Gujarat High Court
Sun Star Future Wood Ltd. Through ... vs Authorised Officer Stressed Assets ... on 29 January, 2008
Equivalent citations: AIR2008GUJ79, AIR 2008 GUJARAT 79, 2008 (4) ALJ (NOC) 831 (GUJ.) = AIR 2008 GUJARAT 79, 2008 AIHC (NOC) 496 (GUJ.) = AIR 2008 GUJARAT 79
Author: Jayant Patel
Bench: Jayant Patel
JUDGMENT Jayant Patel, J.
1. The petitioner has preferred the petition for appropriate writ to quash and set aside the auction dated 19.12.2007, and of accepting the bid of the petitioner and has prayed for declaration that the action of acceptance of the bid of the property as arbitrary or unreasonable. The petitioner has also prayed for permanently staying the operation of the further action pursuant to the auction dated 19.12.2007, and the acceptance of the offer of one of the bidder.
2. Heard Mr. A.L. Shah with Mr. Puj learned Counsel for the petitioner, Mr. Parmar learned Counsel for respondent Nos. 1 and 2, Mr. Bhatt learned Counsel for respondent No. 3, Ms. Lodha learned Counsel for respondent No. 4, Mr. S.N. Shelat with Mr. Nagarkar learned Counsel for newly added party, who has been permitted to be joined pursuant to the order passed by this Court today in Civil Application No. 772 of 2008 being the offerer pursuant to the auction held by the Bank.
3. It has been contended on behalf of the petitioner that the property in question was already earlier in the possession of GIIC under Section 29 of the State Financial Corporation Act, and thereafter, GIIC has entrusted the possession to respondent Nos. 1 and 2 on 3.10.2007 and has entrusted work for auctioning of the property to respondent Nos. 1 and 2. It has also been submitted on behalf of the petitioner that as per the requirement of Section 13(9) of the Act before proceeding with the auction under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as to the 'Act') the creditor concerned must have consent of the creditors exceeding 75 percent interest of all the creditors. It has been submitted that GIIC has even objected to the auction, and the respondent Nos. 1 and 2 are not having interest of more than 75 percent as creditor and therefore, the action of holding auction is without any authority and is in breach of the provisions of Section 13(9) of the Act. It has also been submitted that after measure is undertaken under Section 13(4) of the Act, it is required for the respondent Nos. 1 and 2 to follow the statutory rules namely the Security interest (enforcement) Rules 2002 (hereinafter referred to as the 'rules') and Rule 9 of the rules provides that sale cannot be effected unless there is expiry of 30 days period from the date of public notice published in the newspaper, and since 30 days period was not over on the date, when the sale had taken place, there is breach of Rule 9 of the rules and therefore, action of holding auction is illegal.
4. Mr. Shah learned Counsel for the petitioner during the course of the hearing under the instruction of his client also declared before the Court that the petitioner had earlier submitted an offer for making payment as stated in the petition to the Bank stepwise, however, the petitioner is also ready to offer an amount of Rs. 405 lacs as offered by the offerer at the auction, and the property in question, instead of selling to the offerer, may be sold by the Bank to the petitioner, and therefore, he submitted that when the petitioner is ready to deposit the full amount of the price, at which the offer has been accepted by the Bank of Rs. 405 lacs, the Bank could not have any objection in accepting the offer of the petitioner, and selling the property to the petitioner. He also submitted that in case if there is any higher offer by the offerer, the petitioner is also ready to raise such amount, so as to equate with the offerer, whose offer has been accepted.
