Gujarat High Court
Sureshbhai Kalidas Soni vs Union Of India & 2 on 15 September, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, J.B.Pardiwala
C/SCA/9655/2014 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 9655 of 2014
With
SPECIAL CIVIL APPLICATION NO. 617 of 2014
With
SPECIAL CIVIL APPLICATION NO. 328 of 2014
With
SPECIAL CIVIL APPLICATION NO. 10345 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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SURESHBHAI KALIDAS SONI....Petitioner(s)
Versus
UNION OF INDIA & 2....Respondent(s)
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Appearance:
MR MASOOM K SHAH, ADVOCATE for the Petitioner(s) No. 1
MS MOHINI K SHAH, ADVOCATE for the Petitioner(s) No. 1
DELETED for the Respondent(s) No. 3
Page 1 of 29
C/SCA/9655/2014 JUDGMENT
MR DEVANG VYAS, ADVOCATE for the Respondent(s) No. 1
MR PRANAV G DESAI, ADVOCATE for the Respondent(s) No. 2
MR BHARAT JANI, ADVOCATE for the Respondent.
MR AMAR N.BHATT, ADVOCATE for the Respondent.
MR SAURABH AMIN, ADVOCATE for the Respondent.
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 15/09/2014
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) In this group of petitions, similar issues are involved. They have, therefore, been heard together and would be disposed of by this common judgment.
Since the facts are quite similar, we may record them as emerging in Special Civil Application No.9655 of 2014.
One Seema Jewellers Private Limited had obtained a loan from the respondent Bank of India and the petitioner was a guarantor. However, with respect to when such loan was obtained, what was the amount of loan and to what extent, if at all, the part of the borrowed sum was repaid, the petition is completely bereft of any details.
Page 2 of 29
C/SCA/9655/2014 JUDGMENT We may, however, proceed on the basis that the principal borrower, having failed to repay the substantial portion of the bank loan, the respondent no.2 Bank instituted proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, 'the SARFAESI Act') for recovering the unpaid dues with interest. Although it is not stated in the petition, yet it is undisputed that the Bank followed the procedure under Section 13(2) of the SARFAESI Act and thereafter proceeded to take measures under Section 13(4) of the Act.
The Bank issued an auction notice on 4th July 2014, proposing to sell the immovable properties of the petitioner (description of which was given in the notice), those properties, according to the notice was mortgaged by the petitioner to the Bank for securing the loan. The petitioner's outstanding liability as mentioned in the demand notice under Section 13(2) of the SARFAESI Act was shown to be Rs.32,28,55,000=00.
The said auction notice issued by the Bank was for conducting the auction of the said properties by way of e- auction.
Page 3 of 29
C/SCA/9655/2014 JUDGMENT The case of the petitioner is that such e-auction is not authorised in law. The petitioner has produced at Annexure-'A', a communication dated 13th June 2012 from the Under Secretary to the Government of India to all the Presiding Officers of all Debts Recovery Tribunals. In such communication, purportedly issued by the Ministry of Finance, Department of Financial Services, it is conveyed that the Ministry has received reports that in some cases the auction conducted by the DRT is controlled by certain groups and the general public is not allowed to freely participate in such auction. With a view to conduct free, fair and transparent auction, the option of introducing e-auction in the DRT has been considered by the Ministry and it is decided that henceforth all auctions would be conducted electronically and the concerned banks shall arrange for e-auction platform. It is further mentioned that there are number of companies holding e-auction for their clients, the bank may choose any one of those from the list annexed. The petitioner has also challenged the said circular as being unauthorized and illegal.
In the nutshell, the case of the petitioner is that the impugned circular is not issued by the Government of India Page 4 of 29 C/SCA/9655/2014 JUDGMENT since it has no reference to Article 77 of the Constitution of India and is not issued in the name of the President of India. Such circular is, therefore, not a policy decision of the Government of India. The case of the petitioner is also that e- auction is otherwise not permissible in law. In any case, the traditional mode of conducting auction is more advisable since e-auction would have number of pitfalls such as access to technology to large number of people and failure of network at times.
