Rajasthan High Court - Jaipur
State Bank Of India vs Prashant Jhunjhunwala & Ors on 10 February, 2011
Author: Ajay Rastogi
Bench: Ajay Rastogi
In the High Court of Judicature for Rajasthan
Jaipur Bench
**
Msc. Application (Inward No.24680/dt.22/11/2010)
In Company Appeal No.1/2009
State Bank of Indore Versus
Prashant Jhunjhunwala & Ors
/Reportable/
Date of Order ::: 10/02/2011
Hon'ble Mr. Justice Ajay Rastogi
Mr. GK Garg & Ms Anita Agrawal, for appellant-Bank (SBI).
Mr. RK Salecha for respondent-1 (applicant)
Mr. Ritesh Agarwal & Mr. Vijay Choudhary ) for respondents
Matter has come upon misc. application (Inward-24680/dt.22/11/2010) filed by respondent-1 (Prakash Jhunjhunwala) in Company Appeal-1/2009 U/r 9 of Company (Court) Rules, 1959, assailing proceedings initiated by appellant Bank (secured creditor) regarding auction of immovable property (E-16, IPI Area, Electronics Complex, Kota) held on 22/09/2010; and seeking direction to the appellant-Bank to hold auction proceedings afresh in accordance with procedure under Security Interest (Enforcement) Rules, 2002 (Rules, 2002).
It is a matter of record that appellant-Bank preferred company appeal U/s 10-F of Indian Companies Act, 1956 (Co. Act) against order dt.10/03/2009 of the Company Law Board and while admitting appeal, interim order was passed by Company Court on 24/07/2009 which was sought to be modified by appellant Bank by way of application, which was partly accepted vide order dt.15/04/2010 whereby liberty was granted to appellant Bank to dispose of immovable assets in its possession by adopting the procedure provided under law.
However, it was further observed that amount of sale proceeds be kept in a separate fixed deposit account subject to final outcome of company appeal; and at the same time, liberty was also granted to respondent-1 (applicant) to participate in auction proceedings to be initiated by appellant Bank in terms of provisions contained under Rules, 2002 and after order of modification being passed, auction for immovable property in question was held by appellant Bank on 04/06/2010 keeping reserve price of the immovable property as Rs.7.75 Crores. It has come on record that only Two bids were received with the offer of Rs.7.81 Crores & Rs.7.75 Crores respectively and highest bidder (M/s Kavita Soap Industries) submitted cheque which was dishonoured while being deposited for its encashment for want of sufficient funds; whereas second bidder submitted in writing showing no interest in purchase of the auctioned property and accordingly, the auction failed.
Against order of modification dt. 15/04/2010, respondent-1 (applicant, herein) preferred Special Appeal (Civil) No.12/2010 before Division Bench but before it could be finally heard, auction proceedings held on 04/06/2010 failed for reasons aforesaid and fresh proceedings were initiated by appellant Bank and the auction was held on 22/09/2010.
However, objections were raised by respondent (applicant) before Division Bench and so also by appellant Bank regarding auction held on 22/09/2010. The Division Bench while disposing of Special Appeal vide judgment dt.16/01/2010 granted liberty to the applicant to move application before the Company court. It was further observed that auction shall not be finalized before objections are decided by Company Court. Pursuant thereto and after liberty being granted by Division Bench, respondent-1 (applicant) filed instant misc application raising objections in regard to auction proceedings held on 22/09/2010. Objections were primarily related to public auction having been held by appellant-Bank in exercise of its powers under Rules, 2002 inter-alia that reserve price for auction of immovable secured assets was based on their valuation made by M/s Rakesh Chandwani holding him to be an approved valuer within the meaning in terms of R.2(d) of Rules 2002; but the very premises on which the reserve price of secured asset was fixed by appellant Bank was arbitrary.
Counsel for applicant contended that first auction was held on 04/06/2010 where reserve price was of Rs.7.75 Crores based on valuation report of Mr.Piyush Kumar Goyal Chartered Engineer of Akar Consultant, submitted on 15/04/2010 while at the same time, 2nd valuation report of Rakesh Chandwani having been taken note of the valuer regarding auction held on 22/09/2010 was submitted with a gap of 15 days, as per which reserve price of the secured asset was valued at Rs.6.10 Crores having difference of Rs.1.65 Crores than reserve price fixed based on earlier valuation report of Akar Consultant dt. 15/04/2010.
