Gujarat High Court
M/S Kiran Cold Storage vs The Authorised Officer, Bank Of Baroda on 19 August, 2021
Author: Vikram Nath
Bench: Vikram Nath, Biren Vaishnav
C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/LETTERS PATENT APPEAL NO. 547 of 2020
In R/SPECIAL CIVIL APPLICATION NO. 5076 of 2020
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2020
In R/LETTERS PATENT APPEAL NO. 547 of 2020
With
CIVIL APPLICATION (FOR AMENDMENT) NO. 2 of 2020
In R/LETTERS PATENT APPEAL NO. 547 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH sd/-
and
HONOURABLE MR. JUSTICE BIREN VAISHNAV sd/-
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1 Whether Reporters of Local Papers may be allowed YES
to see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S KIRAN COLD STORAGE
Versus
THE AUTHORISED OFFICER, BANK OF BARODA
==========================================================
Appearance:
MR DC DAVE, SENIOR ADVOCATE WITH MR.ADITYA J PANDYA(6991) for
the Appellant(s) No. 1,2,3,4,5,6,7,8
MR PC KAVINA, SENIOR ADVOCATE WITH MR ANIP A GANDHI(2268) for
the Respondent(s) No. 1
MR BHARAT T RAO(697) for the Respondent(s) No. 2
==========================================================
CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE
VIKRAM NATH
and
HONOURABLE MR. JUSTICE BIREN VAISHNAV
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C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021
Date : 19/08/2021
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. This Letters Patent Appeal has been filed by the original petitioners
- appellants herein assailing the order of the learned Single Judge dated 04.09.2020. By the order under challenge, the learned Single Judge dismissed the petition, confirming the order passed by the Debt Recovery Tribunal dated 21.02.2020 in Securitization Application No. 257 of 2019.
2. The facts in brief are as under:
2.1 The appellants had obtained an overdraft facility, initially of Rs. 100 lakhs from Bank of Baroda - the respondent no. 1. It was subsequently enhanced to Rs. 350 lakhs. For the said overdraft facility, the appellants had by way of security, mortgaged the cold storage unit and some residential properties by depositing title deeds.
2.2 Having defaulted on payment of interest, the appellants requested for an additional term loan in the nature of Funded Interest Term Loan (FITL) which the bank granted so as to facilitate repayment of default in interest payments of the existing overdraft account. Such term loan was for an amount of Rs. 46.60 lakhs. The bank, on the appellants' default on the FITL facility issued a notice under Section 13(2) of the SARFAESI Act calling upon the appellants to clear an outstanding amount of Rs.4,21,28,889/-. The case of the appellants before the Debt Recovery Tribunal in their challenge to the notice and the proceedings initiated under the Securitization Act was that the default under the FITL could not Page 2 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 have been used to invoke the provisions of the SARFAESI Act viz-a-viz the properties mortgaged for the overdraft facility which was initially granted. It was their case that as there was no fresh mortgage for FITL facility, such property could not have been the subject matter of recovery proceedings. The additional grounds on which the recovery proceedings were challenged before the Tribunal was for non compliance of Rule 8(5) of Security Interest (Enforcement) Rules, 2002 (for short 'the 2002 Rules').
2.3 The Tribunal by its order dated 21.02.2020 rejected the application of the appellants holding that on reading the terms and conditions of the FITL facility, it was evident that the same was a rephasement of the overdraft facility and the mortgage executed for the original overdraft facility could be treated as a continuing security as the purpose of FITL.
3. The learned Single Judge, on a challenge made to the order of the Tribunal, in para 10 of the order under challenge held as under:
"10. This takes the court to the next question as to whether FITL transaction is independent of the original transaction of over-draft facility. One crucial aspect which remains undisputed is that FITL facility was availed of by the petitioner for repayment of interest due on the over-draft facility. To that extent, undisputedly, there is an over- lapping between the two transactions. It is evident from the record that, somewhere in the year 2017, a need was felt to help loanees in distress to help them tide over the financial crisis being faced by them then; it appears that under the advise of RBI a meeting headed by Collector of Banaskantha District was held wherein certain guidelines were prescribed and the modalities for rephasement of the facilities were evolved and offered to the distressed loanees on the terms and conditions as may be agreed upon. It is unnecessary for this court to deliberate in detail on this subject; suffice it to Page 3 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 say that the petitioner seems to have made an application after the said event, to the bank pointing out his inability to repay the instalment with interest. It appears that thereafter FITL in the sum of Rs.46.00 lakhs was sanctioned and availed of by the petitioner without objecting to the offer. It thus cannot be disputed that FITL is a rephasement of original facility which facility was concededly secured. It is no doubt true that security documents other than those which secured the original loan or original facility, to secure FITL, were not executed; but certainly the security was intended as is evident by FITL agreement as also a writing, undisputedly executed by the petitioner practically adopting the security offered in the original facility as the security for the FITL."
