Karnataka High Court
New Horizon Educational And Cultural ... vs The Federal Bank Limited on 5 July, 2023
Bench: Chief Justice, M.G.S. Kamal
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NC: 2023:KHC:23107-DB
WA No. 397 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF JULY, 2023
PRESENT
THE HON'BLE MR PRASANNA B. VARALE, CHIEF JUSTICE
AND
THE HON'BLE MR JUSTICE M.G.S. KAMAL
WRIT APPEAL NO. 397 OF 2023 (GM-RES)
BETWEEN:
NEW HORIZON EDUCATIONAL
AND CULTURAL TRUST,
100 FEET ROAD, INDIRANAGARA,
BENGALURU - 560 038.
REPRESENTED BY ITS MANAGING TRUSTEE
DR MOHAN MANGNANI
...APPELLANT
(BY SRI. UDAYA HOLLA. SR. ADVOCATE FOR
Digitally SRI. VIVEK HOLLA, ADVOCATE)
signed by
SUMA B N AND:
Location:
High Court of 1. THE FEDERAL BANK LIMITED
Karnataka
No.13, CHURCH STREET,
II FLOOR, MSR WEST PARK,
BENGALURU - 560 001
REPRESENTED BY ITS MANAGER.
2. THE SOUTH INDIAN BANK
SIB ARCADE, No.61,
WHEELER ROAD, COX TOWN,
BENGALURU - 560 005.
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NC: 2023:KHC:23107-DB
WA No. 397 of 2023
REPRESENTED BY ITS
JOINT GENERAL MANAGER
3. AUTHORISED OFFICER UNDER SARFAESI ACT
AND ASST. VICE PRESIDENT,
FEDERAL BANK, No.3,
CHURCH STREET, II FLOOR,
MSR WEST PARK,
BENGALURU - 560 001.
4. THE RESERVE BANK OF INDIA
NRUPATHUNGA ROAD,
BENGALURU - 560 001,
REP. BY ITS CHIEF MANAGER.
5. SRI. B V SADANAND
S/O VENKATASWAMY REDDY,
6. MRS. S L MANJULA
W/O B V SADANANDA,
7. Ms.SAHANA REDDY
D/O B V SADANANDA,
8. Ms.SANJANA REDDY
D/O B V SADANANDA,
RESPONDENT Nos.5 TO 8 ARE
RESIDING AT No.801, MVR NILAYA,
9TH MAIN ROAD, 3RD BLOCK,
KORAMANGALA,
BENGALURU - 560 034.
9. KLSR INFRATECH LIMITED
HN NO 2-56/D/213/9A AND 9B
FLAT No.4B, KLSR TOWERS,
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NC: 2023:KHC:23107-DB
WA No. 397 of 2023
NEAR YSR STATUTE,
AYYAPPA SOCIETY,
MADHAVPUR,
HYDERABAD - 500 081
REPRESENTED BY ITS MANAGING DIRECTOR
...RESPONDENTS
(BY SRI. D.R. RAVISHANKAR SR. ADVOCATE FOR
SRI. B.R. VISWANATH, ADVOCATE FOR C/R3;
SRI. ASHOK HARANAHALLI, SR. ADVOCATE FOR
SRI. SUSHEEL KUMAR HALDI, ADVOCATE FOR C/R9)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO CALL FOR THE
RECORDS OF THE CASE W.P. NO. 5145/2023 AND FURTHER BE
PLEASED TO SET ASIDE THE ORDER DATED 28.03.2023
PASSED BY THE LEARNED SINGLE JUDGE OF THIS HON'BLE
COURT IN W.P. NO.5145/2023 AND GRANT SUCH OTHER AND
FURTHER RELIEFS AS ARE JUST INCLUDING THE COST OF
THIS APPEAL.
