Bombay High Court
Mr. Manoj D. Kapasi And Anr. vs The Union Of India (Uoi) And Ors. on 31 January, 2005
Equivalent citations: III(2005)BC592, 2005(3)BOMCR267, [2005]125COMPCAS676(BOM), (2005)5COMPLJ215(BOM), 2005(2)MHLJ670, [2005]59SCL490(BOM)
Author: H.L. Gokhale
Bench: H.L. Gokhale, S.C. Dharmadhikari
JUDGMENT H.L. Gokhale, J.
1. Heard Mr. Subramaniam for petitioners, Mr. Bhatija for Union of India, Mr. Shah for respondent No. 2, Mr. Madan for respondent No. 4. Respondent No. 3 is served. Respondents have argued the matter without insisting on filing any reply. By consent matter is heard finally at the admission stage.
2. Second petitioner is Ruby Coach Building Company and petitioner No. 1 is its director. An amount of Rs. 3,64,78,000/-was due from the petitioners to the respondent No. 2 bank as on 26th October 2004. All avenues to recover the amount having failed, respondent No. 2 first called upon petitioners on 3rd August 2002 to clear the outstanding amount under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short Securitisation Act) and following non compliance proceeded to take possession of the secured assets under section 13(4) thereof on 6th December 2002. The property consisted of certain parcels of land situated at Marol, Mumbai as also the plant and machinery situated thereon.
3. Thereafter the respondent issued public auction notice on 19th June 2004 to hold the auction on 30th July 2004. Petitioners filed Appeal under Section 17 of the Securitisation Act to challenge the notice dated 3rd August 2002 and applied for interim stay, but that was rejected by the Debt Recovery Tribunal (DRT) on 22nd July 2004. The petitioners filed W.P. Lod. No. 2124 of 2004 to challenge the notice dated 3rd August 2002 and 19th June 2004. Therein an order was passed in terms of the minutes by Division Bench on 30th July 2004.
4. Petitioners had given an undertaking to pay the second respondent an amount of Rs. 50 lakhs on or before 15th August 2004 and the balance in monthly instalment of Rs. 30 lakhs.
Those undertakings were accepted. It was provided in the consent terms that in the event of there being default, respondent No. 2 bank shall be at liberty to proceed with the sale of the property situated at Marol, Mumbai in accordance with the provisions of the Securitisation Act. In Clause 3 of the Consent Terms it was further provided that in the event of two defaults in making payment of Rs. 30 lakhs, agency of petitioner will forthwith come to an end and respondent No. 2 will have the option to proceed with the sale of the property. Notice of further steps given earlier on 19th June 2004 was accordingly not to be acted upon.
5. Petitioners having defaulted, second respondent once again proceeded to issue sale notice which was issued on 26th October 2004 and published on 30th October 2004. The notice called upon the parties concerned to give offers to the authorised officer of the second respondent on or before 5th November 2004. It was stated that the auction/ inter se bidding will also take place at the same time when the offerers may remain present and revise their offers. On confirmation of sale, successful purchasers should deposit 25% of the amount on the spot and balance 75% within 15 days failing which the bank was to forfeit the amount paid by the purchaser. It is this notice of sale which is challenged by filing this petition on 2nd November 2004 and prayer (a) of this petition is to seek writ of certiorari or any other appropriate writ or order to set aside the notice dated 30th October 2004.
6. The appeal filed by the petitioners earlier to the D.R.T. had been numbered as Appeal No. 197 of 2004. When bids for sale were received on 5th November 2004, petitioners filed Misc. Application before D.R.T. in that pending proceeding and applied to restrain 2nd respondent bank from confirming sale of the immovable property situated at Marol. When the present writ petition was filed that application was not decided but the same came to be decided during the pendency thereof and the Misc. application came to be rejected by D.R.T. by its order dated 6th January 2005. This order has been subsequently challenged by amending the petition and by adding prayer clause (c-i) in the present petition.
7. Mr. Subramaniam, learned Counsel for petitioners has various objections with respect to the manner in which the sale has been proceeded by respondent No. 2 bank. He firstly submitted that under section 13(8) of the Securitisation Act, a valuable right is conferred on the borrower to clear the dues of the secured creditor along with cost, charges and expenses any time before the date fixed for sale or transfer and if that is so done, secured asset is not to be sold. This section 13(8) reads as follows:-
"13(8): If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset."
