Madras High Court
A.Varalakshmi vs The Chief Manager on 3 July, 2012
Author: D.Murugesan
Bench: D.Murugesan, K.K.Sasidharan
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 03.07.2012
CORAM
THE HONOURABLE MR.JUSTICE D.MURUGESAN
AND
THE HONOURABLE MR.JUSTICE K.K.SASIDHARAN
W.P.No.13428 of 2011
A.Varalakshmi .. Petitioner
-vs-
1. The Chief Manager
Punjab National Bank
Asset Recovery Management Branch (ARMB)
Khivraj Buildings, First Floor
634, Anna Salai
Chennai 600 006
2. Mrs.Rekha Dave .. Respondents
Petition under Article 226 of The Constitution of India, praying for the issue of Writ of Declaration, declaring that the sale of the petitioner's property located at 10/1A3, Old No.3, Montieth Road, Egmore, Chennai referred to in the 1st respondent's Letter dt. 2.5.11 is unconstitutional, illegal and ultra vires the Act and Rules and consequently direct the Bank to act only in accordance with the SARFAESI Act and Rules.
For Petitioner :: Mr.Srinath Sridevan
For Respondents :: Mr.V.Girish Kumar for R1
Mr.Jeyesh B.Dolia for
M/s Aiyar & Dolia for R2
ORDER
D.MURUGESAN, J.
The instant writ petition raises the following questions:-
(1)Whether in terms of the second proviso to sub-rule (2) of Rule 9 of the Security Interest (Enforcement) Rules, 2002, the secured creditor could sell the secured asset below the reserve price mentioned in the sale notice without the consent of the borrower/guarantor?
(2)In the event the secured creditor obtains the consent of the borrower/guarantor to sell the secured asset for a price less than the reserve price, whether such consent would entitle the secured creditor to sell the secured asset by private treaty without following the conditions enumerated under the proviso to sub-rule (6) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?
(3)Whether the secured creditor could sell the secured asset by private treaty without there being a settlement containing terms between the borrower/guarantor in writing in terms of sub-rule (8) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?
2. The facts giving rise to the above questions, in a nutshell, are as follows. The first respondent-Punjab National Bank (for short, the Bank) advanced certain loan facilities to various wine shops, namely, M/s Eswari Wines, Mahalakshmi Wines, Nanda Wines, Highway Wines, Raj Wines, Mini Pak Wines, Sri Easwari Wines, Annai Wines, Olympic Wines, Sri Sakthi Wines and Sri Balaji Wines during the year 1999, as the retail sale of Indian Made Foreign Liquor was allowed to individuals under licence as per the then policy of the Government, and the petitioner and her husband stood as guarantors for those loan facilities and the petitioner had offered the subject secured asset as a collateral security. Subsequently, the Government changed the policy and imposed a prohibition on the grant of licences to private individuals for the purpose of retail selling of Indian Made Foreign Liquor. By that policy, the licences granted to those individuals earlier ceased to operate and the rights came to be vested with the State Government run Corporation, namely, Tamil Nadu State Marketing Corporation Limited. In view of the above, the borrowers could not repay the loan amounts. Without the consent of the petitioner, guarantees were extended after the change of policy knowing fully well that the borrowers would not be in a position to repay the loan in view of the closure of business.
3. As the borrowers had not repaid the loan amounts, the Bank filed O.A.No.213 of 2004, impleading the individual borrowers as well as the petitioner and her husband, for recovery of a sum of Rs.2,05,52,585.25 together with further interest at the rate of 19 percent per annum from 8.7.2004 till the date of re-payment. The said O.A. was defended by the petitioner among others by filing a written statement and inter alia contending that the guarantees stood discharged for renewal of the facilities without the consent of the guarantor. While the said O.A. was pending, the Bank invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) and issued a notice dated 15.12.2004 under Section 13(2) to the petitioner demanding the payment of unpaid loan amount within a period of sixty days. Though the petitioner sent an elaborate reply, the Bank failed to consider the same and issued the notice dated 22.3.2005 under Section 13(4) and took symbolic possession of the secured asset on 24.7.2008. After the symbolic possession was taken, the Bank issued the sale notice, which was questioned by the husband of the petitioner before the Debts Recovery Tribunal-I in S.A.No.62 of 2009. The said sale notice was finally set aside by the Tribunal. Thereafter, the Bank again issued another sale notice dated 21.7.2009. Challenging the said notice, the petitioner filed S.A.No.171 of 2009 before the very same Tribunal and obtained an interim order of stay. In view of the grant of stay, the Bank withdrew the sale notice. Since the sale notice was withdrawn by the Bank, the petitioner also withdrew the S.A.No.171 of 2009.