On the other hand, the case of the respondents i.e. the Bank and the Union of India is that, with advent of time, modern technology can be put to better use. It was noticed that in the DRT conducted auctions and other public auctions, there were large scale complaints of cartelling, resulting into fair price for the properties under auction not being fetched. It was, therefore, decided uniformly to resort to e-auction for securing best possible return for the properties being put to sale.
On the basis of the materials on record, learned counsel Shri Vishwas Shah raised the following contentions : Page 5 of 29
C/SCA/9655/2014 JUDGMENT (1) that the impugned circular dated 13th June 2012, not
having been issued in the name of the President of India, in view of Article 77 of the Constitution of India, cannot be treated as a policy decision of the Government of India. In this respect, he relied on the decision of the Supreme Court in the case of Ashoka Smokeless Coal India (P) Ltd v. Union of India and others, reported in (2007)2 SCC 640;
(2) that the SARFAESI Act and the Rules made thereunder do not permit e-auction. Drawing our attention to Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, he submitted that e-auction is not envisaged under such Rules;
(3) Counsel lastly submitted that in any case, e-auction has many pitfalls. In large number of cases, the intending purchasers would not have an access to internet facilities. Such internet facilities are also not free from breakdowns. If at the time of auction the internet coverage is disrupted, the intending bidder would be prevented from submitting his higher offer. The entire procedure would be conducted in an opaque manner Page 6 of 29 C/SCA/9655/2014 JUDGMENT completely lacking in transparency. The person whose property is being put to sale would have no access to the bids which might have taken place.
On the other hand, learned counsel Shri Jani and Shri Desai for the Banks opposed the petitions contending that with modern technology being available as part of e-governance programme, the banks across the country have resorted to e- auction instead of the traditional mode of physical auction. Such procedure is not prohibited under the SARFAESI Act or the Security Interest (Enforcement) Rules, 2002. Neither the Act nor the Rules refer to the mode of holding the auction. E- auction is also a mode of public auction. They further submitted that e-auction has an important purpose to achieve, namely, to eliminate or to reduce controls of the cartels in public auction.
Learned counsel Shri Amin for the Union of India also opposed the petitions contending that e-auction is found to be more suitable considering the present situation and development of technology. He drew our attention to a decision of the Division Bench of the Madras High Court in the case of S.Anandaraj v. State Bank of India, dated 20 th February Page 7 of 29 C/SCA/9655/2014 JUDGMENT 2014, in which the legality of e-auction was upheld.
Having heard the learned counsel for the parties and having perused the materials on record, the questions that calls for consideration are: (i) whether the circular dated 13 th June 2012 is illegal or inoperative, and (ii) whether the respondent Bank can resort to e-auction for sale of the secured assets.
In so far as the impugned circular is concerned, the issue is possible of a summary disposal. To begin with, it primarily concerned with the DRT assisted sales. In such scenario, the circular provides that the sale of the property should be through e-auction. It is true that the circular also refers to the bank sale. However, the respondents Banks have not relied on such circular to resort to e-auction. Legality of the circular, therefore, may have no effect on the present proceedings. In any case, merely because the circular is not issued in the name of the President of India, by itself, would not rob the circular of its authority nor can be treated to be one which does not form part of the policy of the Government of India. We may refer to a short passage from a Supreme Court judgment in the case of Air India Cabin Crew Association v. Page 8 of 29
C/SCA/9655/2014 JUDGMENT Yeshawinee Merchant and others, reported in AIR 2004 SC 187, in which it was held and observed as under :
"In our opinion, reference to Article 77 is wholly inappropriate. The exercise of statutory power under section 34 by the Central Government, even though not expressed to have been taken in the name of President, does not render it invalid. Clause 2 of Article 77 insulates an executive action of the government formally taken in the name of President from challenge on the ground that it is not an order or instrument made or executed by the President. Even if an executive action of the Central Government is not formally expressed to have been taken in the name of President, Article 77 does not provide that it would, therefore, be rendered void or invalid. We need not, therefore, deal with the argument advanced on the basis of Article 77 of the Constitution because the respondent/association itself is relying on the directive dated 16.10.1989 of the Central Government which is not formally expressed in the name of President in terms of Article 77 of the Constitution."
