Karnataka High Court
Sri. D. K. Shivanagouda vs The Managing Director on 7 December, 2022
Author: N.S.Sanjay Gowda
Bench: N.S.Sanjay Gowda
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WP No. 104290 of 2022
IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
DATED THIS THE 7TH DAY OF DECEMBER, 2022
BEFORE
THE HON'BLE MR JUSTICE N.S.SANJAY GOWDA
WRIT PETITION NO. 104290 OF 2022 (GM-KSFC)
BETWEEN:
1. SRI. D. K. SHIVANAGOUDA
AGE. 41 YEARS, OCC. BUSINESS
R/O. JAMAKHANDI, TQ. JAMAKHANDI
DIST. BAGALKOTE-587301.
2. SRI. SANJU S/O TIMMANNA NINGARADDI
AGE. 36 YEARS, OCC. COOLIE
R/O. SHIROL VILLAGE, TQ. MUDHOL
DIST. BAGALKOTE-587313.
...PETITIONERS
(BY SHRI HARSHAWARDHAN M. PATIL, ADVOCATE)
AND:
1. THE MANAGING DIRECTOR
KARNATAKA STATE FINANCIAL CORPORATION
R/O. HEAD OFFICE 1/1 THIMAIYA ROAD
KFC BHAVAN, BENGALURU-560052.
2. THE EXECUTIVE DIRECTOR
KARNATAKA STATE FINANCIAL CORPORATION
R/O. HEAD OFFICE 1/1 THIMAIYA ROAD
KFC BHAVAN, BENGALURU-560052.
3. THE GENERAL MANAGER
KARNATAKA STATE FINANCIAL CORPORATION
R/O. HEAD OFFICE 1/1 THIMAIYA ROAD
KFC BHAVAN, BENGALURU-560052.
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WP No. 104290 of 2022
4. ASSISTANT GENERAL MANAGER
KARNATAKA STATE FINANCIAL CORPORATION
BELAGAVI BRANCH, NEAR SANMAN HOTEL
BELAGAVI-590001.
5. ISMAIL SAHEB M KESARI
AGE. 56 YEARS, OCC BUSINESS,
R/O.SY.NO.1097/1, MARUTHI NAGAR,
SAMBRA ROAD, BELAGAVI-590016.
6. SHRI ANIL S/O PARAGOWDA PATIL
AGE. 46 YEARS, OCC. ONE OF THE PARTNER
IN BELGAUM THERMOCOL INDUSTRY
R/O. A WING, 2ND FLOOR, M.G.BHAVAN
COLLEGE ROAD, BEHIND SANMAN HOTEL
BELAGAVI-590011.
7. MAHADEVA S/O CHINNAPPA BHANDIWADAR
AGE. 43 YEARS, OCC. BUSINESS
R/O. WARD NO.3, SAIDAPUR GALLI
MUDHOL, TQ. MUDHOL, DIST. BAGALKOTE-587313.
...RESPONDENTS
(BY SHRI SHARAD MAGADUM, ADVOCATE FOR R1 TO R4;
SERVICE OF NOTICE TO R5 & R6- DISPENSED WITH;
SHRI S.S.BODDALINGANNAVAR, ADVOCATE FOR R7)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO;
A. ISSUE WRIT IN THE NATURE OF CERTIORARI BY
QUASHING THE E PROCUREMENT ACTION NOTICE BEARING
NUMBERS. I) NOTICE BEARING NO.KSFC/BO/BGV/1254 DATED
16/11/2021 AT ANNEXURE-F. II) NOTICE BEARING
NO.KSFC/BO/BGV/1227/2021-22 AT ANNEXURE-F1.
B. ISSUE WRIT IN NATURE OF CERTIORARI
QUASHING THE SALE DEED DATED 05/04/2022 VIDE
ANNEXURE-G, IN THE INTERST OF JUSTICE AND EQUITY.
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WP No. 104290 of 2022
THIS PETITION IS COMING ON FOR PRELIMINARY
HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioners are before this Court challenging the e-auction notice and the public notification by which plot Nos.5, 6, 7 and 8 are ordered to be sold in public auction.
2. The petitioners are also challenging the consequential sale deed executed by Karnataka State Financial Corporation (hereinafter referred as 'KSFC' for brevity) in favour of the 7th respondent.
3. A mortgage was created on 13.12.2013 in favour of the KSFC by respondent No.5 and also by the vendor of the petitioner Shri Ismail Babalal Bilagi in respect of plot Nos.5, 6, 7 and 8 apart from other properties as security for a loan that had been availed from KSFC.
4. On 06.05.2017, the mortgage was rescheduled and the partnership firm M/s Belgaum Thermocol Industry -4- WP No. 104290 of 2022 along with respondent Nos.5 and 6 executed a mortgage deed.
5. On 18.09.2017, the petitioner No.1 purchased plot No.6 from the surety Shri Ismail Babalal Bilagi and by another sale deed dated 28.03.2019, the petitioner purchased plot Nos.5, 7 and 8.
6. The KSFC, by reason of the default committed by the borrowers proceeded to invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as 'SARFAESI Act' for brevity) and issued notices to the borrower as well as the surety. However, though the petitioner had purchased the plots under the registered sale deeds, KSFC did not notify the petitioner.