5. Mr. Parmar learned Counsel for the petitioner by relying upon the averments made at para 5.4 of the affidavit in reply contended inter alia that there is compliance to the provisions of Section 13(9) of the Act, by respondent Nos. 1 and 2, inasmuch as the respondent Nos. 1 and 2 are having consent and the authority of more than 75 percent of the secured creditors. Therefore, he submitted that the ground that the respondent Nos. 1 and 2 are not having authority is incorrect. He also submitted that GIIC had assigned the work of disposal of the property to the petitioner and therefore, merely because the communication is made for postponing of the auction is not valid ground to consider that GIIC has not consented for the recovery of the amount. He also submitted that GIIC itself had entrusted the possession and thereafter, had entrusted the work of recovering the amount and therefore, the contention that the respondent Nos. 1 and 2 are not secured creditors with the interest exceeding 75 percent is without any basis. He also submitted that earlier references were filed before the BIFR with a view to stall the recovery proceedings, however, they have ended in view of the facts that action has been taken under the Act. He also submitted that in response to the advertisement, the Bank has received offer of Rs. 405 lacs of Shri Kaivenkumar Vinodchandra Shah newly added party respondent No. 5 herein, and the said offerer has deposited the amount of Rs. 105 lacs as EMD and has also deposited Rs. 1.25 lacs within five days. However, as the status-quo was ordered by this Court, the remaining amount of Rs 303.75 lacs is not accepted by the Bank. He submitted that the action is in accordance with law, however, if the Bank is to get higher amount of the property, the Bank may not have any objection, but the Bank is entitled to take action in accordance with the provision of the Securitization Act.
6. Mr. Bhatt learned Counsel for the GIIC submitted that as proposal was received by GIIC, the GIIC considered that they may get higher amount even than the amount, which is realised from the disposal of the property and therefore, since the Board of Directors of the GIIC was to consider the proposal, communication was made to respondent No. 1 and 2 for postponement of the auction. However, he did not deny the factum that the earlier possession was with the GIIC, and GIIC itself has entrusted the property to the respondent Nos. 1 and 2, and the work of realisation of the money by disposal of the property is also assigned to respondent Nos. 1 and 2 by GIIC.
7. Ms. Lodha learned Counsel appearing for the respondent No. 4- Bank, submitted that the Bank is having mortgaged by way of second charge and therefore, as such is not directly concerned in the sale, but would be concerned after the money is recovered of the secured creditors having first charge.
8. Mr. Shelat with Mr. Nagarkar learned Counsel for the offerer respondent No. 5 herein, submitted that the offer was for Rs. 405 lacs, however, respondent No. 5 is ready to offer the amount of Rs. 440 lacs, and is also ready to participate in the inter se bidding, amongst the offerer which may include the petitioner, if so permitted by the Court, and such amount of offer may be raised. Further, he submitted that respondent No. 5 has submitted offer and therefore, if inter se bidding is made by the Bank, the offerer is ready to offer even higher price then Rs. 440 lacs.
9. In response to the aforesaid Mr. Shah learned Counsel for the petitioner declared under the instruction of his client that the petitioner is ready to offer Rs. 441 lacs on the same terms and conditions as offered by the offerer.
10. As such when the action is under the Securitization Act, and the measure is already undertaken under Section 13(4) of the Act, in normal course the remedy for the aggrieved party would be to approach under Section 17 of the Act before the Debt Recovery Tribunal, and this Court normally would not entertain the petition after the measure is undertaken under Section 13(4) of the Act.
11. The contention of the learned Counsel for the petitioner that the Bank is not representing the interest of secured creditor exceeding 75 percent and therefore, the action is without any authority or in breach of Section 13(9) of the the Mandatory Provisions Act, if considered, it appears that same cannot be sustained, and the reason being that earlier possession was with the GIIC under Section 29 of the State Financial Corporation Act. At the relevant point of time the petitioner has not challenged such action of taking over of the possession under Section 29 of the Act of the State Financial Corporation Act. It is also an admitted position that GIIC has entrusted the possession to the respondent Nos. 1 and 2, and in that view of the matter the respondent Nos. 1 and 2 has received possession of the property. Not only that but respondent Nos. 1 and 2 have also been assigned the work of recovery by disposal of the property by GIIC, and as such in furtherance thereto the property has been assigned to the respondent Nos. 1 and 2 by GIIC. Such possession came to be entrusted in June 2007 by GIIC to the respondent Nos. 1 and 2, and thereafter based on such authorisation, further action is taken for disposal of the property. The respondent Nos. 1 and 2 in the affidavit in reply at para 5.4 have stated as under:
5.4 With reference to para -19 to 27 which contain centralised allegations, such as-respondent No. 3 and 4 had either confirmed to the petitioner their intention of settlement or not given consent, respondent No. 1 went ahead to sale the assets of the petitioner-company in spite of not having statutory approval from secured creditors having 75 percent of value of debt as alleged which I deny in toto.