4. Subsequently, the Bank issued another sale notice dated 16.4.2010. The petitioner along with her husband questioned the said sale notice also by filing S.A.No.130 of 2010 before the very same Tribunal and obtained an interim order of stay of confirmation of sale on 20.5.2010. Thereafter, the Bank issued yet another sale notice dated 28.5.2010 by fixing the reserve price at Rs.23 lakhs in respect of the secured asset of the petitioner which was given as security. The sale could not be held on the fixed date for want of bidders. Hence, the Bank sent the communication dated 27.7.2010 to the petitioner, which reads as follows:-
The possession of the schedule mentioned mortgaged property (secured asset) was taken on 24.07.2008 in terms of the powers conferred under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the rules framed thereunder. The said secured asset was brought for public auction by inviting tenders on various dates the last being done on 2.7.2010 with a reserve price of Rs.23.00 lakh. However, there were no bidders.
The undersigned hereby calls upon you to bring bidder/offer to purchase the property at the reserve price fixed i.e.Rs.23.00 lacs or in the alternative to express your consent for sale of the secured asset for less than the reserve price fixed. If the undersigned does not receive either of these within 15 days from this day, it would be assumed that you have no better offer to bring and it shall be deemed that you have consented for the sale of the secured asset for an amount less than the reserve price of Rs.23.00 lacs which was fixed earlier.
Schedule All that piece and parcel of land and shop situated at No.10/1A3, Montieth Road, Egmore, Chennai-8 belonging to Mrs.A.Varalakshmi (entire description of the property as given in our Auction Notice dt.28.05.2010. 4(A). In response to the said communication, the petitioner sent the reply dated 13.8.2010 to the Authorised Officer of the Bank, which reads as follows:-
With reference to the above mentioned letter, we wish to inform you that the said property mentioned by you and to bring you an offer for the sale of the property, I would like to enumerate the following points:-
1.The absence of a bidder is because you have not put up or taken due care to publish the contents of your intention for the said property. Hence the reason for no bidders of the same.
2.If you attempt to sell the property less than the reserve price of Rs.23,00,000/-, it would be disputed by me in a legal manner in the Court. There is already an order from the Hon'ble DRT-I. Any further action taken by you without my knowledge would be challenged appropriately by me in a legal manner.
5. It is the case of the petitioner that in spite of the said reply, the Bank sent the communication dated 2.5.2011, whereby and whereunder the Bank informed the petitioner that the secured asset had been sold for a sum of Rs.21 lakhs in favour of Mrs.Rekha Dave, the second respondent in the writ petition by way of private treaty. For completion of facts, it can be also pointed out that, alleging in utter disobedience of the interim order of stay granted by the Debts Recovery Tribunal on 20.5.2010 the Bank had issued a further sale notice and also sold the property through private treaty, the petitioner also filed an application before the Debts Recovery Tribunal against the Bank for contempt.
6. In the above factual scenario, the petitioner has come forward with the present writ petition seeking for a Writ of Declaration, declaring the sale of the petitioner's property situate at Door No.10/1A3, Old No.3, Montieth Road, Egmore, Chennai is unconstitutional, illegal and ultra vires of the SARFAESI Act and the Rules made thereunder.
7. In support of the petition, Mr.Srinath Sridevan, learned counsel for the petitioner argued that the sale in favour of the second respondent by the Bank through private treaty, as communicated in their letter dated 2.5.2011, is contrary to sub-rule (6) and sub-rule (8) of Rule 8. In any event, in terms of the proviso to sub-rule (2) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 (for short, the Rules), the Bank cannot reduce the reserve price and sell the secured asset without the consent of the guarantor.