THIS APPEAL COMING ON FOR PRELIMINARY HEARING,
THIS DAY, M.G.S.KAMAL J., DELIVERED THE FOLLOWING:
JUDGMENT
This writ appeal is against the order dated 28.03.2023 passed in W.P.No.5145/2023 rejecting the writ petition filed by the appellant seeking relief of declaration to declare that the E-auction held by respondents 1 to 3 for the sale of schedule property to be illegal and void and -4- NC: 2023:KHC:23107-DB WA No. 397 of 2023 for a further direction to the respondents 1 to 3 to conduct a fresh auction sale.
2. The case of the appellant is that respondents 5 to 8 being borrowers from respondents 1 and 2 defaulted in repayment resulting in respondents 1 and 2 initiating action against them under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act for short), which eventually resulted in conducting of E-auction of the secured asset namely schedule property. That the respondent-bank had notified the date of conducting E- auction to be on 28.02.2023 in which appellant and respondent No.9 were the participants. Respondent No.9 was declared to be the successful bidder.
3. The only contention of the appellant is that the appellant was the highest bidder at Rs.52 crores at 03:54:21 hours. However, thereafter respondent No.9 had been declared as successful bidder at Rs.52.10 crores. -5-
NC: 2023:KHC:23107-DB WA No. 397 of 2023 That the declaration of respondent No.9 as a successful bidder is fraudulent, arbitrary and illegal inasmuch as according to the appellant his was the last bid that was placed at 15:54:21 hours and according to the details at his screen the closing hour of the auction was just about a second away and there was no other bid placed by any one much less the respondent No.9. That after the end of bid process as indicated in the screen shot produced at Annexure-A the screen did not show hour, minutes and seconds and it was blank. Thus, it is contended that the entire process of E-auction is vitiated warranting interference.
4. The case of the respondent-bank is that E- auction was conducted in accordance with terms and conditions of the sale as set out in the sale notice. The E- auction was conducted by an external agency namely M/s.4 Closure following all the due process. That the registration of appellant at the portal and submission of all relevant particulars, obtaining user ID and Password to -6- NC: 2023:KHC:23107-DB WA No. 397 of 2023 participate in the E-auction and all incidental aspects were monitored and controlled by the said E-auction agency. That failure to access the portal due to technical reasons if any will not amount to irregularity. That the final bid of respondent No.9 was accepted at 15:57 hours and thereafter there was no bid on behalf of the appellant. As such, respondent No.9 was declared as highest bidder automatically.
5. Along with the statement of objections respondent produced bid summary regarding conducting of E-auction by M/s.4 Closure as per Annexure-R-1 and a certificate under Section 65B of Evidence Act as per Annexure-R-3.
6. Learned Single Judge after hearing the learned counsel appearing for the parties, dismissed the writ petition by the impugned order as the appellant had not demonstrated any arbitrariness in the auction process -7- NC: 2023:KHC:23107-DB WA No. 397 of 2023 warranting judicial review. Aggrieved by the same, present appeal.
7. Sri.Udaya Holla, learned Senior counsel appearing for the appellant vehemently submitted that the auction had not been conducted properly inasmuch as though the appellant was the highest bidder, respondent No.9 was shown to be highest bidder even after the end of bidding time. Thus, he submits that a fraud has been played upon the appellant vitiating the entire process of E- auction. The appellant who was the highest bidder at Rs.52.10 crores the time when the bidding time ended given an opportunity, is still willing to bid for higher amount upto 60 Crores. But since the screen shot after 4 P.M. went blank indicating end of the auction, appellant could not offer any higher bid. That the entire auction is contrary to the spirit and mandate of SARFAESI Act and the law governing the public auction, in that he submits that the object ought to be to achieve the highest sale consideration in the interest of securing the public money -8- NC: 2023:KHC:23107-DB WA No. 397 of 2023 and also benefiting the borrower whose property is put to auction. He insists that a fresh auction be conducted providing the appellant an opportunity to bid higher amount. He relied upon the following decisions in support of his submissions:
"1. SCANIA COMMERCIAL VEHICLES INDIA PRIVATE LIMITED VS GOVERNMENT OF KARNATAKA AND OTHERS reported in 2016 SCC online Kar 6744.
