M.J.George vs C.M. Bose on 21 December, 2011

[Cites 20, Cited by 0]

Kerala High Court

M.J.George vs C.M. Bose on 21 December, 2011

The Writ Appeal No. 504/2012 and Writ Petition No. 7182/2012 arise in respect of the auction sale conducted by the Recovery Officer of the Debt Recovery Tribunal on 14.1.2010 pursuant to the determination of the amounts by the Debt Recovery Tribunal, Ernakulam in T.A.No. 1111/1997. Parties are referred to as shown in the appeal.

2. The appellant in W.A.No. 504/2012 is the additional 4th respondent in W.P.(C) No. 3253.2010. He is a surety to a loan transaction in respect of which admittedly an order had been passed by the Debt Recovery Tribunal determining the liability of the debtors and in pursuance of the proceedings taken by the Recovery Officer, property belonging to the appellant was proclaimed for sale on 14.1.2010. The 1st respondent/writ petitioner was the highest bidder who offered W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -2- Rs.16.20 lakhs for a property having an extent of 3.31 acres in Kottayam District. Though the 1st respondent was the highest bidder, on account of certain incidents which occurred subsequent to the conduct of sale, the Recovery Officer passed Ext.P5 order cancelling the sale and directing fresh sale to be conducted in the matter.

3. Ext.P5 was challenged by the 1st respondent herein and the learned Single Judge by judgment dated 21.12.2011 allowed the writ petition setting aside Ext.P5 and the Recovery Officer was directed to proceed with further steps for confirmation of sale conducted on 14.1.2010 in favour of the 1st respondent.

4. W.P.(C)No.7182/2012 is filed by the appellant in W.A. No. 504/2012 challenging the procedure adopted by the Recovery Officer in the conduct of the sale and seeks to quash the notice of demand and further makes a request for settling the liability by way of one-time-settlement and to release the petitioner's property after accepting the amount agreed in Ext.P7 letter dated 14.10.2011 issued by the respondent-Bank W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -3- offering to consider the out-of-court settlement after taking into consideration the total amount due to the Bank as on the date of settlement of liability. The respondent Bank had disputed the said claim and insists on recovering the entire amount.

5. Ext.P5 order passed by the Recovery Officer cancelling the sale held on 14.1.2010 reads as under:

"The auction was held at 2.30 p.m. There were 2 bidders namely Shri.Raju Sebastian, S/o.Joseph Sebastian and Shri.C.M.Bose, S/o.C.M.Mathew. Three other bidders who came after 1 p.m. were not permitted to participate. The bidding began at Rs.16,10,000/- with the first call by Shri Raju Sebastian. Shri C.M.Bose then bid for Rs.16,20,000/- after which no bid was made. The auction was knocked in favour of Shri C.M.Bose at the bid amount of Rs.16,20,000/-. However after about 10 minutes the successful bidder Shri C.M.Bose who claims to be working as Senior Manager with Federal Bank came in and informed W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -4- that the other bidder Shri.Raju Sebastian had snatched away his DDs for the balance money. Shri. Raju Sebastian initially denied it. However allegations and counter allegations were made by both of them. In the circumstances I strongly suspect fraud and a cartel between the bidders and therefore it is deemed fit to cancel the auction. The EMD shall be returned by cheque.

These two persons shall not be allowed to participate in the subsequent auctions, which is now being adjourned to 09.02.2010. Notice be placed on notice board".

