenses  and
                any such  sale  or  transfer  effected   without   complying
                with   the   said   statutory   requirement   would   be   a
                constitutional violation and nullify the ultimate sale.”


       14. As noticed above, this Court also examined Rules 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. In  the  present  case,  there  is  an  additional  reason   for
           declaring that sale in favour of the appellant  was  a  nullity.
           Rule 8(8) of  the aforesaid Rules is as under:-


                “Sale by any method other  than  public  auction  or  public
                tender,  shall be on such terms as may  be  settled  between
                the parties  in writing.”


       16. It is not disputed before us that there were no  terms   settled
           in writing between the parties that the sale can be affected  by
            Private Treaty.  In fact, the borrowers  –  respondent  Nos.  1
           and  2  were  not  even called to the joint meeting between  the
           Bank  –   Respondent   No.3  and          Ge-Winn  held  on  8th
           December, 2006.  Therefore, there  was a clear violation of  the
           aforesaid Rules rendering the sale illegal.


                 17. It  must  be  emphasized  that  generally  proceedings
            under   the  SARFAESI  Act,  2002  against  the  borrowers  are
           initiated only  when  the  borrower  is  in  dire-straits.   The
           provisions of the SARFAESI Act, 2002  and the Rules,  2002  have
           been enacted to ensure that the secured asset is not sold for  a
           song.   It  is  expected  that  all  the  banks   and  financial
           institutions which resort to the  extreme  measures  under   the
           SARFAESI Act, 2002 for sale of the  secured  assets  to  ensure,
           that such sale of the asset  provides  maximum  benefit  to  the
           borrower by the sale  of  such  asset.  Therefore,  the  secured
           creditors are expected  to  take  bonafide  measures  to  ensure
           that there  is  maximum  yield  from  such  secured  assets  for
           the borrowers.  In  the  present  case,  Mr.  Dhruv
           Mehta has pointed out that sale consideration is only Rs.10,000/-
            over the reserve price whereas  the  property  was  worth  much
           more.  It is not necessary for us to go into this  question  as,
           in our opinion, the sale is null and void being in violation  of
           the provision of Section 13  of the SARFAESI Act, 2002 and Rules
           8 and 9 of the Rules, 2002.”