2. RAM AND SHYAM COMPANY VS. STATE OF HARYANA AND OTHERS reported in (1985) 3 SCC 267.
3. MANOJ I NAIK AND ASSOCIATES VS. OFFICIAL LIQUIDATOR reported in (2015) 3 SCC 112.
4. J. RAJIV SUBRAMANIYAN AND ANOTHER VS. PANDIYAS AND OTHERS reported in (2014) 5 SCC 651.
5. SHRADHHA AROMATICS PRIVATE LIMITED VS. OFFICIAL LIQUIDATOR FOR GLOBAL ARYA INDUSTRIES LIMITED AND OTHERS reported in (2011) 6 SCC 207.
6. STATE OF PUNJAB AND OTHERS VS. MEHAR DIN reported in (2022) 5 SCC 648
7. SHANKERAPPA VS. SUSHILABAI reported in AIR 1984 KAR 112".
8. Sri.D.R.Ravishankar, learned Senior counsel appearing for respondent-Bank submitted that there has been no fraud of any nature in the process of conducting E-auction. Referring to letter issued by the appellant -9- NC: 2023:KHC:23107-DB WA No. 397 of 2023 produced at Annexure-F at 6.10 P.M. of 28.02.2023, learned Senior counsel submitted that the appellant was aware that before the closing of time for bidding his timer went blank. He also referred to a letter dated 06.03.2023 Annexure-R-1, along with E-auction report issued by M/s.4 Closure India Ltd., E-auction agency wherein it is pointed out that the appellant had accessed the website from two different IP addresses on the date of auction. The first IP address was used to access between 11:00:09 a.m. and 03:54:21 P.M. and the second IP address has been used between 04:07:35 P.M. and 04:19:07 P.M. Thus he submits that the technical error if any was at the appellant's end even before the closure of bidding time. Further referring to enclosure to Annexure-R-1 namely E- auction report learned Senior counsel pointed out the time snaps of the appellant and respondent No.9 right upto the end of the highest bid amount quoted by them. In that the last bidding time of the appellant is shown as 03:54:21 P.M. and the last bidding time of the respondent No.9 is shown as 03:57:00 p.m. He also referred to a
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NC: 2023:KHC:23107-DB WA No. 397 of 2023 document at Annexure -R-3 namely certificate issued by said E-auctioning agency certifying the authenticity of the E-auction documents produced at Annexure-R-1 and its enclosures. He submits that since the appellant has neither denied nor rebutted the said documents, the same deemed to have been admitted by the appellant. As regards the contention of the appellant for conducting the fresh auction, learned Senior counsel relies upon the Judgment of the Apex Court in the case of Pegasus Assets Reconstruction Pvt. Ltd., Vs Haryana Concast Limited and anr reported in (2016) 4 SCC 47. Hence, he seeks for dismissal of the appeal.
9. Sri.Ashok Haranahalli, learned Senior counsel appearing for respondent No.9 drawing attention of this Court to the terms of auction notice submitted that clause 5 specifically provides that the auction sale would be through online electronic bidding process between 11 a.m.
- 1 p.m. (IST) with unlimited extension of five minutes each commencing at the reserve price with the bidder to
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NC: 2023:KHC:23107-DB WA No. 397 of 2023 improve offer in multiples of 10 lakhs. That bank or the auction conducting agency would not be liable towards the bidders for any interruption or delay in accessing the site irrespective of cause. He further submits that appellant having participated in the bidding process, accepting the terms of the sale notice cannot be permitted to challenge the same after being unsuccessful in the process. He submits that the appellant's offer to pay 60 crores is an after thought since he has commenced bidding by quoting Rs.44.10 crores and ended with 52 crores. He submits that the judicial review in cases involving tender for contracts shall be restricted unless arbitrariness and malafides are established. He relied upon Judgments of Apex Court in the case of National High Speed Rail Corporation Limited Vs Montecarlo Limited and anr reported in (2022) 6 SCC 401, N.G.Projects Ltd., Vs Vinod Kumar Jain and others reported in (2022)6 SCC 127 and Central CoalFields Ltd., and anr Vs SLL-SML (Joint Venture Consortium) and others reported in (2016) 8 SCC 622. Hence, seeks for dismissal of the appeal.