I submit that the sale of the secured assets/property of the petitioner-company in auction diligently conducted on 19.12.2007 by respondent No. 1 was om accordance with law, namely- the Securitisation Act and Rules made there-under. However, it has been stated in para-24 and 26 of the petition that respondent No. 1,3 and 4 are having 64%, 26% and 10% of share/value of secured debt respectively and respondent No. 3 and 4 being not in favour of the auction-rather desirous to keep the auction in abeyance, respondent No. 1 and 2 do not have the mandatory authority of 75 percent of the secured creditors and had not consulted senior official as alleged in para-26 and 27 of the petition. Therefore, action of respondent No. 1 and 2 is illegal in terms of Section 13(9) of the said Act as alleged in para-23 of the petition.
In support of my denial of aforesaid contentions raised in the petition, I submit that except alleging violation of Section 13(9) of the Securitization Act, no material point or controversy had been raised in the petition to impugn an exercise of auction conducted on 19.12.2007 for which facts and reality have been placed before this Hon'ble Court in a manner which indicates an intention and motive to be otherwise and without bona fide.
I submit that the reference of the petitioner-company had been registered with Board of Industrial and Financial Reconstruction (BIFR) in 2004 and prior to that respondent No. 3 had taken the possession o the assets and property of the petitioner-company in or about July, 1999 under Section 29 of the State Financial Corporation Act, 1951 which were jointly financed with respondent No. 1 having pari passu charge on the said assets and property. However, respondent No. 3 could not auction and realised no feasibility of its such action it took under Section 29 of the SFC Act and therefore, it had decided to expedite the sale of assets by requesting respondent No. 1 to initiate action under the provisions of Securitisation Act, 2002 against the petitioner as early as possible as per letter dated: 19.4.2006 addressed to respondent No. 1 by Zonal Manager of respondent No. 3. Further prompt action was solicited from respondent No. 1 in this regard by respondent No. 3 few months back as per another letter dated:30.05.2007. Thus, on being agreed and consented by respondent No. 3, 64% share of respondent No. 1 and 26% share of respondent No. 3, value of amount outstanding reached to 90% exceeding three-four/75% of value as required under Sub section (9) of Section 13 to exercise rights conferred on/pursuant to Sub section (4) of Section 13 of the Securitisation Act, 2002. Thus, mandatory requirement of Section 13(9) has been scrupulously complied with. Copies of both the said letters of dated: 19.04.2006 and 30.05.2007 are annexed herewith and marked as Annexure-A and B respectively. With regard to auction process conducted on 19.12.2007 for which now belated controversy raised by the petitioner, I submit herewith a copy of auction sheet marked as Annexure-C which indicates presence and signatures of all the secured creditors without any dispute or controversy who are the parties-respondents to the present petition, namely-authorised officer of respondent No. 1 and 2 as well as representative of respondent No. 3 and 4.
12. Further, the aforesaid factum of entrusting possession by GIIC to the respondent Nos. 1 and 2 is admitted, therefore, it cannot be said that respondent Nos. 1 and 2 are having no authority to proceed under the Securitization Act, for realisation of the outstanding amount by way of disposal of the property. Merely because during the course of the auction, GIIC communicated for postponement of the auction, it cannot be said as sufficient ground to conclude that there is breach of the provisions of Section 13(9) of the Act, because GIIC entered into communication, since the matter was to be considered before its Board of Directors. It deserves to be recorded that when the measure under Section 13(4) of the Act is to be taken for recovering of the possession or for demand under Section 13(2), there may be requirement for getting authority of the creditors representing interest of 75 percent, but it is not that at every step, such is to be examined. If there is any dispute inter se amongst the secured creditors at the later stage on the aspect of sale or appropriation of the amount, and if brought before the Court by any of such creditors is a different aspect, but the borrower, whose properties are mortgaged and action was taken for realisation of the security interest cannot be made to earn any undue benefit therefrom. Therefore, the action on the part of the respondent Nos. 1 and 2 to proceed under Securitization Act, by disposal of the property cannot be said as without there being any authority or the action cannot be said as only without jurisdiction or competence on the part of respondent Nos. 1 and 2.
13. It also appears that in view of the present litigation and pending the proceedings, as the further steps for finalization of the auction did not proceed, the offer which was for Rs. 405 lacs is now raised at Rs. 440 lacs by offerer himself, and additional development is that the petitioner has come out with the declaration of offer of Rs. 441 lacs on the same terms and conditions, as the respondent No. 5 made to the Bank. Therefore, as against the offer of Rs. 405 lacs, pursuant to the auction sale, the Bank in any case is to receive about 40 lacs more by offerer himself. In view of the revision of the offer further, as declared by the offerer, he is also prepared to participate in the inter se bidding, and is desirous to raise the offer of the higher amount.