8. In response to the above case of the petitioner, the Bank in the counter affidavit, after narrating the extension of loan facilities to various individuals, has stated that the petitioner stood as guarantor for the loan availed by various individuals and as the loan agreements are subsisting, the Bank is entitled to recover the unpaid loan amount equally from the guarantor like the petitioner by invoking the provisions of the SARFAESI Act. It is further stated that though the Debts Recovery Tribunal granted interim stay in S.A.No.62 of 2009 on condition of the petitioner paying 20 percent of the amount claimed in two instalments, the said condition was not complied with and the stay became inoperative. Nevertheless, by the time the date fixed for the sale was over, further sale notices were issued. Each time when the sale notice was issued, the petitioner had approached the Tribunal by questioning the sale notice and thereby effectively prevented the sale to take place. For that reason only, the Bank was compelled to issue number of sale notices and in the last sale notice dated 28.5.2010, the reserve price was fixed at Rs.23 lakhs. Even then, there were no bidders and therefore the Bank informed the petitioner to bring bidder/offer to purchase the secured asset at the reserve price fixed at Rs.23 lakhs in their communication dated 27.7.2010. The Bank also gave an option to the petitioner-guarantor to express her consent for sale of the secured asset for a price less than the reserve price already fixed by the Bank. Though a reply dated 13.8.2010 was sent by the petitioner, the petitioner had only disputed the fact that there were no bidders in the earlier auction and that the petitioner also informed the Bank that if the Bank attempted to sell the secured asset less than the reserve price, it would be disputed in a legal manner in the Court. Only under the said circumstance, the Bank had no other option except to sell the secured asset in question by way of private treaty to the second respondent herein. The factum of such sale has been communicated to the petitioner vide the letter of the Bank dated 2.5.2011.
9. In support of the above contentions of the Bank, Mr.V.Girish Kumar, learned counsel has submitted that the Bank has strictly complied with the provisions of Rule 8(5)(b) and 9 of the Rules. According to the learned counsel, the intention of the petitioner is only to drag on the proceedings, whereby huge amounts availed by various individuals to run their business had been locked and the Bank was unable to realize the monies in spite of number of sale notices having been issued. As those notices were questioned by the petitioner before the Debts Recovery Tribunal and she also obtained interim order of stay, the Bank had no other option except to reduce the reserve price, as there were no bidders for that price, and sold the secured asset by way of private treaty. According to the learned counsel, there is absolutely no infirmity in the procedure adopted by the Bank in selling the secured asset by private treaty, as the said sale is in conformity with the Rules.
10. We have considered the respective averments and the rival contentions made by the learned counsel on either side. For determining the questions raised in the writ petition, we may refer to the relevant provisions of the SARFAESI Act. Chapter III of the SARFAESI Act deals with the enforcement of security interest. In the event any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured credit as non-performing asset, then, the secured creditor may issue a notice under Section 13(2) in writing requiring the borrower to discharge in full his liabilities to the secured creditor within sixty days from the date of notice. In the event the borrower fails to discharge the liability in full the amount demanded in the Section 13(2) notice within the stipulated period, the secured creditor may take measures to take possession of the secured asset of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. The secured creditor is also entitled to take over the management of the business of the borrower. After the receipt of notice under Section 13(2), the borrower has an opportunity to make representation/objection to Section 13(2) notice in terms of Section 13(3A), and if the representation/objection is not acceptable or tenable, the Bank shall communicate within one week from the date of receipt of such representation/objection the reasons for non acceptance of the representation/objection to the borrower.
11. For regulating the procedure for recovery, the Central Government is empowered to make Rules in terms of Section 38. By virtue of that provision, the Security Interest (Enforcement) Rules, 2002 were made. For the purpose of sale of immovable properties, the compliance of the provisions of Rules 8 & 9 of the Rules are mandatory and the same read as under:-
8. Sale of immovable secured assets.--(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
(2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer.
(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property.
(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
(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 encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the secured creditor;
(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property.
(7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web-site of the secured creditor on the Internet.
(8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
9. Time of sale, issue of sale certificate and delivery of possession, 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 to the borrower.
(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9:
Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.
(3) to (10)........