     14.    Thus, when the matter is to  be  examined  from  this  angle  it
     cannot be said that the view  of  the  High  Court  is  perfunctory  or
     flawed. Procedure contained in the aforesaid Rules was  admittedly  not
     followed. Notwithstanding this  position,  Mr.  Ranjit  Kumar,  learned
     Senior Counsel appearing for the appellant submitted  that  a  contrary
     view is taken by  this  Court  in   General  Manager,  Sri  Siddeshwara
     Cooperative bank Limited and Anr. v. Ikbal & Ors.;  (2013)  10  SCC  83
     wherein it is  held that the mandatory provision of 30 days notice  can
     be waived by the borrower and in such an eventuality, the  sale  cannot
     be voided.
     15.    After recapitulating the facts which have already been  narrated
     above, his submission in this behalf was that the borrower had, in  the
     present case, delayed the sale of the property and he was not  entitled
     to take advantage of its own  wrong.  He  dilated  this  submission  by
     pointing out that first notice  for  auction  which  was  published  on
     11.9.2004, clear 30 days notice was provided therein  as  the  date  of
     auction was fixed as 15.10.2004. However, conduct of  the  borrower  in
     filing frivolous Writ Petition and  obtaining  interim  order  therein,
     desisted any intending purchaser from coming forward and  participating
     in the auction. Further, even when second notice for auction  sale  was
     published on 28.2.2005 and notice  of  less  than  30  days  was  given
     therein fixing the date of auction as  23.1.2005,  the  borrower  never
     challenged the validity of this notice.  Instead,  at  that  stage  the
     borrower expressed its intention to settle the matter by  offering  OTS
     proposal. The bank succumbed to this request of the  borrower  treating
     the same to be a bonafide offer and even accepted the OTS  proposal  of
     the borrower. Here again  the  borrower  committed  default  and  never
     remitted the money  as  per  OTS  arrangement  agreed  to  between  the
     parties. In this way, highlighting the aforesaid blameworthy conduct of
     the borrower, Mr. Ranjit Kumar  submitted  that  it  is  estopped  from
     challenging the validity of the notice for auction. It was also pointed
     out that not only entire amount is paid by the  appellant  towards  the
     sale consideration, the appellant has discharged statutory liabilities/
     encumbrances as well; sale deed registered in its favour  way  back  on
     26.5.2006; sale certificate issued; and the appellant is in  possession
     of this property ever since. Therefore, the sale should not  have  been
     invalidated.  Mr. A.B. Dial, learned Senior Counsel for  the  appellant
     Bank in other appeal also argued on the same lines.
     16.    Let us examine the aforesaid submission of the appellant in  the
     light of the judgment in the case of Ikbal on which strong reliance  is
     placed by the learned Senior Counsel. That was a case  where  R-1  (the
     borrower) took a housing loan from the  appellant  Bank  by  mortgaging
     certain immovable property. As R-1 committed default  in  repayment  of
     the said housing loan, the Bank issued a notice  to  him  on  30.6.2005
     under  Section  13(2)  of  the  Securatisation  and  Reconstruction  of
     Financial Assets and Enforcement of Security Interest  Act,  2002  (the
     SARFAESI Act)  informing  him  that  if  he  failed  to  discharge  the
     outstanding dues within 60 days, the Bank may take action under Section
     13(4) and the mortgaged property shall be sold. On 18.12.2005 the  Bank
     published the auction notice in the local  newspapers  and  the  public
     auction was conducted on 11.1.2006. The bid  of  the  auction-purchaser
     for Rs. 8,50,000 was accepted  being  the  highest  bid.  The  auction-
     purchaser paid 25% of the sale consideration immediately but he did not
     make the payment of remaining 75% within 15 days of the confirmation of
     sale. He made the final payment on 13.11.2006 and the Bank  issued  the
     sale certificate in his favour. As the proceeds from the  sale  of  the
     mortgaged property fell short of the total outstanding  amount  against
     the borrower,  the  Bank  moved  the  Joint  Registrar  of  Cooperative
     Societies for recovery of the outstanding amount. In those proceedings,
     an ex parte award for the outstanding amount  was  passed  against  the
     borrower R-1. It was then that  R-1  challenged  the  sale  certificate
     issued in favour of the auction purchaser in two writ petitions  before
     the High Court. The Single Judge of the High  Court  quashed  the  sale
     certificate issued in favour of the  auction-purchaser  on  the  ground
     that the mandatory requirements of Rule 9 of the 2002  Rules  were  not
     followed and, therefore, despite the remedy of appeal to  the  borrower
     provided under Section 17 of the SARFAESI Act, a case was made out  for
     interference under Article 226 of the Constitution, which was  affirmed
     by the Division Bench of the High Court.  The  Bank  and  the  auction-
     purchaser had filed the appeals challenging the judgments of  the  High
     Court.
 17. This Court, after interpreting the provisions of  Rule  9,  returned  a
     categorical opinion that the said provision is mandatory in nature.  It
     was further  held  that  even  though  this  Rule  is  mandatory,  that
     provision is for the benefit of the borrower. The Court held that it is
     a settled position in law  that even if a provision  is  mandatory,  it
     can always be waived by a party (or parties)  for  whose  benefit  such
     provision has been made. The provision  in  Rule  9(1)  being  for  the
     benefit of the borrower and the provisions contained in Rule  9(3)  and
     Rule 9(4) being for the benefit of the secured  creditor  (or  for  the
     benefit of the borrower), the secured creditor  and  the  borrower  can
     lawfully waive their rights. These  provisions  neither  expressly  nor
     contextually indicate other wise. Obviously, the question whether there
     is waiver or not depends on the facts of each case and no hard and fast
     rule can be laid down in this regard.