7. Since the borrower and the guarantor did not repay the money despite issuance of notices under the SARFAESI Act, the above mentioned plots bearing Nos.5, -5- WP No. 104290 of 2022 6, 7 and 8 were proposed to be sold by way of public auction to be conducted on 13.12.2021.
8. On that day, all the four plots were sold to the 7th respondent who was the highest bidder and he paid a sum of Rs.19,96,300/- to KSFC. The KSFC has thereafter also executed a sale deed in favour of the 7th respondent.
9. The petitioner is before this Court challenging the auction notice, the auction conducted and the consequential sale deed executed in favour of the 7th respondent, contending that he was not at all notified about the auction despite having purchased the plots.
10. The petitioner submitted before the Court when the case was posted for preliminary hearing that to show his bona-fides, he was depositing a sum of Rs.10,00,000/- by way of a Demand Draft and he would also be prepared to deposit the remaining amount of Rs.9,96,000/-. It was stated then that since the entire auction consideration was being paid by the petitioner, the auction sale should be -6- WP No. 104290 of 2022 set-aside. Accordingly, an order was passed on 03.11.2022 recording the said submission.
11. Pursuant to the said order, the petitioner has, in fact, deposited a sum of Rs.19,96,000/- before this Court by way of two Demand Drafts. Thus, the petitioner has deposited entire sale consideration that the 7th respondent had paid for purchase of the properties in the public auction.
12. Learned counsel for the auction purchaser has relied upon the judgment of the Hon'ble Supreme Court rendered in the case United Bank Of India vs Satyawati Tondon & Others (Arising out of SLP(C) No.10145/2010, decided on 26 July, 2010), Phoenix ARC Private Limited Vs Vishwa Bharati Vidya Mandir & Ors (Civil Appeal Nos.257-259 of 2022, decided on 12.1.2022) and ARCE Polymers Private Limited Vs/ M/s Alphine Pharmaceuticals Private Limited and Others (Civil Appeal No.7372/2021, decided on -7- WP No. 104290 of 2022 03.12.2021), to contend that the writ petitions should not be entertained.
13. In the citations relied upon by the counsel for the petitioners, the Hon'ble Apex Court was dealing with the situation where the borrowers or guarantors were obstructing the recovery of money due to the financial institutions and they were not cases where a purchaser of the secured property had come forward to pay the amounts recovered through an auction by the Bank and thereby save the property purchased by him. Thus, the decisions rendered in a completely different context as stated above cannot really be applied to the facts of this particular case.
14. As noticed above, in the instant case the petitioner is neither the borrower nor the guarantor, but he is a purchaser from the guarantor and in order to save the property that he has purchased has come forward to deposit the entire auction price and thereby clear the encumbrance on the property. In my view, therefore, this -8- WP No. 104290 of 2022 would be an eminently fit case to ensure that a bona-fide purchaser like the petitioner is not penalized for the default committed by his vendor who was the surety to the loan.
15. It is to be kept in mind that the auction purchaser has no vested right over the property and his purchase of the property in the public auction was by chance. It is also to be kept in mind that the auction was conducted only in December-2021 and the sale deed was executed in April-2022 and thus, the auction sale is of recent origin and very little time has elapsed since the date of auction.
16. Since, the petitioner has deposited the entire auction consideration and the auction purchaser can be suitably compensated by the award of interest, no harm or prejudice would be caused to the auction purchaser if the auction were to be set-aside.
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17. In my view, the financial loss caused to the 7th respondent-auction purchaser by depositing a sum of Rs. 19,96,300/- with the KSFC can be remedied by payment of interest at the rate of 12% on the sum of Rs.19,96,300/-.
18. Though, in normal circumstances, the Court would not entertain a petition, which would have the effect of stalling the recovery proceedings initiated by Financial Institutions, having regard to the fact that the petitioner was a purchaser of the property from the surety and had established that he was ready and willing to pay the auction price, the consequences of the auction on the petitioner a bona-fide purchaser would also have to be considered in the larger interest of justice and equity.
19. In this regard it will have to be noticed that the petitioner has purchased the property way back in the year 2017 and 2019 from the surety and he has also deposited the entire sale consideration. In my view,
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WP No. 104290 of 2022 therefore, it would be in the interest of justice and equity, that the auction sale is set-aside and the property be restored to the petitioner. Consequently the sale notice and also the auction conducted on 13.12.2021 in respect of Plot Nos., 5, 6, 7 and 8 shall stand set-aside. The consequential sale deed dated 05.04.2022 executed by the KSFC in favour of the 7th respondent shall also be set- aside.
20. as already stated above since the 7th respondent had paid a sum of Rs.19,96,300/- in December-2021 in order to purchase the property, the petitioner is directed to deposit 12% interest on the said sum within a period of four weeks from today.
21. Registry is directed to hand over a sum of Rs.19,96,000/- and also the interest which is to be deposited before this Court in favour of the 7th respondent.
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WP No. 104290 of 2022
22. The KSFC shall execute necessary documents discharging the property of the petitioner from the mortgage.
23. The writ petition is accordingly allowed.
SD JUDGE AM