6. It is an admitted fact that when the property was proclaimed for sale, the 1st respondent, a third party offered to purchase the property in auction and has participated in the auction held on 14.1.2010 and his offer was accepted by the Recovery Officer. It is the case of the 1st respondent that another bidder Mr.Raju Sebastian had taken away the demand W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -5- drafts which he had brought for depositing the balance amount to be paid on the same day, and it was returned to him only after the Recovery Officer interfered in the matter. When the said Raju Sebastian was confronted with the statement of one Thambi Madathil who had witnessed the incident of snatching away the DD's from the 1st respondent, he had to admit it. It is the further case of the 1st respondent that though Raju Sebastian had later returned the demand draft, the Recovery Officer had proceeded to cancel the sale which according to the 1st respondent is illegal and not in accordance with the procedure prescribed under the provisions of the Recovery of Debt due to Banks and Financial Institutions (hereinafter referred to as the 'Act') Act and the Rules framed thereunder. Hence the 1st respondent sought for quashing Ext.P5 decision of the Recovery Officer and further prayed for a direction to the Recovery Officer to confirm the public auction held on 14.1.2010 and for other consequential reliefs.

7. The appellant got himself impleaded as additional 4th respondent and contested the matter. Other judgment W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -6- debtors were not made parties to the proceedings.

8. The second respondent has filed a counter affidavit, inter alia stating that after the close of the bidding and when both the bidders signed the bidding sheet and the 1st respondent was directed to pay the balance payment after ascertaining the exact amount from the Recovery Section, after about 10 minutes, the 1st respondent rushed into the cabin of the Recovery Officer and complained that Mr. Raju Sebastian had snatched away the DD's kept by him for payment of the balance amount as per the concluded auction. When the Recovery Officer came out of the cabin and asked Mr. Raju Sebastian about the complaint, he informed the Recovery Officer that the 1st respondent had cheated him by not giving Rs.50,000/- which was offered to him for refraining from hiking the bid in respect of the auction conducted. Subsequently another person had come into the office, who informed the Recovery Officer stating that Raju Sebastian had snatched away the DD's from the 1st respondent. Though Raju Sebastian did not accept the said allegation, it was found that W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -7- the 1st respondent and Raju Sebastian were making allegations and counter-allegations against each other. When it was informed that the police will be called, Raju Sebastian reluctantly admitted that he had snatched the DD's as alleged and handed over the same to his brother. He was also telling that the 1st respondent has cheated him and thereafter the DD's were returned but still both of them were making allegations and counter- allegations regarding Rs.50,000/- which was alleged to have been offered by the 1st respondent. The Recovery Officer apparently proceeded on the basis that there is a fraud involved in the matter especially with an intention to form a cartel to bid in the sale which resulted in Ext.P5. No separate counter affidavit is filed by other respondents.

9. Learned Single Judge after taking into consideration the facts of the case allowed the writ petition and directed the Recovery Officer to confirm the sale in favour of the 1st respondent. It is aggrieved by the said judgment that the additional 4th respondent has filed this appeal who is also the petitioner in W.P.(C) No.7182/12.

W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -8-

10. The main contention urged by the learned counsel for appellant is that though there is no specific provision enabling the Recovery Officer to cancel a sale immediately after the process of bidding, when a duty is cast upon the Recovery Officer to conduct sale in terms of Sections 25 and 28 of the Act and the provisions of the second Schedule to the Income Tax Act especially Rule 15, the Recovery Officer is having the inherent power to cancel the sale if it is found out that the sale was vitiated by formation of a cartel or there is some fraudulent practice being involved in the process of sale. It is also argued that the 1st respondent being an officer of the Bank cannot participate in the auction on account of the specific bar under Rule 17 of the second Schedule to the Income Tax Act.

11. On the other hand, learned Senior Counsel appearing for the auction purchaser Sri.O.V.Radhakrishnan has taken the following contentions:

i) There is no provision either under the Act or the second Schedule to the Income Tax Act enabling the Recovery Officer to cancel a sale.

W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -9-

ii) The Recovery Officer was duty bound to conduct sale on 14.1.2010 in view of the Division Bench judgment in W.P.(C) No. 28193/2008.

iii) That there is no illegality in the judgment of the learned Single Judge and hence there is no situation warranting interference by the appellate court.

iv) The bar under Rule 17 of the Second Schedule to the Income Tax Act does not apply to the petitioner as he has no duty to be performed with the sale of property.