12. Point Nos.(1) & (2): Incidentally, before a discussion on the points in issue, we may mention that the liabilities of the borrower and the guarantor are co-extensive and in that sense, the secured creditor may proceed against the secured asset of the guarantor as well. In this context, we may refer to the definition of borrower under Section 2(1)(f) of the SARFAESI Act as meaning, any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance. Hence, the borrower includes the guarantor as well. The very same view has been taken by the Division Bench of this Court in W.P.No.17016 of 2009 dated 16.6.2010 (Indian Bank v. Debts Recovery Appellate Tribunal and others).
13. Before we consider the grievance espoused by the petitioner and the response of the Bank, we may refer to the objects of the SARFAESI Act in nutshell. SARFAESI Act and the Rules made thereunder have provided for a speedier and more efficacious remedy to the secured creditors coming within the purview of the Act to realize the debts by sale of the secured asset. Even though the avowed intention is to ensure speedy recovery, SARFAESI Act and the Rules have laid down several procedural safeguards obviously with a view to ensure that there is no abuse of the power conferred under the Act and the Rules and to provide a modicum of protection to the borrowers or the person whose properties are sold. In tune with the above object, the right of the secured creditor to resort to the provisions of SARFAESI Act would arise only in the event where any borrower, who is under liability to a secured creditor under a security agreement, makes any default in payment of a secured debt or any instalment thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset. In the event of failure by the borrower to discharge in full the liabilities within sixty days from the date of the notice under section 13(2) and the representation or objection, if any made under section 13(3A), was not accepted by the secured creditor and a communication of the conclusion was also made to the borrower, then the secured creditor may take recourse to one or more of the following measures in terms of Section 13(4) of the Act viz., (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (c) appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor; and (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. The secured creditor may also approach the Chief Metropolitan Magistrate / District Magistrate for assistance in taking possession of the secured assets as provided under section 14 of the Act.
14. Thus, under the scheme of Chapter III relating to enforcement of security interest, the borrower has only an opportunity to make representation or objection in terms of sub-section (3A) of section 13 and even such representation or objection is not accepted by the secured creditor, the borrower has no right even to challenge the same in view of the proviso to Section 13(3A). On the other hand, in the event of failure of the borrower to comply with the notice under Section 13(2), the secured creditor can resort to the provision of Section 13(4) for taking possession and the right to make any appeal in exercise of the power under Section 17 would be available to the borrower only after the proceedings under Section 13(4). Even when the secured creditor takes up symbolic possession under Section 13(4), it could move the District Magistrate/Chief Metropolitan Magistrate under Section 14 for a direction to appoint an Advocate Commissioner, who shall be entitled to take physical possession. As the act of District Magistrate/Chief Metropolitan Magistrate is only ministerial, no adjudication is contemplated under Section 14 and even the borrrower or the guarantor, as the case may be, is not entitled to a notice. Of course, these provisions are intended to speedy recovery of security interest. In this backdrop, strict compliance of each provision assumes importance.
15. As regards the Rules framed under the Act, in case of immovable secured assets, Rule 8(1) contemplates that the authorised officer shall take or cause to be taken possession by delivering a possession notice prepared as nearly as possible in Appendix IV to the Rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. Sub-rule (2) of Rule 8 contemplates that the authorised officer shall publish the possession notice referred to in sub-rule (1) in two leading newspapers, one in vernacular language having sufficient circulation in that locality and so on. These are all certain provisions whereby the borrower and the general public are put on notice by the authorised officer for having taken possession. The provisions of the Rules contemplate the procedure for issuance of demand notice, procedure to be followed after issue of notice, valuation of movable secured assets, sale of movable assets and issue of certificate of sale.
16. The above discussion on both the provisions of the Act and the corresponding Rules relating to taking over possession of immovable property would undoubtedly show that the secured creditor cannot deviate from the above procedures.
17. In the given case, though the auction was notified at least on three occasions, the fact remains that the sale could not take place for some reason or other, be it whether due to the pendency of the Sarfaesi appeal before the Debts Recovery Tribunal at the instance of the petitioner or whether there were no bidders. The sale notice dated 28.5.2010 shows that the reserve price was fixed at Rs.23 lakhs and whereas, by the communication of the Bank dated 2.5.2011, the secured asset was sold for Rs.21 lakhs, which is less than the reserve price and that too by way of private treaty. In these circumstances, the questions raised in the writ petition must be considered and answered and we do so accordingly.