In yet another decision in the case of Narmada Bachao Andolan v. State of Madhya Pradesh, (2011)12 SCC 333, in the context of Article 166 pertaining to the conduct of business of the Government of a State, the Supreme Court noted with approval the observations in an earlier judgment in the case of Dattatraya Moreshwar Pangarkar v. State of Bombay, reported Page 9 of 29 C/SCA/9655/2014 JUDGMENT in AIR 1952 SC 181, as under :
"An omission to make and authenticate an executive decision in the form mentioned in Article 166 does not make the decision itself illegal, on the basis that its provisions were directory and not mandatory."
Coming to the question of permissibility and advisability of the e-auction, we may notice that the SARFAESI Act does not prohibit e-auction in any manner. It is not even the case of the petitioner that the SARFAESI Act contains any statutory provision opposed to e-auction. In fact, the Act does not prescribe detail procedure for disposing of secured assets for the failure of the borrower to pay up his dues. Such procedure is found in the Rules framed under the Act. The procedure for sale of the secured assets is provided in the Security Interest (Enforcement) Rules, 2002. Rule 8 thereof prescribes a detailed procedure for sale of immovable secured assets. Sub- rule (5) thereof reads as under :
"8. Sale of immovable secured assets :-
(1) xxxx xxxx xxxx
(2) xxxx xxxx xxxx
(3) xxxx xxxx xxxx
(4) xxxx xxxx xxxx
(5) Before effecting sale of the immovable property
referred to in sub-rule (1) of rule 9, the authorised officer Page 10 of 29 C/SCA/9655/2014 JUDGMENT 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 such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty."
Vires of Rule 8 came up for consideration before a Division Bench of this Court in the case of Kanha International through Proprietor and others v. Union of India and others, reported in (2011) Banking Cases 316. The Court observed as under :
"Plain reading of sub-rule (5) of Rule 8 of the Rules of 2002 goes to show that the authorized officer has to obtain valuation report from an approved valuer. Therefore, the procedure as envisaged by the rule- making authority of obtaining the valuation of the property from an approved valuer is to be observed and followed by the authorized officer. The second requirement is the consultation with the secured creditor.Page 11 of 29
C/SCA/9655/2014 JUDGMENT It is only after approved valuer's report, the authorized officer may consult the secured creditor and fix the reserve price of the property. Merely because there is no right expressly provided to the borrower to get copy of the valuation report or there is no express provision for consultation of the say of the borrower by the authorized officer while fixing the reserve price, that by itself is not sufficient ground to make the rule unconstitutional nor can be termed as unreasonable. We invited attention of the learned counsel to Rule 8(6) of the Rules of 2002, which reads as under:
"(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;Page 12 of 29
C/SCA/9655/2014 JUDGMENT
(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."
It is very clear that Rule 8(6) again gives an opportunity to the borrower to put forward his valuation which perhaps may be in some conflict with the valuation which is fixed as per Rule 8(5).
According to us, Rule 8(6) of the Rules of 2002 provides the necessary safeguard if the action is taken in arbitrary and unreasonable manner and if the valuation of the property is not properly fixed. The whole object of Rule 8(6) of the Rules of 2002 appears to be that the borrower gets clear thirty days' notice before the sale taxes place. During this period, the borrower can raise objections and can also point out before the appropriate forum as regards the correct and true valuation of the property. The essential purpose of sub-rule (5) of Rule 8 of the Rules of 2002 is to see that there is proper valuation by an approved valuer, who would be considered as an expert, and the view of the secured creditor on the Page 13 of 29 C/SCA/9655/2014 JUDGMENT aspect of fixation of reserved price is taken into consideration by the authorized officer. Just because the borrower is excluded from Rule 8(5) of the Rules of 2002 or has no voice at the time when the valuation is fixed and the reserved price is also fixed, by itself will not render Rule 8(5) unconstitutional."