4. On 30.09.2020, while admitting the appeal, this court passed the following order:
"1. We have heard Shri Dhaval C.Dave, the learned senior advocate, assisted by Shri Aditya Pandya, the learned counsel appearing for the appellants, Shri Anip Gandhi, the learned counsel appearing for the respondent no.1 Bank and Shri B.T.Rao, the learned counsel appearing for the respondent no.2 Caveator (auction purchaser).
2. ADMIT. Issue NOTICE.
3. Learned counsel for the respondents waive notice for respondents nos.1 and 2. As such, no notice need be issued.
4. List the matter for final disposal on 26th November 2020.
5. Shri Dhaval C. Dave, the learned Senior Advocate appearing for the appellants submitted that both the facilities of overdraft (OD) as also (Funded Interest Term Loan (FITL) were not secured by any assets. It is submitted that no security was created and as such, both the facilities being not secured, the bank could not have invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. The learned Single Judge erred in dismissing the writ petition.Page 4 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021
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6. It is also submitted by Shri Dave that although not specifically pleaded but the fact as is apparent from the records is that the valuation of the secured assets put to auction was Rs.4.72 crores in 2008 at the time of availing the loan facility. He further submits that present market value of the said immovable property put to auction would be ranging between Rs.10.00 and Rs.12.00 crores. It is also submitted that the bank has auctioned the said properties for peanuts i.e. for a value much less than what it could fetch in the open market. He also submitted that in the first auction proceedings held in August 2019, the reserved price was Rs.4.4 crores when no offers came. In the second auction proceedings held in November 2019, the reserved price was reduced to Rs.4.21 crores. Again there were no offers. In the third auction proceedings held in December 2019, the reserved price was Rs.3.57 crores. In this third auction proceedings, only one offer came that is of respondent No.2 of Rs.3.58 crores which was accepted.
7. Shri Dave further submitted that the Securitization Application was filed by the borrowers-appellants on 16-8- 2019. It was during the pendency of the Securitization Application that the bank had proceeded with the auction proceedings instead of waiting for the outcome of the Securitizaztion Application. He further submitted that the auction proceedings were continued in violation of an interim order passed by the High Court in the Special Civil Application filed by the appellants. Thus, the entire auction proceedings are a nullity. He admits that although the Special Civil Application was ultimately disposed of, but as the auction proceedings continued during the pendency of the interim order passed in the said Special Civil Application, the entire auction proceedings stand vitiated.
8. Shri Dave also offered upon instructions to deposit the entire dues of the bank amounting to Rs.4.68 crores, about Rs.1.10 crores more than what has been fetched in the auction proceedings. He also submitted that the appellants are ready and willing to suitably compensate the respondent No.2.
9. We had required Shri Dave to make a deposit of Rs.6.00 crores within a week or ten days to show the bona fide, to Page 5 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 which Shri Dave had agreed upon instructions that he would deposit Rs.1.00 crore on the next date and the remaining Rs.5.00 crores within a week. Shri Dave also stated that till date, the possession is still with the borrowers-appellants. In such circumstances, Shri Dave prayed for interim relief.
10. Shri Anip Gandhi, the learned counsel appearing for the respondent No.1-bank although opposed the grant of any interim order, but at the same time could not seriously object to the offer given by Shri Dave inasmuch as the entire bank dues were being liquidated, even the amount which could not be fetched by the impugned auction proceedings. The learned counsel further submitted that the bank did not violate any interim order and auction proceedings were in accordance with law.