14. It appears to the Court that even if the action is to be taken under the Securitization Act, by the Bank for realisation of the security interest, the attempt must be made by the Bank to fetch the maximum price of the property, so that the property may not be sold away at a throw away price. It has happened in the present case that the Bank is having revised offer at least of Rs. 440 lacs of the offerer respondent No. 5 herein, and of the declaration of petitioner of Rs. 441 lacs. It may be observed that so far as the petitioner is concerned, up till now it has not stood at par with the offerer and for submitting his offer, he will be required to comply with the same terms and conditions, as the offerer did by depositing the amount of Rs. 101.25 lacs, which has been deposited by the offerer being Rs. 100 lacs towards EMD and Rs. 1.25 lacs as an additional amount. It is only after the petitioner deposits the amount, and submits declaration to the Bank to abide by the same terms and conditions as the offerer did, the offer of the petitioner can be considered by the Bank, if one of the offerers is desirous to purchase the property.
15. Mr. Shah learned Counsel appearing for the petitioner declared under the instruction of his client that the petitioner is ready to deposit the amount of Rs. 101.25 lacs within 10 days from today with the Bank. However, he submitted that such tendering of the amount of the offering of the price of Rs. 441 lacs by the petitioner is without prejudice to the rights and contentions that the Bank has no authority to proceed with the auction, and it may not operate against the petitioner to the extent that the petitioner had participated in the auction.
16. In my view such aspect are not required to be observed or concluded at this stage, because up till now, except making declaration neither petitioner has deposited amount nor the express offer is made to the Bank. However, if the offer is made by the petitioner to the Bank, to be at par with the offerer by submitting offer of Rs. 441 lacs, the same in any case may be considered by the Bank, if the petitioner is to stand at par with the offerer by depositing the requisite amount of EMD and the additional amount and to abide by the other terms and conditions of the offer.
17. It appears that if the Bank is to get opportunity of realisation of higher amount, which in the present case is in case not less than Rs. 440 lacs, the Bank in its banking wisdom can consider the revision of the offer by permitting inter se bidding amongst the offerer, and it may also decide to make an attempt once again by giving advertisement, so as to invite the additional offer of the other interested persons if any. So far as additional attempt is concerned, I am inclined to make such observations, because the Bank has concluded the offer prior to expiry of thirty days from the date of the publication in the newspaper. Had the offer been accepted by the Bank up to the expiry of the period of thirty days, the situation of the interested persons offering higher amount may not be ruled out. Further, it is only after the offer of respondent No. 5, pending the litigation the petitioner has also come out with the offer initially for Rs. 405 lacs and thereafter for Rs. 441 lacs. As observed earlier the offer is now revised to Rs. 440 lacs by respondent No. 5 and therefore, no prejudice would be caused to the Bank or to the respondent No. 5, if the attempt is made by the Bank to invite the offer of the interested persons in addition to the earlier advertisement, and at this stage the Bank may not cancel offer of the respondent No. 5, and/or of the petitioner as the case may be and after exploring the stage of inter se bidding amongst the interested offerer by continuing the offer of respondent No. 5 as well as and/or of the petitioner, the Bank can undertake the action for fetching the maximum price of the property. As ultimately the decision is to be taken by the Bank applying its banking wisdom, I find it proper to leave the matter at that stage without concluding on the said aspect. Suffice to state that the Bank shall act as the trustees of the property, and shall make sufficient attempt to realise the maximum money of the property.
18. In view of the above, the following order:
1. The action of the bank of proceeding further under the Act is not interfered with. However, in view of the aforesaid development and the declaration recorded by the petitioner and the respondent No. 5, the Bank shall consider the matter for finalization of the offer by permitting inter se bidding, and or shall undertake the action for readvertisement to invite offer from the interested persons in addition to the offer received of respondent No. 5, and may be of the petitioner, if he complies with the conditions of the declaration made before this Court.
2. The Bank shall take appropriate decision within a period of two weeks from today.
19. Subject to the aforesaid observations and directions the petition is dismissed.