12. The learned counsel for the appellant relies upon various judgments to substantiate his contentions. Punjab National Bank v. O.C.Krishnan and others (2001) 6 SCC

569) is relied upon to contend that when an appeal is provided under the statute, the 1st respondent ought to have availed the alternate remedy rather than invoking the jurisdiction of this court. Grindlays Bank Ltd. v. Industrial Tribunal (1980 (Supp) SCC 420), Khargram Panchayat Samiti v. State of W.B. (1987) 3 Supreme Court Cases 82), and Union of India v. Paras Laminates (P) Ltd. ((1990)4 SCC 453), are relied upon to substantiate the inherent powers of quasi judicial W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -10- authorities. Chairman & M.D, Sipcot v. Contromix Pvt.Ltd (1995) 4 SCC 595) is relied upon to contend that in the matter of sale by public auction, if sale is held by tender process and negotiation if the best price is obtained such an action cannot be termed as invalid and the validity of sale is to be considered on the facts and circumstance of the case. Haryana Financial Corpn. v. Jagdamba Oil Mills.Kempaiah v. Chikkaboramma (2002) 3 SCC 496) is relied upon to contend that when the administrative authority chooses one of several courses of action, court shuold not interefere unless the course adopted is unfair and unreasonable.

13. The learned senior counsel on behalf of the 1st respondent relied upon Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517), wherein the Supreme Court held as under:

"22. Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made "lawfully" and not to check whether choice or decision is "sound". When the power of W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -11- judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -12- be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:

(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone;

OR Whether the process adopted or decision made is so arbitrary and irrational that the court can say: "the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached";

(ii) Whether public interest is affected.

If the answers are in the negative, there should be no interference under Article 226. Cases involving blacklisting or imposition of penal consequences on a W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -13- tenderer/contractor or distribution of State largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action". Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171), is also relied upon wherein the supreme Court held as under:

"37. A large number of authorities have been cited before us in support of the submission that even in contractual matters the State or "other authorities" are bound to act within the legal limits and their actions are required to be free from arbitrariness and favouritism. The proposition that a decision even in the matter of awarding or refusing a contract must be arrived at after taking into account all relevant considerations, eschewing all irrelevant considerations cannot for a moment be doubted. The powers of the State and other authorities are essentially different from those of private persons. The action or the procedure adopted by the authorities which can be held to be "State" within the meaning of Article 12, while awarding contracts in respect of properties belonging to the State, can be judged and tested in the light of Article 14. Once the W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -14- State decides to grant any right or privilege to others, then there is no escape from the rigour of Article 14. These principles are settled by the judgments of this Court in Ramana Dayaram Shetty v. International Airport Authority of India8, Kasturi Lal Lakshmi Reddy v. State of J&K9, Ram and Shyam Co. v. State of Haryana10, Mahabir Auto Stores v. Indian Oil Corpn.11, Sterling Computers Ltd. v. M&N Publications Ltd.12 and ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.13

38. The executive does not have an absolute discretion, certain principles have to be followed, the public interest being the paramount consideration. It has been stated by this Court in Kasturi Lal case9: (SCC p. 13, para 14)

"14. ... It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease out W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -15- its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so." (emphasis supplied)

39. The law has been succinctly stated by Wade in his treatise, Administrative Law:

"The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependents, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public authority may do none of these things unless it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. So a city council W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -16- acted unlawfully when it refused unreasonably to let a local rugby football club use the city's sports ground, though a private owner could of course have refused with impunity. Nor may a local authority arbitrarily release debtors, and if it evicts tenants, even though in accordance with a contract, it must act reasonably and `within the limits of fair dealing'. The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good."14

40. There is no difficulty to hold that the authorities owe a duty to act fairly but it is equally well settled in judicial review, the court is not concerned with the merits or correctness of the decision, but with the manner in which the decision is taken or the order is made. The court cannot substitute its own opinion for the opinion of the authority deciding the matter.