The discrepancy pointed out is that Akar Consultant has considered market value as Rs.28000/- per sq. meter while at the same time, 2nd valuation of Shri Rakesh Chandwani having been taken note of by appellant Bank while holding auction proceedings had considered the market value of the land in question as Rs.14,000/- per sq. mtr., which is just half of the valuation made by Akar Consultant.
At the same time, it has come on record that for the auction of commercial plot having put by the local authority on almost similar site, contemporaneously on 12/06/2010 & 02/08/2010, reserve price was fixed in between Rs.20,000/- & Rs.25,000/- per sq.mtr; while indisputably, the auction in question was held thereafter on 04/06/2010 and 22/09/2010 and taking note thereof, Counsel submits that two valuation reports submitted on 15/04/2010 & 26/04/2010 there was a wide variance in the market value of the secured asset as assessed by approved valuers, which appears to be arbitrary and without application of mind and taking note of market value of the land situated nearby, reserve price fixed by the Bank in holding auction proceedings impugned on 22/09/2010 was arbitrary and deserves to be set aside.
It has further been submitted that reserve price was to be fixed by the authorized officer after obtaining valuation of the secured assets from an approved valuer and in consultation with secured creditor as provided U/r 8(5) of Rules, 2002, which according to R.2(a) is Chief Manager of Public Sector Bank. However, from material on record, auction proceedings held on 04/06/2010 as well as 22/09/2010, it was Shri Suresh Meena, the then Chief Manager but the decision was taken by four officers of appellant Bank (secured creditor) which nowhere reveals that the decision was taken of reserve price by authorized officer duly vested with the power conferred under Rules, 2002.
It has further been averred that under R.8(6) of Rules, 2002 it is a statutory requirement that borrower has to serve a notice of clear 30 days; however, in instant case, notice regarding sale of immovable property (secured asset) was sent to the applicant herein on 03/09/2010 and auction was held on 22/09/2010. Counsel submits that in absence of 30 days' clear notice in regard to the auction of secured assets being granted, very auction proceedings held on 22/09/2010 deserves to be cancelled.
Counsel further submits that it is the requirement U/r 8(2) of Rules, 2002, for the notice to be published in two leading news papers and earlier when the auction was held on 04/06/2010, notice was published in daily news papers (Rajasthan Patrika - All Edition and Business Standard) while the auction impugned held on 22/09/2010, notice was published in Dainik Navjyoti having no wide circulation even in State of Rajasthan; in such circumstances, auction proceedings held pursuant to public notice being published in Dainik Navjyoti cannot be considered of having wide circulation, which could be said to be one of reasons for which the bidders could not participate in auction proceedings held by the Bank on 22/09/2010.
Counsel further submits that this Court vide order dt.27/05/2010 directed that the intending bidders be given opportunity to have inter-se bidding but no such opportunity was given by appellant Bank after the auction held on 22/09/2010. Counsel submits that the endeavor of applicant is to ensure that auction may take place in fair, transparent & objective manner and the secured asset may fetch maximum value which can be realised thereof but on account of serious substantive as well as procedural irregularities being committed by the Bank, optimum price of secured asset/immovable property could not have been realised and certainly it has caused great prejudice to the applicant.
Shri Gopal Garg, Senior Advocate appearing for the Bank initially raised preliminary objection that regarding auction held on 22/09/2010 remedy lies U/s 17 of Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (SARFAESI Act) but after arguments on merits being made by respondent, preliminary objection was not pressed; and submits that since matter may be heard by Court on merits in regard to auction proceedings held on 22/09/2010.