11. Shri B.T.Rao, the learned counsel appearing for the respondent No.2 caveator, however, strongly objected to the grant of interim order. He submitted that the sanctity of the auction which was otherwise held in accordance with law could not be interfered with merely because there was a higher offer. He placed reliance upon the judgment of the Supreme Court in the case of Vedica Procon Private Limited Vs. Balleshwar Greens Private Limited and Others reported in (2015)10 Supreme Court Cases 94. Shri Rao further submitted that the appeal was completely bereft of merits and was liable to be dismissed at the threshold. He, however, did not dispute the facts regarding valuation and three auctions as submitted by Shri Dave, the learned Senior Advocate for the appellants, which we have recorded above. The only objection raised by Shri Rao was that these points were not pleaded. He further submitted that there is no violation of any interim order passed by the High Court. The auction proceedings were not carried out during the period of interim order. It was only after the petition was disposed of that the auction was confirmed.
12. In reply, Shri Dave submitted that he would be moving an appropriate amendment application. Although these facts were admitted to the bank also and not disputed regarding the valuation, but, still, Mr. Dave proposed to file an amendment.
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13. Considering the above facts and circumstances of the case, a prima facie case for grant of interim relief is made out.
14. As an interim measure, it is provided that till the next date of listing, the relief as claimed in paragraph 11A of the Civil Application No.1 of 2020 is granted."
5. We have heard Mr. Dhaval Dave, learned Senior Counsel assisted by Mr. Aditya Pandya, learned counsel for the appellants, Mr. P.C. Kavina, learned Senior Counsel assisted by Mr. Anip Gandhi, learned counsel representing the respondent Bank of Baroda and Mr. B.T. Rao, learned counsel appearing for the respondent auction purchaser.
6. Mr. Dhaval Dave, learned Senior Counsel made the following submissions:
(I) That the learned Single Judge committed an error in dismissing the petition despite the fact that the Tribunal itself had admittedly opined that there was no fresh mortgage for FITL facility, which was extended by the Bank. If that was the position on record, the learned Single Judge also having agreed to the findings of the Debt Recovery Tribunal, could not have dismissed the petition.
(II) That a question of law arises for the consideration of this court.
That question though not raised and decided by the Tribunal and the learned Single Judge is a question of law. He would invite the attention of the Court to the definition of the term 'security interest' in The Security and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act'). He would also rely on the provisions of Rule Page 7 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 8(5), 8(6), Rule 9(2) and the proviso thereof of the 2002 Rules to submit that there was a clear breach of such rules inasmuch as the auction of the property was much below the Fair Market Value and Realisable Market Value without the consent of the appellant - borrower. He would submit that the valuation of the property when mortgaged on 03.01.2008 was Rs.4,72,54,000/-. The two valuation reports of 25.01.2019 showed the fair market value and the realisable market value of the properties as under:
Date Particulars Value
1st Valuation report 5,06,83,000/- (FMV)
4,30,80,000/- (RMV)
25.01.2019 3,80,10,000/- (DV)
2nd Valuation report 4,91,09,250/- (FMV)
from different valuer 4,17,42,862/- (RMV)
3,43,76,475/- (DV)
The third valuation report dated 03.06.2019 showed the market value as under:
Date Particulars Value
03.06.2019 3rd Valuation report 5,06,83,000/- (FMV)
4,30,80,000/- (RMV)
3,80,10,000/- (DV)
(III) Elaborating on the above submission, it is submitted that the first auction was held on 11.07.2019 wherein the reserve price was fixed at Rs.4,41,56,000/-. The auction failed. The second auction was held in August 2019. The reserve price was fixed at Rs.4,27,00,000/- which also failed. The third auction was held on 10.12.2019, the reserve price of which was fixed at Rs.3,57,66,000/-. The property was sold to respondent no. 2 at a Page 8 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 price of Rs. 1 lakh more than the reserve price i.e. at Rs.3,58,66,000/-. He would therefore submit that when the proviso to sub-rule 2 of rule 9 is read, from the dates and the reserve prices mentioned in the valuation reports of 25.01.2019 and 03.06.2019 respectively, it is evident that the property was sold without the consent of the borrower in clear breach of the mandate of the 2002 Rules particularly proviso to Rule 9(2).