41. The distinction between appellate power and a judicial review is well known but needs reiteration. By W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -17- way of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. The courts have inherent limitations on the scope of any such enquiry. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then the court cannot act as an appellate court by substituting its opinion in respect of selection made for entering into such contract. But at the same time the courts can certainly examine whether the "decision-making process" was reasonable, rational, not arbitrary and violative of Article 14."

Chengamanad Service Co op. Bank Ltd. v. Mohanan (2009 (3) KLT 623) is relied upon in which a Division Bench of this court held that under section 5 of the High Court Act 1958 (Kerala), Appellate Court can interfere, only, if it is found that decision of Single Judge to decline jurisdiction under Art.226 is W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -18- arbitrary or perverse. Still further in Chovva Educational Society v. State of Kerala (2006 (2) KLT 340) another Division Bench judgment is relied upon to contend that in the absence of a specific provision to pass Ext.P5 order the same is illegal.

14. Having taken into consideration the rival arguments, and the judgments relied upon by either side, the first point to be considered is whether the Recovery Officer has the power to cancel the sale in terms of Ext.P5. It is evident that the Recovery Officer while directing resale was not exercising the power under Rule 15 of the second schedule to Income Tax Act. Rule 15 only relates to adjournment of sale wherein he can exercise a discretion to adjourn the sale for reasons to be recorded before the sale takes place. Learned Single Judge had come to a finding that since the successful bidder i.e., the 1st respondent has not committed any irregularity in complying with the conduct of sale and it was purely on account of the interference by the said Raju Sebastian, there was no justification on the part of the Recovery Officer in passing Ext. W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -19- P5 order. The learned Single Judge hence came to a conclusion that the decision taken by the Recovery Officer was unreasonable and arbitrary infringing the rights of the petitioner protected under Article 14 of the Constitution of India and consequently the direction was issued permitting the 1st respondent to pay the balance sale amount and purchase the property.

15. Apparently there is no specific provision to cancel the sale as has been done in Ext.P5. Therefore, the question is whether the Recovery Officer has any inherent power to cancel a sale other than the powers vested in it under Rules 15, 60 and 61 of Second Schedule to Income Tax Act to adjourn or set aside the sale under certain contingencies. Going by the Scheme of the Act, it could be seen that powers had been given to the Recovery Officer by virtue of S.25 of the Act to effect recovery of amounts which are determined by the Tribunal. In fact, the authority to proclaim and conduct sale has been vested on the Recovery Officer under S.25 of the Act and the procedure to be followed is prescribed under Section 28 of the Act and by W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -20- virtue of section 29 the second and third Schedule of the Income Tax Act is made applicable in regard to the procedure to be followed. The right to conduct sale of immovable property by virtue of Section 25 of the Act does not by itself include the right to cancel or set aside the sale. In fact as per the second Schedule, sale can be set aside at the instance of either of the parties under certain circumstances. But there is no conferment of power to suo motu cancel the sale, if we go strictly by the provisions of the Second Schedule of the Income Tax Act. But that does not preclude the Recovery Officer who is conducting the sale to take note of the facts which according to the Recovery Officer has vitiated the proper conduct of sale. The incident reported by the Recovery Officer by itself was shocking and when such a statement is made by a responsible officer indicating that there was a quarrel between the auction purchaser and the said Raju Sebastian and there was a doubt in the mind of the Recovery Officer regarding formation of cartel between them or an iota of doubt regarding the surreptitious manner in which the sale proceedings had been conducted, the W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -21- officer had no other option other than to cancel the said sale and conduct a resale. It is not in dispute that the sale is to be conducted by the Recovery Officer fairly and properly in accordance with the Rules without any external interference. Therefore even in the absence of a specific provision in this regard it is possible for us to conclude that there is an inherent power on the Recovery Officer to see that the sale is conducted properly in accordance with the Rules, fairly and in a just manner. Such inherent power to conduct resale is to be exercised sparingly and in special circumstances like the one which we have seen in this case. The question would be whether the said power is used arbitrarily or in an unfair or unreasonable manner. The facts involved in the case which is detailed in the affidavit of the Recovery Officer clearly creates a doubt regarding the manner in which the bidders participated in the sale. Therefore we do not think that the Recovery Officer has committed any illegality in directing resale of the property. To that extent, Ext.P5 is sustainable. We are fully aware of the restraints of judicial review in the matter relating to public W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -22- tender or auction as the case may be as held in Jagdish Mandal's Case (supra) and Meerut Development Authority's case (supra). But when it is found that the proceedings of sale had been intercepted by extraordinary circumstances which goes to the root of the matter and having taken note of such factors, the Recovery Officer has passed Ext.P5 in fairness and in public interest, Ext.P5 is to be upheld. It is well settled as held in Grindlays Bank Ltd. v. Industrial Tribunal (1980 (Supp) SCC 420), Khargram Panchayat Samiti v. State of W.B. (1987) 3 Supreme Court Cases 82), and Union of India v. Paras Laminates (P) Ltd. ((1990)4 SCC 453), that quasi judicial authorities can exercise incidental and ancillary powers in accordance with the scheme of statutory provisions to give complete effect to such express provisions.