As regards fixation of reserve price, Counsel for the Bank submits that both the valuers are approved one and initially by approved valuation, reserve price of immovable asset was fixed at Rs.7.75 Crores under report dt.15/04/2010 of Akar Consultant which was initially taken note of, but when the auction held on 04/06/2010 finally failed and no one could come forward beyond Rs.7.75 crores, the authorized officer took note of 2nd valuation report dt. 26/04/2010 of Shri Rakesh Chandwani, based on which, reserve price was fixed at Rs.6.10 Crores and auction process was initiated by appellant-Bank to put secured asset for auction on 22/09/2010 in terms of procedure provided under Rules, 2002.
It has specifically been averred that both the valuers are approved within the meaning of R.2(d) of Rules, 2002 and the Head Office level committee has accepted the valuation assessed vide report dt.15/04/2010 for the auction to be held on 04/06/2010 but since the auction failed for the reasons (supra), 2nd valuation reportdt.26/04/2010 was taken note of which was accepted by Head Office Level committee on 09/08/2010 and accordingly reserve prices was fixed of Rs.6.10 Crores based on 2nd valuation report dt.26/04/2010 and the auction was held on 22/09/2010.
In fact, three bidders in all had participated and among three, highest bidder was of Rs.6,11,10,000/- which was more than the reserve price and who has deposited 25% of bid amount including earnest money but the bid could not be finalised since there was a stay granted by Division Bench while disposing of the special appeal vide judgment dt.16/11/2010 that the bid should not be finalized before the objections are decided by the Company Judge; as such further auction proceedings could not have taken place.
Counsel for the Bank submits that as regard valuation of secured asset, this Court would not like to interfere in the matter of valuation unless the methodology adopted by Bank is arbitrary, which is not the case set up by the applicant. It has been further urged that at the time when valuation of the secured assets being assessed and reserve price thereof is fixed, there is no requirement under law particularly U/r 8(5) of Rules, 2002 to afford opportunity of hearing to the debtor; as such no error has been committed by the Bank while fixing reserve price of secured asset based on its approved valuation report and initiating further proceedings while holding auction on 22/09/2010 are in conformity to the statute.
Counsel for the Bank further submits that auction notice was published in Dainik Navjyoti having its wide circulation in support whereof, certificate dt.30/07/2007 from Public Relation Department has been placed according to which Dainik Nav Jyoti news paper is having a circulation at Jaipur, Ajmer, Kota & Jodhpur on being registered in list of State category; as such according to Counsel, publication for auction notice in news paper Dainik NavJyoti having wide circulation; and at the same time, it has been urged that public notice was also published in daily news paper Business Standard; therefore, the Bank took all pre-cautions for wide publication of auction of secured asset so that optimum value of the property could be fetched.
As regards publication of auction notice in Rajasthan Patrika and inviting inter-se bid, Counsel for the Bank submits that there was no such direction being given by this Court vide order dt.27/05/2010 while at the same time even Rules, 2002 does not require for holding inter-se bidding.
As regards advance notice for sale, Counsel for the Bank submits that 30 days advance notice was already served upon respondent-1 (applicant) while the auction was held on 04/06/2010; inasmuch as 30 days clear notice is not required when the 2nd auction is held and the requirement is that the applicant must have knowledge of the auction sale being taken place and requirement indisputably in instant case was complied with when first auction having been held on 04/06/2010 but upon having failed, the Bank was not supposed to serve fresh notice while holding 2nd auction sale held on 22/09/2010 and that apart, after notice was sent to the applicant on 03/09/2010 for the auction to be held on 22/09/2010 and it was published in news paper and after expiry of 30 days from the date of public notice being published; there was 30 days' clear notice from the date of publication of the sale and no error was committed by the Bank holding auction proceedings on 22/09/2010 fixing reserve price at Rs.6.10 Crores.
This Court has considered rival contentions made at the bar and with their assistance, examined the material on record. There cannot be any controversy on the issue that when the statute provides a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention thereof.
It has been hitherto uncontroverted that where a statute requires to do a thing in a certain way, it must be done in that way or not at all; and other methods or mode of performance are impliedly and necessarily forbidden; meaning thereby if statute provides for a thing to be done in a particular manner, then it ought to be done in that manner and in no other manner; thereby to follow other course is not permissible.