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10. Heard and perused the records.
11. As already noted above, the only contention being raised and the legal arguments built around it by the appellant is, that at 3:54 p.m. appellant bid amount at Rs.52 crores was the highest and E-auction portal extended the time by five more minutes and even at last 01 second of the closing of the bid time appellant remained the highest bidder. That the screen shot produced by him at Annexure-A indicated that Rs.52 crores was the highest bid and being the last bid amount appellant ought to have been declared as the highest bidder. That since he did not receive the confirmation he approached the bank and only then it was informed that appellant was not the highest bidder and someone else had quoted the final bid amount at Rs.52.10 crores. That the appellant was willing to bid higher amount than the said 52.10 crores, and since the screen shot after 4 P.M. went blank indicating that the auction
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NC: 2023:KHC:23107-DB WA No. 397 of 2023 had ended, the appellant could not offer any higher bid. Hence, it is alleged that fraud has been played.
12. As already noted above and even as rightly taken note of by learned Single Judge the auction process has been conducted by a third party agency namely M/s.4 Closure. Document at Annexure-R-1 along with enclosures would categorically indicate that the appellant had used two IP addresses namely (1) 14.99.188.242 between 11:00:09 a.m. and 03:54:21 p.m. and (2) 202.62.95.70 between 04:07:35 p.m. and 04:19:07 p.m. A certificate as required under Section 65B of the Evidence Act at Annexure-R-3 is produced. The contents of the aforesaid documents would reveal that the appellant had access to the website from his first IP address upto 03:54:21 P.M. and he logged in thereafter through his second IP address only at 04:07:35 P.M. and remained upto 04:19:07 P.M. Whereas respondent No.9 had placed his final bid of Rs.52.10 crores at 03:57:00 P.M. Indicating technical snag at the appellant's end.
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13. Clause 5 of the sale notice produced at Annexure-B provides that date and time of auction on 28.02.2023 between 11 a.m. and 1 p.m.(IST) with unlimited extension of 5 minutes each and the bidders to improve their offers in multiples of 10 lakhs. Clause 9 of the sale notice also provides that bank/M/s.4 Closure shall not have any liability towards bidders for any interruption or delay in access to the site irrespective of the cause.
14. The aforesaid aspects of the matter have been brought on record by respondents 1 and 3 in their statement of objections more particularly at paragraphs 4, 6, 9, 10 and 13. There has been no denial or rebuttal by the appellant either to the averments made in these paragraphs or to the Annexures enclosed therewith. Thus, as rightly contended by Sri.D.R.Ravishankar, learned Senior counsel for respondent -bank appellant cannot be heard to say that a fraud has been played in the auction process to eschew the appellant and to favour the respondent No.9.
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15. The offer being made by the appellant now before the Court by quoting Rs.60 crores as the bid amount on the premise of he having been deprived of opportunity to place his highest bid and reliance placed on by learned Senior counsel Sri.Udaya Holla on the Judgments of this Courts and Apex Court referred to above is of no consequences as the facts and circumstances involved in the present case are completely different and distinct from the one involved in the said Judgments. In the absence of any specific denial by the appellant with regard to he logging into the auction website through two different IP addresses at different times mentioned hereinabove and in the absence of any contra material being placed for consideration, the submission on arbitrariness, unreasonableness or on fraud as sought to be made out cannot be countenanced. Besides, as held by the Apex Court in the case of Pegasus Assets Pvt. Ltd., supra that if every confirmed sale is to be set aside there will be no auction-sale would ever be complete as always
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NC: 2023:KHC:23107-DB WA No. 397 of 2023 somebody can come after the auction or its confirmation offering higher amount.
16. Learned Single Judge having taken note of the factual and legal aspect of the matter in detail, in our considered opinion has come to just conclusion warranting no interference in the matter.
For the aforesaid reasons and analysis, appeal is dismissed.
Sd/-
CHIEF JUSTICE Sd/-
JUDGE SBN