     18.    In the facts of that case it was found  that  the  letter  dated
     13.11.2006 sent by the borrower to the Bank clearly depicted  that  the
     borrower had waived his right under  Rule  9  (1)  and  the  provisions
     contained in Rule 9(3) and Rule 9(4) as well. It was also found that at
     the time of auction sale on 11.1.2006, the borrower was present but did
     not object to the auction being held before expiry of 30 days from  the
     date of which public notice of sale was published. Not  only  this,  he
     agreed that the bid given by  the  auction  purchaser,  which  was  the
     highest bid, be accepted as the auction purchaser happened  to  be  his
     known person. Another important feature which was noted  was  that  the
     borrower expressly gave consent in writing that the balance sale  price
     may be accepted from the auction purchaser  even  when  tendered  after
     some delay and the sale certificate be  issued  to  him.  There  was  a
     written agreement between the borrower and the Bank  for  extension  of
     time upto 15.4..2006 within which the auction purchaser  had  made  the
     payment. On  these  facts,  the  court  came  to  the  conclusion  that
     condition in Rule 9(4) viz. “such extended period as may be agreed upon
     in writing between the  parties”  would  be  treated  as  substantially
     satisfied. Again, pertinently, the  Writ  Petition  was  filed  by  the
     borrower more than 4 years after the issuance of the sale  certificate.
     On these facts the court concluded that  there  was  a  waiver  of  the
     aforesaid mandatory provisions by the borrower.
     19.    It can, thus, be seen that there is no conflict between the  two
     sets of judgments namely Mathew Varghese case  followed  in   J.  Rajiv
     Subramaniyan case on the one hand and Ikbal's case on the  other  hand.
     In the first set of cases the interpretation given to Rule 8 and  9  of
     the Rules hold that these Rules are mandatory. It is so  held  even  in
     Ikbal's case. However, Ikbal's case proceeds further to  lay  down  the
     principle that since these  provisions  are  for  the  benefit  of  the
     borrower, borrower can always waive those procedural requirements. This
     latter  aspect  never  fell  for  consideration  in  the  earlier   two
     judgments. Therefore, we see no force in the contention of the  learned
     Senior Counsel of  the  appellant  that  judgment  in  Mathew  Varghese
     (supra) goes contrary to the law laid down in Ikbal's case.
     20.    The only question, therefore, is as to whether it  can  be  held
     that the borrower in the present case had  also  waived  the  mandatory
     provisions of Rules 8 and 9 of the Rules. We  may  remark  that  it  is
     expressly clarified in Ikbal's case itself that  the  question  whether
     there is a waiver or not depends on the facts of the each case  and  no
     hard and fast rule can be laid down in this regard.
     21.    We would like to point out at the outset that  the  argument  of
     waiver was  not raised by the appellant in the  High  Court.  In  fact,
     this ground is not even raised  in  the  Special  Leave  Petition.  The
     appellant's case rested with hammering the blameworthy conduct  of  the
     borrower by relying upon the observations of the DRT to the effect that
     the borrower had  been  adopting  dilatory  tactics  and  delaying  the
     recovery of amounts due to the bank somehow or the other. It  was  also
     argued that the appellant is a bonafide purchaser and equities  are  in
     favour of the appellants which should be balanced and the  borrower  is
     not entitled to any relief because of his intemperate conduct.
     22.    Be as it may. Since the arguments is predicated on the  admitted
     facts appearing on record, we proceed to examine the  same  on  merits.
     Our examination reveals that no case of waiver is made out.
     23.    In State of Punjab v. Davinder Pal Singh Bhullar  &  Ors.;  2011
     (14) SCC 770; the Court explained the doctrine of waiver on  the  basis
     of earlier pronouncements which are taken  note  of  discussed  in  the
     following manner:
           “37. In Manak Lal  this  Court  held  that  alleged  bias  of  a
           Judge/official/Tribunal does not render the proceedings  invalid
           if  it  is  shown  that  the  objection  in  that   regard   and
           particularly against  the  presence  of  the  said  official  in
           question, had not been taken by the party even though the  party
           knew about the circumstances  giving  rise  to  the  allegations
           about the alleged bias and was aware of its right  to  challenge
           the presence of such official. The Court further observed  that:
           (SCC p. 431, para 8)


                “8. … waiver cannot always and in  every  case  be  inferred
                merely from the failure of the party to take the  objection.
                Waiver can be inferred only if and after it  is  shown  that
                the party knew about the relevant facts and was aware of his
                right to take the objection in question.”


           38. Thus, in a given case if a party knows  the  material  facts
           and is conscious of his legal rights in that matter,  but  fails
           to  take  the  plea  of  bias  at  the  earlier  stage  of   the
           proceedings, it creates an effective bar of waiver against  him.
           In such facts and circumstances, it  would  be  clear  that  the
           party wanted to take a chance to secure a favourable order  from
           the official/court and when he found that he was confronted with
           an unfavourable order, he adopted  the  device  of  raising  the
           issue of bias. The issue of bias must be raised by the party  at
           the earliest. (See Pannalal Binjraj v. Union of India  and  P.D.
           Dinakaran (1) v. Judges Enquiry Committee.)