18. Once the possession of the secured asset has been taken by virtue of the provisions of the SARFAESI Act, in terms of sub-rule (5) of Rule 8 of the Rules, 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 the immovable secured asset by any of the following four methods viz., (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. Sub-rule (5) of Rule 8 refers to effecting of sale of immovable property as contemplated in sub-rule (1) of Rule 9 of the Rules. Sub-rule (1) of Rule 9 provides that 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 to the borrower. Rule 9(1) refers to the proviso to sub-rule (6) of Rule 8, where it states 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 encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property.
19. A combined reading of the above provisions would show that in the event the authorised officer intends to sell the secured asset by inviting tenders from the public in terms of sub-rule (5)(b) of Rule 8 or by holding public auction in terms of sub-rule (5)(c) of Rule 8, he 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 as indicated earlier in terms of the proviso to sub-rule (6) of Rule 8. This provision is intended for the purpose that when the sale is to be effected by inviting tenders from the public by holding public auction, the public must be made aware of the description of the immovable property, the details of the encumbrances, the secured debt for recovery of which the property is to be sold, reserve price, time and place of public auction, deposit of earnest money and other conditions which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the secured asset. The said proviso to sub-rule (6) of Rule 8 is mandatory in the event the authorised officer intends to sell the secured asset by inviting tenders from the public by holding public auction. One more condition for such sale is that in terms of Rule 9(1), no sale of immovable property shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers by virtue of the proviso to sub-rule (6) or notice of sale is served to the borrower. To this extent, there is no dispute.
20. However, in the event the authorised officer intends to sell the secured asset by the above two methods by fixing the reserve price and if he fails to obtain a price higher than the reserve price, he shall effect the sale at such price which is consented by the borrower in terms of the second proviso to Rule 9(2) of the Rules. The authorised officer has two options. In the event the authorised officer fails to obtain a price higher than the reserve price and in the event the consent of the borrower is obtained, he can sell the secured asset at such price for which the borrower has consented by following the procedure enumerated in sub-rule (5)(b) and (c) as well as sub-rule (6) of Rule 8. The consequential question would be in the event the consent of the borrower could not be obtained, namely, when the borrower refuses to give consent, what would be the procedure to be adopted by the authorised officer? In the event no consent could be obtained, he cannot resort to sell the property either by obtaining quotations or by private treaty and has no other option except to resort to sale by public tenders or public auction. In this context, a reference also can be made to the first proviso to Rule 9(2) of the Rules providing that no sale under the 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. Only for that reason, the second proviso requiring the consent of the borrower has been made. This issue will be considered in point no.(3). As far as the first question is concerned, in the event the authorised officer fails to obtain a price higher than the reserve price, he cannot sell the secured asset for a lesser price than the reserve price without the consent of the borrower. The said issue came up for consideration before a Division Bench of this Court in K.Raamaselvam and others v. Indian Overseas Bank, Aminjikarai Branch and another, AIR 2010 Madras 93, where the Division Bench held as follows:-
"12....It is crystal clear from the present stand taken by the borrower that there is no consent for confirmation of such sale. As a matter of fact, the Authorised Officer has never bothered to find out from the borrower whether he was willing that the sale should be confirmed, despite the fact that the Authorised Officer had failed to obtain a price higher than the reserve price.
14. We do not think that in view of the clear language in the second proviso, such a contention can ever be countenanced. In fact, the first and second provisos contemplate the situation that if the bid amount is less than the reserve price, such a position is covered by the first proviso and if the bid amount is more than the reserve price, the situation is contemplated in the main provision. However, if the Authorized Officer fails to obtain the price higher than the reserve price, with the consent of the borrower, the sale may be confirmed only after the borrower and the secured creditor give their consent. By no stretch of imagination, it could be construed that even if the Authorised Officer fails to obtain price higher than the reserve price, he may, confirm the sale without obtaining any consent from the borrower or from the secured creditor."
Point Nos.(1) and (2) are answered accordingly.