It may be noted that Rule 8(5) refers to four different modes of disposing of the secured assets by a bank when the borrower or a guarantor, as the case may be, is unable to repay the debt and the assets have become non-performing. Such modes are by obtaining quotations from the persons dealing with similar assets, by inviting tenders from the public, by holding public auction or by private treaty. The mode of public auction does not elaborate, whether such auction must be a physical auction as is understood in a traditional manner or would include any other mode or manner also. Thus, there is nothing in Rule 8(5) to exclude e-auction from the purview of public auction. In Judicial Officers Law Lexicon by Justice C.K.Thakkar (2nd Edition), the term 'auction' is explained as one which "signifies generally an increasing, an enhancement, and hence is applied to a public sale of property usually conducted by biddings which augment the price". In Advanced Law Lexicon by P.Ramanatha Aiyar (3rd Edition), it is described as "a public sale of land, or goods by public outcry to the higher Page 14 of 29 C/SCA/9655/2014 JUDGMENT bidder. Auction is very generally defined as a sale to the highest bidder, and this is the usual meaning..." The term 'public auction' is explained as "a sale of property at auction, where any and all persons who choose are permitted to attend and offer bids. Though this phrase is frequently used, it is doubtful whether the word 'public' adds anything to the force of the expression since 'auction' itself imports publicity. If there can be such a thing as a private auction, it must be one where the property is sold to the highest bidder, but only certain persons are permitted to be present or to offer bids, as in the case of an auction sale of property under the Partition Act, where the right to bid is confined to the co-sharers". Thus, it can be seen that though originally auctions through biddings required physical presence of the bidders, modern means of conducting e-auction is not incongruent to the concept of auction. Further, in the term 'public auction', what is of sacrosanct is that the auction must be open to all who intend to participate and should not be continued to some and does not mean that the auction must be held 'publicly' or 'physically'.
We may notice that in the present batch of cases, the lender banks had issued a public notice, inviting interested Page 15 of 29 C/SCA/9655/2014 JUDGMENT parties to bid in an e-auction to be conducted on an appointed date. Thus, the proposed e-auction was given sufficiently wide publicity, inviting interested parties to participate during e- auction. The purpose behind resorting to e-auction instead of physical auction is also quite understandable. As manifest in the impugned circular, it was found that in large number of DRT assisted auctions, there were complaints of cartel of persons blocking the participation of genuine individual purchasers. Such complaints are common place. We would be utterly blind to the reality if we do not recognize this evil in public auction procedure be it DRT assisted or any other modes. If, therefore, with a view to eliminate, or at any rate, limit the possibility of cartelling, the Government of India has decided, as a matter of policy, to hold e-auction, and if such decision is followed by the Nationalized Banks as a uniform policy, in our opinion, the same is neither prohibited under the SARFAESI Act or the Rules made thereunder nor can be said to be a decision arbitrary or unreasonable as to warrant interference by this Court.
We have already noticed that the Madras High Court in the case of S.Anandaraj (supra) upheld the modality of e- auction. In such decision, the Court held and observed as Page 16 of 29 C/SCA/9655/2014 JUDGMENT under :
"74. It is further noted that the e-auction sale procedures are user friendly in nature. It is also noted that the intending purchasers could utilize the services of technically qualified persons or agencies, in making their bids. We are conscious of the fact that e-auction sale procedures, being followed by the respondent banks, have not been challenged by the purchasers, in the present batch of writ petitions. Further, nothing has been shown on behalf of the petitioners to substantiate their claims that the intending purchasers would suffer certain impediments in making their bids, for the properties in question, due to their illiteracy. While so, it would not be open to the petitioners to claim, without furnishing sufficient materials before this Court, to show that the persons who had availed the financial facilities, including those who had been the guarantors and those who had created the mortgages or pledges, in respect of the properties in question, would be at a disadvantage due to the use of the e-auction sale procedures, which involves the use of digital technology. On the contrary, we are convinced that the e-auction sale procedures followed by the respondent banks and the authorities concerned would go a long way in reducing the unhealthy practices being followed by the cartels and the syndicates, in the public auction sales of the secured assets. Further, there is no specific prohibition, either in the provisions of the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, or in the Security Interest (Enforcement) Rules, 2002, prohibiting Page 17 of 29 C/SCA/9655/2014 JUDGMENT the conducting of e-auction sales of the secured assets.