           39. In Power Control Appliances v. Sumeet Machines (P) Ltd. this
           Court held as under: (SCC p. 457, para 26)
                “26. Acquiescence is sitting by, when  another  is  invading
                the rights…. It is a course of conduct inconsistent with the
                claim…. It implies positive  acts;  not  merely  silence  or
                inaction such as involved in laches. … The acquiescence must
                be such as to lead to the inference of a licence  sufficient
                to create a new right in the defendant….”


           40. Inaction in every case does not  lead  to  an  inference  of
           implied consent or acquiescence as has been held by  this  Court
           in P. John Chandy & Co. (P) Ltd. v. John P.  Thomas.  Thus,  the
           Court  has  to  examine  the  facts  and  circumstances  in   an
           individual case.


           41. Waiver is an  intentional  relinquishment  of  a  right.  It
           involves conscious  abandonment  of  an  existing  legal  right,
           advantage, benefit, claim [pic]or privilege,  which  except  for
           such a waiver, a party could have enjoyed. In  fact,  it  is  an
           agreement not to assert a right. There can be no  waiver  unless
           the person who is said to have waived, is fully informed  as  to
           his  rights  and  with  full  knowledge  about  the   same,   he
           intentionally abandons them. (Vide Dawsons Bank Ltd.  v.  Nippon
           Menkwa Kabushiki  Kaisha,  Basheshar  Nath  v.  CIT,  Mademsetty
           Satyanarayana v. G. Yelloji Rao, Associated Hotels of India Ltd.
           v.  S.B.  Sardar  Ranjit  Singh,  Jaswantsingh  Mathurasingh  v.
           Ahmedabad Municipal Corpn., Sikkim Subba Associates v. State  of
           Sikkim and Krishna Bahadur v. Purna Theatre.)


           42. This Court in Municipal  Corpn.  of  Greater  Bombay  v.  Dr
           Hakimwadi   Tenants’   Assn.    considered    the    issue    of
           waiver/acquiescence by the non-parties to  the  proceedings  and
           held: (SCC p. 65, paras 14-15)
               “14. In order to constitute waiver, there must be  voluntary
               and intentional relinquishment of a right. The essence of  a
               waiver is an estoppel and where there is no estoppel,  there
               is no waiver. Estoppel and waiver are questions  of  conduct
               and must necessarily be determined  on  the  facts  of  each
               case. …
               15. There is no question of estoppel, waiver or abandonment.
               There  is  no  specific  plea  of  waiver,  acquiescence  or
               estoppel, much less a plea of  abandonment  of  right.  That
               apart, the question of waiver really does not arise  in  the
               case. Admittedly,  the  tenants  were  not  parties  to  the
               earlier proceedings. There is,  therefore,  no  question  of
               waiver  of  rights  by  Respondents  4-7  nor   would   this
               disentitle the tenants from maintaining the writ petition.”