21. Point No.(3): This question relates to a situation when the borrower refuses to give consent to the authorised officer to sell the secured asset for less than the reserve price and the authorised officer decides to sell the secured asset by private treaty. The power of the authorised officer to sell the secured asset by private treaty is beyond dispute, as it is one of the methods contemplated for sale of immovable property in terms of Rule 8(5) of the Rules. However, in the event the authorised officer decides to sell the secured asset by private treaty, such sale should be strictly in conformity with Rule 8(8) of the Rules. The said sub-rule states that sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. When this rule mentions the sale by any methods other than public auction or public tender, it conveys two things, namely, in the event the sale is made through public auction or public tender in terms of Rule 8(5)(b) and (c), the provisions of sub-rules (6) and (7) of Rule 8 would be attracted. In the case of any other sale, the provisions of Rule 8(5)(a) & (d) would alone be attracted. As a consequence, a sale by private treaty must be on such terms as between the parties in writing. The word parties came up for consideration before a Division Bench of this Court-Madurai Bench in J.Rajiv Subramanian and another v. M/s Pandiyas and others, AIR 2012 Madras 12, where the Division Bench held as follows:-
33. The first question for our consideration is as to what are the formalities to be adopted when invoking private treaty and effecting a sale on that basis. In this connection, it would be worthwhile to refer to Rule 8(5) of the Security Interest (Enforcement) Rules, 2000 which reads thus:
"5. Before effecting the 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."
As per the private treaty, other than public auction or public tender, it can be settled between the parties invoking as per Rule 8(8) of the Security Interest (Enforcement) Rules, 2002. The sale of properties by private treaty is also permissible in law. The only condition is that it shall be on such terms as settled between all the parties in writing. From this, it is clear that the presence of debtor and his willingness in writing are essential. But, in this case, availability of such a document is neither forthcoming nor produced before this Court by the appellants or bank officials. Therefore, from this, it could be safely concluded that the procedure as contemplated under the Security Interest (Enforcement) Rules, 2002, has neither been followed nor been attempted to be followed. Accordingly, point no.(3) is answered.
22. Having regard to our finding, we are constrained to refer to a situation whereby the borrower/guarantor either refuses to give consent in terms of the second proviso to Rule 9(2) or agrees to any settlement in terms of Rule 8(8) of the Rules. In such event, the secured creditor may face a situation where the secured asset may not be sold in any one of the methods enumerated under Rule 8(5) of the Rules. Going by the rules, in our opinion, the only option to the secured creditor is to again obtain a valuation report and also to notify the reserve price on the basis of such valuation. As a necessary corollary, he can only follow the methods enumerated under Rule 8(5)(b) & (c) of the Rules. We are conscious of the fact that this may be a hurdle for the secured creditor in the measures to recover the loan. Such a situation cannot be avoided, when the Act and the Rules have been made only to have a balance between the right of the secured creditor to recover the loan and the minimum right of the borrower/guarantor for strict compliance of the provisions of the Act and the Rules.
23. In the given case, it is not in dispute that the reserve price was fixed at Rs.23 lakhs and in the absence of any bidder, without there being any consent from the guarantor in terms of the second proviso to Rule 9 of the Rules, the secured creditor had sold the secured asset by private treaty, which is also in violation of Rule 8(8) of the Rules. In such event, the sale cannot be sustained and the same is liable to be set aside. Accordingly, the action of the Bank in bringing the subject property of the petitioner is declared unconstitutional and ultra vires the provisions of the Act and the Rules and consequently, the letter of the Bank dated 2.5.2011 is set aside. The Bank is entitled to bring the secured asset for sale by issuance of a fresh sale notice stipulating the reserve price after obtaining valuation report as on today or is open to bring the secured asset for sale by any one of the other methods, provided Rule 8(8) of the Rules is complied with. The amount paid by the second respondent-purchaser shall be refunded with 12 percent interest per annum from the date of deposit till the date of payment. The writ petition is allowed. Consequently, M.P.No.2 of 2011 is closed. No costs.
ss To
1. The Chief Manager Punjab National Bank Asset Recovery Management Branch (ARMB) Khivraj Buildings, First Floor 634, Anna Salai Chennai 600 006