(IV) That the auction was held clearly in breach of the interim order granted by this court on 12.12.2019 when the stay therein was extended upto 08.01.2020.
(V) Finally, Mr. Dave would also submit that he has instructions to state that the offer given by the appellants as recorded in the order dated 30.09.2020 still continues and if the Court decides in favour of the appellants, the appellants would accept the amount of compensation which the Court may determine to award to the auction purchaser.
7. Mr. P.C. Kavina, learned Senior Advocate assisted by Mr. Anip Gandhi for the Bank made the following submissions:
(a) That the valuation report is no yardstick for judging the validity of an auction sale. The very purpose of resorting to the provisions of the SARFAESI Act was to see that there is an expeditious mechanism evolved so that the outstanding dues of the Bank are realised. That it is not open for a defaulter to come forth at a later stage especially in view of the amendment to Section 13(8) of the Act and offer to settle the bank dues. That option after the Page 9 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 amendment stood extinguished at the date of publication of notice of public auction.
(b) That but for the default of payment of interest outstanding on the overdraft, the bank could not have extended FITL facility and therefore it could not be said that the mortgage deed executed for the overdraft was not binding on the borrower.
(c) Attention of the court has been drawn to the Reserve Bank of India (RBI) circulars which provided that the facility of FITL was nothing but a mode of restructuring of existing loans when the Bank's were instructed on not to insist for additional collateral security.
(d) That no submissions with regard to breach of Rule 9 of the 2002 Rules as raised by the learned counsel for the appellants were ever raised before the DRT as well as the learned Single Judge.
(e) That so far as Mr. Dave's submission on breach of Rule 9(2) is concerned, it is submitted that when the successive auctions fail, the Bank is left with no option but to sell/auction the property as a distress sale. The borrower was given 15 days' notice as required under the proviso to sub-rule (1) of Rule 9 of the 2002 Rules. Mr. Kavina would further rely on the guidelines of the Bank to submit that the instructions of the Bank are that at a succeeding auction preceding an unsuccessful one, it is open for the Bank to reduce the auction reserve price. It was in accordance with this policy guideline that in the two successive auctions, there was a lower reserve price by 10%. Mr. Kavina would submit that what was Page 10 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 material was the reserve price fixed at the auction at the relevant time and not the price at the preceding auctions which had failed.
The Bank in the third auction had sold the property at a price higher than the reserve price.
(f) As far the contention of Mr. Dave regarding breach of the stay order, Mr. Kavina would submit that as rightly observed by the Tribunal in noting the contentions of the Bank, only one bidder had come for the auction which was held on 10.12.2019. The auction purchaser - respondent no. 2 had deposited a sum of Rs. 35,77,000/- on 09.12.2019 and Rs. 54,80,000/- on 11.12.2019. This court granted an interim relief on 12.12.2019 staying the auction till 20.12.2019. Thus, for a period from 12.12.2019 to 20.12.2019 the stay operated. The petition was disposed of on the first date. Since the Debt Recovery Tribunal could not comply with the directions, a Misc. Civil Application for extension was moved wherein on 24.12.2020 the interim stay was extended till 08.01.2020. These orders were ex-parte. The entire remaining sale consideration was deposited by the borrower on 27.12.2019. The bank appropriated the same on 07.02.2020.
8. Mr. B.T. Rao, learned advocate appearing for the auction purchaser
- respondent no. 2 would invite the court's attention as also done by the learned counsel for the bank to the provisions of the RBI circular, particularly clause 5.2.1 thereof, which provided that credit should not be denied merely for want of additional fresh security, particularly when in the facts of this case the loan was extended for restructuring of account as a result of the loss to the farmers and decline in the production of potatoes. He would submit that the Bank vide sanction letter dated Page 11 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 15.12.2017 granted FITL and rephased the interest component of the credit facility of Rs.350 lakhs. That all the benefits though were granted by the bank, the appellants failed to repay the amount. Drawing the court's attention to the findings of the Debt Recovery Tribunal in para 12, Mr. Rao submitted that the Tribunal rightly held that the purpose of the circulars was not to give any separate loan but to extend co-operation to facilitate payment of overdue interest of the existing loan.