16. The argument with reference to Rule 17 of the second schedule is not applicable to the facts of the case as there is no material to indicate the role of the 1st respondent in regard to the duty to be performed in the sale proceedings. He being an employee of the Bank will not deprive him of the right W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -23- to participate in the auction. Therefore, the observation in Ext. P5 that the 1st respondent should not be permitted to participate in the auction is not justifiable.

17. It is true that a Division Bench of this Court had directed sale of the property to be conducted on 14.1.2010 itself, but that by itself does not indicate that an illegal or irregular sale should be permitted to be confirmed. If there is evidence of a cartel formation, it is always open for the Recovery Officer to avoid such sale. The practice of forming a cartel in tender proceeding had been deprecated by the Supreme Court in B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. [(2006) 11 SCC 548].

18. The argument of the learned counsel for the 1st respondent that there is no perversity or illegality in the judgment of the learned Single Judge also cannot be sustained in view of our finding that the Recovery Officer has got inherent power to cancel the sale if the authority comes across circumstances vitiating the conduct of sale on account of peculiar circumstances involved in the case. Hence W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -24- Chengamanad Service Co op. Bank Ltd. case (supra) is not applicable to the facts of the case.

19. In regard to W.P.(C) No. 7182/2012 the main contention urged is that the demand notice is barred by limitation as per Rule 68B of Schedule II of the Income Tax Act. The Schedule II of the Income Tax Act only prescribes the procedure to be adopted by the Recovery Officer in relation to recovery of amounts determined by the Debt Recovery Tribunal. In so far as the amount had been determined within the period of limitation and as per the Law of Limitation, the recovery can be effected within 12 years from the date of determination of the amount, such a ground is not available. The other request for one-time settlement is also a matter which is to be considered by the respondent-Bank and this Court cannot direct the bank to provide one-time settlement to the petitioner. However it is open for the petitioner to approach the Bank for one-time settlement and in that view of the matter there is no merit in this writ petition which is only to dismissed. But dismissal of the writ petition will not preclude the petitioner W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -25- approaching the Bank for any form of one-time settlement.

20. In the above circumstances, (A) We allow the writ appeal as follows:

i) The judgment of the learned Single Judge is set aside.

ii) The Recovery Officer shall conduct sale of the property afresh after giving notice to all the parties as per Rules.

iii) It is open for the 1st respondent to participate in the auction and to that extent alone Ext.P5 is set aside. (B) Writ Petition No.7182/2012 is dismissed.

MANJULA CHELLUR CHIEF JUSTICE A.M.SHAFFIQUE JUDGE rka W.A.No. 504 of 2012 and W.P.(C) No. 7182 of 2012 -26-

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