Object and legislative intent of present Rules, 2002 primarily behind is that for secured assets to be put to auction, procedure being followed must be fair, transparent and in an objective manner so that the property under auction must fetch optimum price and the procedure provided under the Scheme of Rules, 2002 be strictly followed, which implies that first charge holder must act in a manner which protects not only its own interest but also the interest of subsequent charge holder, if any & the mortgagor. It further implies that first charge holder is supposed to get best possible price for the mortgaged assets which must be in the context of fair market value thereof; and reasonableness in the procedure adopted is required to be tested against dominant consideration to secure the best price.
In the present Scheme of Rules, 2002, procedure regarding sale of secured asset, procedure to be followed has been provided U/r 8 & R.9 of Rules, 2002. R.8(2), 8(5), 8(6) & 9 (1) of Rules, 2002 being relevant read ad infra:
8(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.
(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 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 assets 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 ...................
xxxx xxxx xxxx
9. (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(4) or notice of sale has been served to the borrower.
From the Scheme of Rules, 2002 (supra) it emerges that before effecting sale of immovable property, authorized officer has to obtain valuation of the property from an approved valuer and in consultation with secured creditor, fix the reserve price of the property and the property cannot be sold below the reserve price is disclosed. Authorized officer is defined U/r 2(f) of Rules, 2002, which postulates an Officer not less than in the rank of Chief Manager.
Scheme of Rules, 2002 (supra) further envisages that possession notice is mandatorily required to be published in two news papers having wide circulation in concerned area and one of them must be published in vernacular language; and after having valuation report from an approved valuer, the auhtorised officer has to take a decision for fixation of reserve price and further to follow modes as provided U/r 8(5) about alienation of the property either of inviting tenders, holding public auction and even by private negotiations. But at the same time, R.8(6) casts obligation to serve upon borrower a 30 days prior notice for the sale of the immovable property under sub-rule (5). R.9(1), provides that no sale of immovable property shall take place before expiry of 30 days from the date of publication of public notice of sale in news paper referred to in proviso to sub-rule (5) of R.8 or notice of sale being served to the borrower. Proviso to R.9(2) further envisages that no sale U/r 9(2) shall be confirmed if the bid amount offered by bidder price is less than the reserve price, specified under sub-rule (5) of R.9.
Indisputably public money should be recovered and recovery should be made expeditiously but at the same time, it does not mean that financial institutions remain concerned only with the recovery of their loans and be permitted to dispose of secured assets in an unreasonable or arbitrary manner or in flagrant violation of statutory provisions supposed to be complied with.
In the instant case, what is more disturbing to the Court is that there were two valuation reports being called upon by the Bank; one was submitted by Akar Consultant through Mr. Piyush Kumar Goyal Chartered Engiener on 15/04/2010 and at the same time, 2nd valuation report dt.26/04/2010 was submitted by Shri Rakesh Chandwani, who as alleged is also an approved valuer under Rules 2002.
M/s Akar Consultant considered market value of the land (secured asset) as Rs.28,000/- per sq. meter and at the same time, 2nd valuer (Shri Chandwani) considered it as RS.14,000/- per sq. meter, which is just half of the valuation made by the former. It is true that valuation report of the secured asset is not supposed to be examined and cannot be scrutinized by the Court due to it being based on various surrounding circumstances while determining valuation thereof being assessed. But, apparent features regarding valuation of the land (secured asset) as assessed by both the approved valuers who submitted their reports dt. 15/04/2010 & 26/04/2010 assigning much variances when could not be accepted at the face value by a man of ordinary prudence, to that extent, can be interfered by this Court.
Without expressing any opinion regarding valuation reports any further furnished by valuers who as alleged are approved valuers within the definition as provided U/r 2(d) of Rules, atleast 2nd valuation report requires re-consideration and it appears that this fact was not taken note of by authorized officer while accepting 2nd report having variance in valuation of land reducing to Rs.14,000/- per sq. meter; whereas another approved valuer in his report dt.15/04/2010 had assessed market value of secured asset in question @ Rs.28,000/- per sq. meter which is just the half of valuation of secured asset. It appears that the authorized officer has also not taken note of that apart from secured asset being an industrial plot, commercial plot having put to auction by the authority in similar area at Rs.20,000/- to Rs.25,000/- - date of its auction was contemporaneous i.e. 12/06/2010 & 02/08/2010. In considered opinion of this Court, before 2nd valuation report being accepted by authorised officer and having not taken note of salient aspects (supra), auction proceedings pursuant thereto, being carried & held on 22/09/2010 cannot be approved by this Court.