8.1 The Tribunal's order was extensively read by Mr. Rao to submit that there was a restrictive challenge upto Rule 8(1) of the 2002 Rules. He would submit that the Tribunal has extensively considered the submissions of the appellants in context of the Rules and also in context of the submission that the FITL was a separate transaction and the Tribunal has not committed any error. The learned Single Judge having confirmed the order of the Tribunal, in exercise of appellate jurisdiction, this court ought not disturb the findings of the Tribunal so confirmed by the learned Single Judge.
8.2 Mr. Rao would further submit that merely because the property had been sold at a price lower than the sale price, that would not by itself invalidate the sale as the legal position is very clear that mere higher offer at a belated stage is no ground for refusing confirmation of sale. In support of this submission, Mr. Rao would rely on a decision of the Apex Court in the case of M/s. Navalkha And Sons vs. Shri Ramanya Das and Others [1969 (3) SCC 537] para 6 thereof. He would also rely on the decision in the case of Vedica Procon Private Limited vs. Balleshwar Greens Private Limited and Others [(2015) 10 SCC 94] particularly paras 36 to 40, 44 and 47 thereof.
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9. Having considered the submissions of learned advocates for the parties, the questions that need consideration before this Court are two in number:
(a) Whether the FITL facility was a separate loan incident
(b) Whether the sale/auction of the property at the sale price of Rs.3,57,66,000/- was in violation of Rule 9(2) read with the proviso thereunder.
(c) Whether it is open for the defaulter to offer a higher price for the property put in auction, post the date of publication of the auction notice as was so offered and so recorded in our order while admitting the appeal.
9.1 To answer the first question as to whether the FITL facility was a separate loan incident, the following aspects are considered:
(i) The Bank's letter dated 23.12.2008 sanctioning the overdraft facility at an enhanced rate is on record. The appellants had offered the land of the cold storage and other agricultural lands as collateral security.
(ii) On 13.12.2017, the appellants requested the Bank for restructuring of loan as they were not in a position to pay the instalments and accrued interest.
(iii) As per the Special DCC Meeting held on relief measures for areas affected by natural calamities, a proposal was formulated by the Bank for a term loan of Rs.46.60 lakhs. The proposal clearly mentioned that the existing documents offered as security would enure for the FITL.
Therefore, the FITL was a rephasement of an existing loan. The terms Page 13 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 and conditions particularly Term No. 3 and 4 clearly provided that the documents executed are to be treated as a continuing security. The same are reproduced hereinbelow:
"3. The documents executed in favour of the Bank on conversion/rephasement of the aforesaid facility are to be treated as a continuing security for the borrowing arrangements already availed by the borrower and that the borrowing arrangement as per original sanction is not to be considered as closed and security created under the earlier documents is not to be considered as exhausted by execution of fresh documents and these presents by the Borrower in favour of the Bank.
4. The Term and Conditions of the Original Sanction will remain unchanged."
(iv) The agreement signed by the appellant was an "Agreement for Rephasement of Loan". The agreement clearly indicated the same mode of security i.e. Mortgage of cold storage and agricultural land. It was in this context that the Tribunal on reading the terms and conditions and the object of the FITL facility held that the FITL is directly linked with the credit facility already granted. The Tribunal further held that the purpose was not to give a separate loan but was to facilitate the borrower payment of overdue interest on the terms of the original sanction. The Tribunal, therefore, held that since the real intention of the parties as gathered from the documents was that both the loans were covered by the mortgage already created, FITL had no independent existence.
9.2 We, on our independent assessment of the documents on record find that the FITL facility was only a mode of restructuring and rephasement of the existing credit facility and the mortgage deed offered as security for the credit facility continued as security for the facility of Page 14 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 FITL and that it was not a fresh loan. The concurrent findings arrived at by the learned Single Judge confirming the findings of the Debt Recovery Tribunal cannot be therefore faulted. Thus, question (a) stands answered accordingly.