76. In the given facts and circumstances, we have no doubt that the e-auction sale procedures followed by the respondent banks would reduce, substantially, the unethical influence of the cartels and the syndicates, which are posing a serious threat to the healthy competition that is expected to take place during public auctions. The respondent banks have adopted the e- auction sale process taking note of the fact that the cancerous growth of the cartels and the syndicates has threatened the basic concept of public auction, making a mockery of the process intended to get the best possible price for the properties brought for sale.
77. Further, it cannot be said that the use of the service providers, in conducting the e-auctions, is contrary to the provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Security Interest (Enforcement) Rules, 2002. Sufficient safeguards are available to set right the irregularities, if any, that may occur during the process of e-auction sales.
78. We are of the view that the contentions raised on behalf of the petitioners, with regard to the e-auction sale procedures, are based on mere apprehensions. It is noted that the e-auction sale process has been adopted by the respondent banks mainly with the intention of Page 18 of 29 C/SCA/9655/2014 JUDGMENT reducing the undue influence of the cartels and the syndicates, which have the capacity to undermine the value of the properties brought for sale. Even though there may be some difficulties, for some persons, who are the intending purchasers, in operating the system, to log in and to make their bids, to purchase the properties in question, it cannot be said such difficulties are insurmountable in nature. It is always open to the intending purchasers to employ the services of the persons, who have the required knowledge to make their bids, by using the platforms provided by the service providers."
In another decision of the Allahabad High Court in the case of M/s.Santkripa Trading Co. Administrative Office and others v. Bank of Baroda and another, reported in AIR 2013 ALL. 177, also the legality of e-auction was upheld. It was held that the sale of mortgaged assets by e-auction is permissible since e-auction is another form of public auction and, therefore, covered under Rule 8(5) of the Security Interest Rules, 2002. It was held and observed as under :
"In view of the foregoing discussions, we are of the view that the Bank has rightly resorted to e-auction which is well within its power under Rule 8(5) of the Rules, 2002 and the notice dated 25/8/2013 issued by the Bank for e- auction is well within its jurisdiction and cannot be said to be beyond the Rules, 2002. None of the submissions Page 19 of 29 C/SCA/9655/2014 JUDGMENT raised by the learned counsel for the petitioners has any substance."
Reliance of the counsel for the petitioners on the decision of the Supreme Court in the case of Ashoka Smokeless Coal India (P) Ltd (supra) would be of no avail. It was a case in which the legality of auction for coal mining came up for consideration. The Supreme Court was of the opinion that coal was an essential commodity. The State, when it exercises its power of price fixation in relation to an essential commodity, has a different role to play. The object of such price fixation was to see that the ultimate consumers obtain the essential commodity at a fair price, and for achieving such purpose, the profit margin of the manufacturer or producer may be kept at the bare minimum. The focal question before the Supreme Court, thus, was not the legality or validity of e-auction but the very concept of auctioning an essential commodity. On the premise that an auction is aimed at maximizing the sale proceeds of a commodity which cannot be the sole purpose of the State while disposing of an essential commodity, the entire auction proceeding was declared illegal.
We may notice that in several later decisions, the Supreme Court itself has, in some context or the other, not Page 20 of 29 C/SCA/9655/2014 JUDGMENT only recognized but insisted on e-auction of public properties. In the case of Government of Andhra Pradesh and others v. Obulapuram Mining Company Private Limited and others, reported in (2011)14 SCC 608, the Supreme Court directed disposal of mining rights through e-auction. It was observed as under :
"1. Having heard the learned counsel for the respective parties on the report dated 21-9-2011, submitted by the Central Empowered Committee ("CEC", for short) regarding e-auction and related issues pertaining to mining leases in Districts Bellary, Chitradurga and Tumkur, we are happy to note that the sale of iron ore through e-auction has fetched Rs.92.67 crores from part- disposal of the accumulated inventory of iron ore. We are of the view that e-auction, as suggested by the Monitoring Committee, should continue so that the best possible price is fetched.