8. Mr. Subramaniam then referred us to the observations of the Apex Court in para 54 of the judgement rendered in the case of Mardia Chemicals Ltd. and Ors. v. Union of India and Ors. which explains this right of redemption available to a borrower under section 13(8) of this Act. This para reads as follows:-
"54. Insofar as the argument advanced on behalf of the petitioners that by virtue of the provisions contained under sub-section (4) of Section 13 the borrowers lose their right of redemption of the mortgage, in reply it is submitted that rate such a right is preserved under sub-section (8) of Section 13 of the Act. Where a borrower tenders to the creditor the amount due with costs and expenses incurred, no further steps for sale of the property are to take place. In this connection, a reference has also been made by the learned Attorney General to the decision in Narandas Karsondas v. S.A. kamtam which provides that a mortgagor can exercise his right of redemption any time until the final sale of the property by execution of a conveyance. Shri Sibal, however, submits that it is the amount due according to the secured creditor which shall have to be deposited to redeem the property. May be so, some difference regarding the amount due may be there but it cannot be said that right of redemption of property is completely lost. In cases where no such dispute is there, the right can be exercised and in other cases the question of difference in amount may be kept open and got decided before sale of property."
9. Our attention was then drawn to the Security Interest (Enforcement) Rules 2002 framed under section 38 read with section 13 of this Act. Rule 8 of these Rules provides for the procedure when sale of immovable secured asset is to be resorted to. Sub-Rule 5 of this Rule provides for four methods for executing this sale. As far as second method viz., sale by inviting tenders from public is concerned, further procedure is laid down under Rule 9 of these Rules. Mr. Subramaniam submitted that under sub-rule 5 read with sub-rule 6 of Rule 8 the authorised officer has to serve a notice of 30 days for sale of the immovable assets to the borrower. Thereafter, Rule 9(1) provides that the sale of immovable property has also not to take place before expiry of 30 days from the date public notice of sale is published in the newspapers as referred in the proviso to sub-rule 6. The relevant Rules 8(5), 8(6) and 9 read as follows:-
"8. Sale of immovable secured assets:-
(1) ...... (2) ......
(3) ...... (4) ......
(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; or
(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 thirty days for sale of the immovable secured assets, under sub-rule (5);
Provided that if the sale of such secured asset is being effected by 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 description of the immovable property to be sold, including the details of the encmbrances 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 other to judge the nature and value of the property;
(7) ......
(8) ......
(9) Time of sale, issue of sale certificate and delivery etc:-
(1) No sale of immovable property under these rules shall take place before the expiry of thirty 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 the 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;
(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, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.
(4) The balance amount of purchase price payable shall be 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 agreed 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 he thinks fit, allow the purchaser to deposit with him the money required to discharge 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 detemined by him.
(8) On such deposit of money for discharge of the encumbrances, the authorised officer may 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 delivery 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;
10. It was submitted that in the instant case no such notice as required under rule 8 (6) was given to the petitioners and the notice of sale published on 26th October 2004 was also defective, being in breach of Rule 9(1) inasmuch as though it was published on 30th October 2004, it called for the bids only by 5th November 2004. Mr. Subramaniam submitted that if the rights of the borrower as explained by the Apex Court are to be protected, it was necessary that these rules must be interpreted and enforced as they have been drafted. That alone will give an opportunity to the party concerned to redeem the property. In the present case, notice under Rule 8(6) had not been given and the sale notice dated 30th October 2004 was obviously a deficient one inasmuch as it did not provide for thirty days. These periods are provided for the borrower to have breathing time and to take necessary steps if he could prevent the sale and redeem the property which right is available to him under section 13(8) any time before the date fixed of sale or transfer. Mr. Subramaniam then submitted that in the present case although the notice required the successful bidder to deposit 25% amount forthwith and although respondent No. 4 became the successful bidder on 5th November 2004, 25% amount was not paid until 19th January 2005. The sale was however confirmed in the meanwhile by respondent No. 2 bank by issuing a letter dated 27th December 2004 which the bank could not have done. The second respondent bank had not received the money which was expected to receive within the time and still it issued the letter confirming the sale. It is much before this development that this petition has been filed on 2nd November 2004, immediately on the advertisement being printed on 30th October 2004 and even before confirmation of sale, the Miscellaneous application had been moved to the D.R.T. on 22nd December 2004. Mr. Subramaniam drew our attention to para 5.7 of this application where he pointed out that whereas successful bidder had offered Rs. 15 Crores for immovable as well as movable property, the petitioners had brought a purchaser viz., Skyline Residency Pvt. Ltd. who had offered an amount of Rs. 15.5 Crores only for the land and excluding the Plant and Machinery. He submitted that this was the aspect which ought to have been considered by the Tribunal which still proceeded to reject the Misc. application and, therefore, the petition was amended to challenge the order passed by the Tribunal as well.