10. That brings us to question (b) which is a challenge raised for the first time regarding the violation of Rule 9(2) and its provisions read with provisions of Rule 8(5) of the 2002 Rules. Perusal of the records, particularly the reply of the Bank, filed before the Tribunal indicate that the Bank had categorically denied the allegations made regarding valuation and fixation of reserve price. The violation of Rules 8 & 9 was denied. The Bank in its reply noted that the auction conducted on 10.12.2019 was the third attempt. The copies of the e-auction notice dated 18.11.2019 along with dispatch proof and acknowledgements were produced on record. Even the case of the Bank that therefore there is compliance of Rule 9(1) of the 2002 Rules is not denied or disputed by the appellant either before the Tribunal or the learned Single Judge or before us. In fact, the contention of violation of Rule 9(2) and its provisos was not even raised before the Tribunal.
10.1 Rule 8(5) read with Rule 9(2) and proviso thereof of the 2002 Rules are reproduced hereunder for a ready reference:
"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:--Page 15 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021
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(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.
9. Time of sale, issues of sale certificate and delivery of possession, etc.--
(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."
[Emphasis Supplied]
10.2 Reading of Rule 9(2) of the 2002 Rules and its provisos would indicate that a sale shall be confirmed in favour of a purchaser who has offered the highest sale price in the bid. The sale shall not be confirmed if the amount offered by sale price is less than the reserve price and that the sale at a lower price ought not be confirmed without the consent of the borrower. Mr. Dave's contention is that the first auction price was Rs.4,41,56,000/-. The second auction price was at Rs.3,97,40,000/- and the auction price of the third auction at Rs.3,57,66,000/- showed reduction of the auction price done without the consent of the borrower and therefore such an exercise vitiated the third auction. We do not agree to this submission. Rule 8(5) provides that before affecting a sale the Page 16 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 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 one of the methods laid down therein. In the present case, the authorized officer had obtained multiple valuation reports on 25.01.2019 and 03.06.2019. The reserve price fixed for the first auction was Rs.4,41,56,000/-. The auction failed. At the second auction, the reserve price was fixed at Rs.3,97,40,000/- which auction also failed. A third auction was held at a reserve price of Rs.3,57,66,000/-. The auction was successful in favour of respondent no. 2 who paid Rs.3,58,66,000/-, a lakh of rupees more than the reserve price. The sale was therefore at a price higher than the reserve price fixed at the auction. Reduction or lowering of sale prices at successive auctions cannot be termed as a reduction or sale at a price lower than the reserve price as contemplated in the proviso to Rule 9(2). The third auction was a sale instance independent of the previous two. The borrower was given fifteen days' notice of that subsequent sale. No objection was lodged by the appellant - borrower. The sale price was fixed at Rs.3,57,66,000/-. The sale price received was Rs.3,58,66,000/- which was more than the reserve price. Admittedly, therefore, there is no violation of Rule 9(2) and its provisos.
11. With regard to question (c), having recorded a statement of Shri Dave, learned Senior Counsel on instructions that the defaulter is willing to liquidate the damages by paying Rs.4.68 crores i.e. about more than what has been fetched in the auction proceedings, we cannot accept the offer of an amount more than the amount fetched at the auction proceedings. The subsequent offer of the borrower before this Court to repay the outstanding loan and suitably compensate the auction purchaser cannot deserve acceptance. The tender of the amount of dues of the Page 17 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 secured creditor together with all costs, charges and expenses has to be to the secured creditor at any time before the date of publication of notice for public auction, in consonance with the legal position as envisaged under Section 13(8) of the SARFAESI Act. The offer made thereafter is clearly an afterthought. The judgement of the Apex Court in the case of Vedica Procon Private Limited in paras 36 to 40 squarely apply to the facts of this case. Paragraphs no. 36 to 40 read as under:
"36. In the process, this Court indicated the principles governing the confirmation of sales conducted by the Company Courts by the official liquidators.Page 18 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021
C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 "6. The principles which should govern confirmation of sales are well- established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offeror does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. S. Sriman Kanthimathinatha Pillai, AIR 1921 Mad 286, it was observed that where the property is authorised to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed 'is the best that could be expected to be offered. That is because the Court is the custodian of the interests of the Company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the Company and its creditors as well. This principle was followed in Rathnaswami Pillai v. Sadapathi Pillai, AIR 1925 Mad 318 and S. Soundajan v. M/s. Roshan & Co., AIR 1940 Mad 42. In A. Subbaraya Mudaliar v.