3. We make it clear that e-auction will take place irrespective of long-term contracts entered into by M/s.NMDC. We also make it clear that no court in this country will take up any challenge to e-auction, except this Court."
In the case of K.Guruprasad Rao v. State of Karnataka and others, reported in (2013)8 SCC 418, the Supreme Court once again emphasized on the efficacy of e-auction, directing Page 21 of 29 C/SCA/9655/2014 JUDGMENT as under:
"100. In the result, the appeal is allowed and the impugned order is set aside. The report of the Committee is accepted and the State Government is directed to implement the recommendations contained in Part V thereof including the recommendation relating to creation of corpus fund of Rs.3,43,19,160 which shall be utilized for implementing the conservation plan for Jambunatheswara Temple. However, it is made clear that Respondent 18 shall be free to operate the beneficiation plant subject to the condition that it shall procure raw material only through e-auction mode."
In the case of State of Andhra Pradesh and others v. Obulapuram Mining Company Private Limited and others, reported in (2013)8 SCC 217, once again the Supreme Court recognized the efficacy of e-auction, directing as under :
"6. Having heard the learned counsel on both sides, we grant the following prayer :
"(d) Alternatively to (c) above, the manganese ore mined by SANDUR in Mining Leases Nos.2580 and 2581 be sold through e-auction but the captive consumption and supply to its subsidiary companies may be exempted from e-auction."
In the case of Goa Foundation v. Union of India and others, reported in (2014)6 SCC 738, the Supreme Court in the context of allegations of illegal mining in the State of Goa, Page 22 of 29 C/SCA/9655/2014 JUDGMENT permitted the inventory of excavated coal lying in different mines and stockyards in the State of Goa through e-auction. It was directed as under :
"5. After considering these submissions, we direct that the inventory of the excavated mineral ores lying in different mines/stockyards/jetties/ports in the State of Goa, made by the Department of Mines and Geology of the Government of Goa, will first be verified and thereafter the whole of the inventoried mineral ores will be sold by e-auction and the sale proceeds (less taxes and royalty) will be retained in separate fixed deposits (leasewise) by the State of Goa till the Court delivers the judgment in these matters on the legality of the leases from which the mineral ores were extracted."
It can, thus, be seen that in different contexts the Supreme Court has also preferred the mode of e-auction over physical auction while disposing of the State-owned properties or natural resources. With advent of technology, physical presence at a site of a person for holding auction is not always necessary. If the Government of India and the Nationalized Banks who are dealing in the business of banking find that e- auction is likely to fetch a better price than physical auction, in our opinion, there is no material before us to take a different view. As a borrower who has failed to repay his debts and, therefore, his assets have become non-performing and are, Page 23 of 29 C/SCA/9655/2014 JUDGMENT therefore, being sold either through DRT assisted sale or under the SARFAESI Act and the Rules made thereunder, the petitioner's prime concern would be to ensure that the secured assets receive fair market value and the maximum possible price. This would ensure his outstanding loan being satisfied to the maximum possible extent. If the proceeds fall short of the total outstanding dues, his liability would be reduced to that extent. If, on the other hand, the sale proceeds exceed his outstanding dues, he would be entitled to receive the residue. In either case, his prime concern would and should be that the secured assets being put to sale receive the maximum possible return.