     24.    From what is argued  by  the  appellants,  at  best  it  can  be
     inferred that the borrower tried to thwart the earlier attempts of  the
     Bank in selling the property. When the first  notice  was  issued,  the
     borrower filed the writ petition. However, it is to be  borne  in  mind
     that in the said Writ Petition no interim order was passed staking  the
     auction on the stipulated date.  The  only  stay  granted  was  against
     confirmation of sale. That did not preclude anybody from  participating
     in the auction. We are mindful of the ground realities that many  times
     pendency of such a  Writ Petition challenging the  auction  notice  and
     the kind of stay granted, even partial in nature, deter  the  intending
     buyers to come forward and participate in the auction. Be as it may, we
     find out that even in the second attempt when  the  reserve  price  was
     reduced to Rs. 2.39 crores, the highest bid received was in the sum  of
     Rs. 2.25 crores. Further, even the  bid  of  the  appellant  which  was
     accepted was in the sum of Rs.2.16 crores. Likewise, after  the  second
     auction when the Bank requested the  borrower  to  accept  the  bid  of
     Rs.2.25 crores giving its reasons and the borrower instead of doing  so
     took initiative resulting in OTS but defaulted therein, it would merely
     indicate that the borrower was at fault in not adhering to the OTS.  By
     no logic it can be deduced therefrom that the Bank  was  relieved  from
     its obligation not to follow the mandatory procedure contained  in  the
     Rules, while taking fresh steps for the disposal of the property.
     25.    The moot question  is,  even  if  there  were  delaying  tactics
     adopted by the borrower in respect of first two auctions, whether  that
     conduct  of  the  borrower  would  amount  to  waiving  the   mandatory
     requirement of publishing subsequent notice dated 27.4.2006 fixing  the
     date of auction as 8.5.2006? Our answer has to be in the negative.  The
     aforesaid conduct cannot be taken as waiver to the mandatory  condition
     of 30 days notice for  auction  as  well  as  other  requirements.  For
     examining the plea of waiver, we will have to  see  as  to  whether  by
     implied or express actions,  the  borrower  has  waived  the  aforesaid
     mandatory requirement when the property was put  to  sale.  We  do  not
     find, nor it is suggested, even the slightest move on the part  of  the
     borrower in this regard which may amount to waiver  either  express  or
     implied. On the contrary, when notice dated  27.4.2006  was  published,
     the  borrower  immediately  filed  the  Writ  Petition  6471  of   2006
     challenging the auction notice. Thus, its conduct, far from waiving the
     aforesaid requirement, was to confront  the  bank  by  questioning  its
     validity. It is a different matter that it had  to  withdraw  the  said
     writ petition in view of availability of alternate remedy. Immediately,
     it filed application under Section 18 of the SARFAESI  Act.  There  is,
     thus, not even an iota of material suggesting any waiver on the part of
     the borrower.
     26.    The moment we find that the mandatory requirement of  the  Rules
     had not been waived by  the  borrower,  consequences  in  law  have  to
     follow. As held in Mathew Varghese’s case, when there is  a  breach  of
     the said mandatory requirement the sale is to be treated  as  null  and
     void. Moreover, the appellant have no answer to many other  infirmities
     pointed out by the High Court. We, therefore, are of the  opinion  that
     present appeals lack merit.


     27.    Before we part with,  it  is  imperative  to  mention  that  the
     purchaser has paid a sum of Rs.1.86 crores towards purchase of property
     and Rs.30 lakh towards moveable items to the Bank. He  has  also  spent
     Rs.1,86,335/- towards registration fee and Rs.15,62,400/- towards stamp
     duty. In addition, dues towards municipal  tax,  Sales  Tax  liability,
     dues of Employees State Insurance Corporation, Employees Provident Fund
     and Belgaum Industrial Cooperative Bank have also been  paid.  A  total
     whereof comes to Rs. 49,91,000/-. These were  the  liabilities  of  the
     borrower.  In this way, total amount of Rs. 2,83,39,735/-  is  paid  by
     the purchaser. He has also discharged municipal tax  liability  in  the
     sum of Rs.2,86,078/- for the period 1.4.2007 to 31.3.2009. As  we  have
     affirmed the order of the High Court setting aside the sale,  we  grant
     two months time to the borrower to discharge the  entire  liability  of
     the Bank. The borrower shall also reimburse the amount of  registration
     fee and stamp duty to the purchaser. The direction to pay  this  amount
     is given having regard to  the  conduct  of  the  borrower  on  earlier
     occasions.  If  the  borrower  pays  the  amount  due  to   the   Bank,
     registration charges, stamp duty as well as amount of encumbrances paid
     by the purchaser, which was the liability of the borrower i.e. a sum of
     Rs.49,91,000/- + 2,86,078/-, the property shall  revert   back  to  the
     borrower. If the aforesaid amounts are not paid  within  the  aforesaid
     two months, the Bank shall be at liberty to proceed with  the  sale  of
     the property following due procedure under the law. In so  far  as  the
     purchaser is concerned, he shall be refunded entire amount spent by the
     purchaser, as mentioned above. We have consciously not granted interest
     to the purchaser on the aforesaid amount, as the purchaser has, in  the
     meantime, utilized the property in question.
 28. Subject to the above, the appeals are dismissed.


                                                                …………………………J.
                                                     (Surinder Singh Nijjar)






                                                              ………….……………..J.
                                                                 (A.K.Sikri)
      New Delhi,
      April 22, 2014


No comments:

Post a Comment

Note: Only a member of this blog may post a comment.