K.Sundarajan, A.I.R. 1951 Mad 1986, it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction, is an adequate price even though there is no suggestion of irregularity or fraud. It is well to bear in mind the other principle which is equally well- settled namely that once the court comes to the conclusion that the price offered is adequate, no subsequent Page 19 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan & Co's case)."
37. Divya Manufacturing Company (P) Ltd. v. Union Bank of India & Others, (2000) 6 SCC 69 was a case where the assets of the company in liquidation were sold in favour of the appellant before this court and the sale was confirmed by the Company Court. Within a week thereafter, an application came to be filed by one of the participants in the auction proceedings praying that the order of confirmation be recalled and the applicant was willing to offer an amount higher than what was offered by the appellant before this Court. Subsequently, more number of applications came to be filed before the Court offering higher amounts. Therefore, the Company Court recalled the order confirming the sale. Hence, the appeal before this Court.
38. This Court, while reiterating the principles laid down in Navalkha case (supra), declined to interfere with the order of the court and held as follows:
"16. ....As stated above, neither the possession of the property nor the sale deed was executed in favour of the appellant. The offer of Rs.1.30 crore is totally inadequate in comparison to the offer of Rs.2 crores and in case where such higher price is offered, it would be in the interest of the Company and its creditors to set aside the sale. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in Court precincts and not by a business house well versed with the market forces and price. Confirmation of the sale by a Court at a grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time."Page 20 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021
C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021
39. We cannot help pointing out that their Lordships came to such a conclusion placing reliance on para 6 of Navalkha case (supra). Their Lordships failed to take note of the last sentence of the paragraph but placed reliance on the penultimate sentence of the paragraph. No doubt, the penultimate statement of the paragraph recognises the discretion of the Company Court either for accepting or refusing the highest bid at the auction, it also emphasizes the obligation of the Court to see that the price fixed at the auction is adequate price even though there is no irregularity or fraud in the conduct of the sale. However, the penultimate sentence restricts the scope of such discretion in the following words:
"6. .....It is well to bear in mind the other principle which is equally well- settled namely that once the court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan & Co's case."
40. In other words, in Navalkha case, this Court only recognized the existence of the discretion in the Company Court either to accept or reject the highest bid before an order of confirmation of the sale is made. This Court also emphasized that it is equally a well-settled principle that once the Company Court recorded its conclusion that the price is adequate, subsequent higher offer cannot be a ground for refusing confirmation."
12. So far as the submission of learned advocate for the appellants, that the sale is in violation of the stay orders of this Court in Special Civil Application No. 22118 of 2019 filed by the appellant, the same cannot hold ground. The sale cannot be said to be in violation of the stay orders of this Court in Special Civil Application No. 22118 of 2019. The auction purchaser had deposited the first tranche of the sale consideration before the order of this Court on 11.12.2019. The stay was in operation till 20.12.2019. By an order dated 24.12.2019, the stay was extended till 08.01.2020. The balance deposit was made on 27.12.2019 and the entire Page 21 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021 C/LPA/547/2020 CAV JUDGMENT DATED: 19/08/2021 amount was appropriated by the Bank on 07.02.2020 and a possession notice was issued on the same date. The auction proceedings cannot be held to be a nullity as between 12.12.2019 and 24.12.2019 there was a stay. The auction purchaser had pursuant to the auction on 10.12.2019 deposited 25% of the sale consideration on 11.12.2019 and the balance on 27.12.2019 after the petition was disposed of.
13. For the aforesaid reasons, we find no infirmity in the order of the learned Single Judge dated 04.09.2020 confirming the order passed by the Debt Recovery Tribunal dated 21.02.2020. Accordingly, the appeal is dismissed. The interim relief granted by this court vide order dated 30.09.2020 stands vacated. No order as to costs. Applications also stand disposed of.
(VIKRAM NATH, CJ) (BIREN VAISHNAV, J) After the judgement was pronounced, Mr. Dhaval Dave, learned Senior Counsel appearing for the appellants requested for continuance of the interim relief for a further period of four weeks to enable the appellants to avail further remedy. In view of the findings recorded by us, we do not find any good reason to grant the indulgence. Request is rejected.
(VIKRAM NATH, CJ) (BIREN VAISHNAV, J) DIVYA Page 22 of 22 Downloaded on : Sat Aug 21 00:49:13 IST 2021