In the case of Mathew Varghese v. M.Amritha Kumar and others, reported in (2014)5 SCC 610, the Supreme Court held and observed as under :
"29.1. A plain reading of sub-section (8) would show that a borrower can tender to the secured creditor the dues together with all costs, charges and expenses incurred by the secured creditor at any time before the date fixed for sale or transfer. In the event of such tender once made as stipulated in the said provision, the mandate is that the secured asset should not be sold or transferred by the secured creditor. It is further reinforced to the effect that no further step should also be taken by the secured Page 24 of 29 C/SCA/9655/2014 JUDGMENT creditor for transfer or sale of the secured asset. The contingency stipulated in the event of the tender being made by a debtor of the dues inclusive of the costs, charges, etc,., would be that such tender being made before the date fixed for sale or transfer, the secured creditor should stop all further steps for effecting the sale or transfer. That apart, no further step should also be taken for transfer or sale.
29.2. When we analyse in depth the stipulations contained in the said sub-section (8), we find that there is a valuable right recognised and asserted in favour of the borrower, who is the owner of the secured asset and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub-section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the SARFAESI Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a constitutional right protected under Article 300-A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law.
29.3. Therefore, dehors the extent of borrowing made and whatever costs, charges were incurred by the secured creditor in respect of such borrowings, when it comes to the question of realising the dues by bringing the property entrusted with the secured creditor for sale Page 25 of 29 C/SCA/9655/2014 JUDGMENT to realise money advanced without approaching any court or tribunal, the secured creditor as a TRUSTEE cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SARFAESI Act.
29.4. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property or at least ensure that in the process of sale the secured asset derives the maximum benefit and the secured creditor or anyone on its behalf is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the SARFAESI Act. More so, under Section 13(1) of the SARFAESI Act, the secured creditor is given a free hand to resort to sale of the property without approaching the court or Tribunal.
30. Therefore, by virtue of the stipulations contained under the provisions of the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a secured asset, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor with all costs, charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale."Page 26 of 29
C/SCA/9655/2014 JUDGMENT These observations were noted with approval in the case of J.Rajiv Subramaniyan and another v. Pandiyas and others, reported in (2014)5 SCC 651.
Before closing, we notice that the petitioner has also challenged vires of Section 38 of the SARFAESI Act and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. In so far as Rule 8(5) of the Rules, 2002 is concerned, the challenge to its constitutionality is already terminated by the decision of this Court in the case of Kanha International (supra).
Section 38 of the SARFAESI Act is the rule-making power of the Government. Our perusal of the petition tells us, there are no grounds on which the petitioner contends that the said section is unconstitutional. No contentions were raised before us by the counsel during oral submissions. In fact, neither from the petition, nor in the arguments we could gather any reason for the petitioner to challenge the said provision.
All statutes enjoy a presumption of constitutionality. This is so held by a series of judgments of the Supreme Court judgments, we may refer to only one of them being a decision of the Constitution Bench in the case of State of Jammu & Page 27 of 29 C/SCA/9655/2014 JUDGMENT Kashmir v. Triloki Nath Khosa and others, reported in AIR 1974 SC 1. The petitioner has challenged a statutory provision enacted by the Parliament without raising any contention or demonstrating any ground why such provision is unconstitutional. In the case of Palitana Sugar Mills (P) Ltd. and another v. State of Gujarat and others, reported in (2004)12 SCC 672, the Supreme Court held and observed that merely saying that a particular provision is legislatively incompetent or discriminatory will not do. At least prima facie acceptable grounds in support have to be pleaded to sustain the challenge. In absence of any such pleading, the challenge to the constitutional validity of a statute or statutory provision is liable to be rejected in limine.
Without any basis or material in support of the contention that Section 38, which is a rule-making power of the Central Government, is ultra vires, the validity thereof has been questioned in this petition. During the course of the oral arguments, learned counsel for the petitioner had not raised any contention. He, however, did not give up the challenge also. We refuse to examine such lame challenge in vacuum.
We expect that the challenge to the constitutional vires of a statutory provision is made with greater seriousness.Page 28 of 29
C/SCA/9655/2014 JUDGMENT In view of our above discussion, we do not find any reason to interfere. All the petitions are, therefore, dismissed.
Notice is discharged. Interim relief is vacated.
(AKIL KURESHI, J.) (J.B.PARDIWALA, J.) MOIN Page 29 of 29