This Court finds substance in the submissions made that while the auction earlier held on 04/06/2010, public notice was published in Rajasthan Patrika (All Edn.) & Business Standard, for which this Court can take judicial notice that it has a wide circulation in the State of Rajasthan but while auction being held on 22/09/2010, public notice was published in Dainik Navjyoti supported with letter dt.30/07/2007 of Public Relation Officer Government of Rajasthan regarding circulation. But, once public notice was published by the Bank in Rajasthan patrika (All Edn) when first auction proceeding held on 04/06/2010, there appears to be no justification in having public notice published in Daink NavJyoti while 2nd auction proceedings held on 22/09/2010. No reason whatsoever has come on record in getting public notice published for 2nd auction proceedings Dainik NavJyoti, which is not having that wide circulation inviting tenders from public at large and that may be one of reasons that expected tenderers could not participate and only three bidders quoted marginal amount above the reserve price having been disclosed in public notice and that could be one of reasons due to which better price could not have been fetched of the secured asset while being put to auction by the Bank held on 22/09/2010.
It is true that there is no provision under the Scheme of Rules, 2002 for holding inter-se bidding/negotiations with the bidders but it may be in the interest of the secured creditor/mortgagor, if methodology of inter se bidding or negotiations with the bidders is adopted, which might fetch the better price than what the bidders have quoted in their tender document pursuant to public notice inviting tenders provided under R.8(5) of Rules, 2002. However, this Court would like to record that what has been observed (supra) has to be examined in the facts of each case and open for the authorized officer to take a decision as provided under the law.
Shri Vijay Choudhary appearing on behalf of respondent-2-Company & other Directors, submits that they are holding 54% shares and have no objection regarding sale of secured assets conducted by the Bank pursuant to auction held on 22/09/2010. However application has been filed by Prashant Jhunjhunuwala questioning auction proceedings impugned holder of minority share holdings.
It may be their inter se dispute that majority share holders are not having any objection regarding auction held on 22/09/2010 but if it being questioned even by minority share holder, it is the duty of the Court to see as to whether the process followed by the Bank and the procedure adopted regarding auction of secured assets is in conformity with the procedure provided under Rules, 2002.
As regards objection raised by applicant respondent-1 regarding 30 days clear notice as provided U/r 8(6), suffice it to say that 30 days' clear notice before auction of secured asset was provided to respondent-1 (applicant herein) in course of first auction proceedings being held and there is no requirement under law to issue 30 days clear notice for every intended auction sale under Rules, 2002 as considered by Division Bench of Madras High Court in Kalpesh PC Surana Vs Indian Bank (IV(2010) BC 612 (DB).
However, in instant case, when auction was initiated and held on 04/06/2010, 30 days clear notice was granted to the applicant and even when 2nd auction was held on 22/09/2010; sufficient notice period was granted to the applicant and apart from procedure being followed by respondent-Bank and complied with, no prejudice could be said to have caused to the applicant on account of alleged short of notice being served upon applicant regarding auction held on 22/09/10.
Consequently, for the reasons (supra) application (Inward No.24680/dt.22/11/2010) stands allowed. Auction held on 22/09/2010 is hereby cancelled. Appellant-Bank is directed to get fresh valuation report from approved valuer other than two who had earlier submitted their valuation reports (supra) and after obtaining fresh valuation report, the Bank may proceed further after undergoing procedure provided under Scheme of Rules, 2002. At the same time, this Court would like to observe that public notice may be published in two daily leading news papers viz. Rajasthan Patrika (All Edn) & Business Standard as was taken note of while auction being held on 04/06/2010. No costs.
(Ajay Rastogi), J.
K.Khatri/p21/ 1Co.Appeal2009RsrFeb10Appl.doc