11. Mr. Shah, learned Counsel appearing for respondent No. 2 bank though initially opposed prayers in the petition, on instructions stated that as far as bank is concerned, so long as it received the amount that it had claimed, it had no objection to the redemption of the property. Mr. Shah stated that the amount expected to be paid by the petitioner was Rs. 4.55 Crores. Mr. Subramaniam has tendered a pay order of Rs. 4,40,51,858/- to Mr. Shah in Court and Mr. Shah has received the same. Mr. Subramaniam then further stated that the remaining balance out of the claim of Rs. 15 lakhs, as claimed by the bank will be paid to the bank by evening by a cheque of Attorneys which will be subject to the appropriate adjustments between 2nd respondent and petitioners. Since the respondent No. 2 bank was receiving this amount Mr. Shah did not canvas any further submissions to object to the reliefs in the petition.
12. It was however, Mr. Madan, learned Counsel for respondent No. 4 who objected to the submissions raised by Mr. Subramaniam. Mr. Madan submitted that as far as both these prayers i.e. prayer (a) challenging the advertisement and prayer (c-i) challenging the order passed on the Misc. Application is concerned, petitioners had remedy under the Securitisation Act. As far as the advertisement is concerned, it is a measure under section 13(4) and therefore, an appeal is available to the petitioners under section 17 and as far as the order on the Miscellaneous application is concerned, appeal is available under section 18 to the Appellate Tribunal. Both these remedies ought to have been exhausted and this Court should not interfere. That apart, on merits Mr. Madon submitted that earlier the petitioners had consented to certain arrangements when the matter was heard and decided by this Court and thereafter they have defaulted and such a party should not be entertained any more. Answer to this submission is that in the event of default, clause 2 of the consent terms provided that necessary action was to be taken in accordance with law and, therefore, the procedure as laid down under the statute had to be followed.
13. As far as procedure under the Statute is concerned, Mr. Madon submitted that Rule 8(5) provided for various methods including sale of property by private treaty which is provided under sub-clause (d) thereof. He submitted that it is not that in every matter there should be sale through public notice and advertisement and a bank is always free to resort to any other method. Now, as far as present case is concerned, fact remains that second respondent bank has resorted to public auction. That being so, in the present case, we are concerned with what should be the correct procedure in the case of a public auction. That being so, requirement under Rule 8(6) as also 9(1) are mandatory and they are clearly not followed by the bank. This being so, entire procedure under which respondent No. 4 claims to have acquired some right, may be after depositing the amount as required belatedly, is faulty.
14. Mr. Madon submitted that the plea of redemption was not raised in the D.R.T. and was being raised for the first time in this Court. In this connection, we cannot ignore that this is a statutory right and available till sale or transfer takes place. The rights of respondent No. 4 depend upon the stand being taken by the bank. As far as bank is concerned, it is not insisting on either filing of any statutory Appeal nor it is opposed to redemption of property, since the amount is being paid to the bank. Although, the sale has been confirmed in favour of respondent No. 4, Mr. Madon does not dispute that the sale is not completed inasmuch as conveyance has not been executed between the parties. That apart, Mr. Subramaniam has pointed out that Rule 9(5) in fact provides that in the event of default of payment, the deposit made under sub-rule (4) can be forfeited and the property can be resold. In the circumstances, as of now, we do not find any rights in respondent No. 4 to oppose the prayers which are being made in this petition.
15. True it is that in the event of any measures being taken by a bank or when any order is passed by the D.R.T. an appeal ought to be preferred as provided under the statute. However, as far as the writ court is concerned, the rule of exhaustion of internal statutory remedy is a rule of self-limitation as has been stated by the Apex Court time and again. In the present case, the question was with respect to action of respondent No. 2 and whether it was in accordance with law. Prima facie, we do not find that notice of sale was in accordance with the statutory rules nor does the impugned order passed by the D.R.T. take cognisance of these breaches. In the circumstances, we allow this petition in terms of prayer clauses (a) and (c-i) though without any order for costs.
16. In view of the order passed as above, respondent No. 2 bank will return petitioners documents to the Attorneys of the petitioners and will also refund the amount of Rs. 15 Crores which has been collected from the 4th respondent within 48 hours. The amount will not carry any interest. Possession of the property concerned will be returned to the petitioners by the second respondent immediately after 48 hours. Petition disposed of.
17. Mr. Madon applies for stay of this order. Request is rejected.