whether the private treaty entered into between respondents 2 and 3 is valid in law.= As per Rule 8(5), the first respondent can sell the property by obtaining quotations from the persons dealing with similar secured assets or others interested in buying such assets or by inviting tenders from public. These two options were not followed and admittedly, the property was attempted to be sold by conducting public auction and as there were no bidders, the property could not be sold by public auction. Thereafter, on 8.12.2006, the first respondent entered into a private treaty with respondents 2 and 3 for the sale of the property on the same date, respondents 2 and 3 paid the amount aforementioned and whether the sale of the properties by entering into private treaties on 8.12.2006 is in accordance with rules is the subject matter of this writ. Admittedly, the bank is entitled to enter into private treaty for sale of the properties. 10. It is further not in dispute that the reserve price for the 76 cents of property in S.No.665 part was fixed at Rs.110/= lakhs and by entering into a private treaty, it was sold for a sum of Rs.69,00,000/=. As per the proviso to Rule 9(2), no sale shall be confirmed when the amount offered by the sale price is less than the reserve price. The second proviso to Rule 9(2) further provides that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor, have the sale at such price. Therefore, a reading of the two provisos to Rule 9(2), would make it clear that when the sale price is less than the reserve price, a sale can be effected with the consent of the borrower and the secured creditor. = Therefore, in my opinion, even though the petitioners, have not availed the alternative remedy, as per section 17 of the SARFAESI Act, having regard to the fact that the sale was not conducted in accordance with the provisions of Rule 9(2), the sale is not valid and therefore, it is liable to be quashed.- as per Rule 8(6), thirty days notice ought to have been given when the sale is to be effected by any of the modes under Rule 8(5) (a) to (d) and admittedly, no notice was given as per Rule 8(6) and therefore, there is violation of Rule 8(6) and 8(8) in conducting the sale and on that ground also, the sale is liable to be quashed.
published in http://judis.nic.in/judis_chennai/qrydisp.aspx?filename=58343
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATE: 21/02/2011
CORAM
THE HON'BLE MR.JUSTICE R.S.RAMANATHAN
W.P.(MD)No.325 of 2007
and
M.P.Nos.2 and 3 of 2007
1. M/s.Pandiyas
rep by its Proprietor
T.Rajapandian,
Thanakkankulam,
Thirunagar,
Madurai 625 006.
2. M/s.Suruthi Fabrics,
rep by its Partner
R.A.Padmavathi,
H-8, SIDCO Industrial Estate,
Kappalur, Madurai 625 008. ... Petitioners
vs.
1. The Assistant General Manager and
Authorised Officer,
State Bank of India,
Commercial Branch,
Post Box No.162,
6-A West Veli Street,
Madurai 625 001.
2. J.Rajiv Subramanian
3. Mrs.Nirmala Jeyabalan ... Respondents
Writ Petition filed under Article 226 of the Constitution of India for
issue of a
writ of declaration declaring the impugned sale certificate dated
20.12.2006 vide document No.8508 of 2006 on the file of the District Sub
Registrar, Madurai South relating to the properties of M/s.Suruthi
Farms/Pandiyas and vide Document Registration Receipt No.P200600337 of 2006 on
the file of the District Sub Registrar, Thirumangalam, Madurai District relating
to properties of M/s.Suruthi Fabrics as null and void and
direct the first
respondent to restore the properties of the petitioners in a same position as it
was before and give sufficient time to sell the land and building of above said
M/s.Suruthi Farms/Pandiyas and M/s.Suruthi Fabrics as per the market value in
the presence of the 1st respondent till the realization of the remaining loan
amount as agreed upon.
!For petitioners... Mr.K.M.Vijayan, Senior Counsel for
Mr.B.Saravanan
^For R1 ... Mr.N.Murugesan
For RR 2 and 3 ... Mr.B.S.Gnanadesikan
:ORDER
The petitioners prayed for a declaration that the sale certificate is null
and void and to restore the properties of the petitioners to them.
2. The brief facts that are necessary for deciding the issue are as
follows:-
The petitioner Firms availed loan from the State Bank of India and there
was default in payment of dues and according to the first respondent, the
accounts of the petitioners became non-performing assets and therefore, action
was taken under the SARFAESI Act and section 13(2) notice dated 8.6.2005 was
issued directing the petitioners to pay a sum of Rs.1,62,60,158.65 being the
amount payable by the two Firms.
It was followed by section 13(4) possession
notice dated 12.1.2006 and possession was taken by the secured creditors.
Thereafter, various correspondence took place between the petitioners and the
first respondent and the petitioners also wanted to avail one time settlement
and the petitioners also filed various writ petitions before this court for
various reliefs.
According to the petitioners, as per the advice of the first
respondent bank, the petitioners withdrew the writ petitions which fact was
disputed by the first respondent.
Auction notice was issued on 23.5.2006 fixing
the date of auction on 7.7.2006 and the properties belonging to Sruthi Fabrics
viz., 76 cents in S.No.665 part was valued at Rs.110 lakhs being the reserve
price and Rs.55 lakhs was fixed as reserve price for the lands with building
belonging to Sruthi Firms and Factory building of Pandias.
The petitioner
challenged the auction notice by filing O.A.No.58 of 2006 before the Debt
Recovery Tribunal and conditional order was passed directing the petitioners to
pay a sum of Rs.20,00,000/= and the petitioners could not comply with the
condition.
Thereafter, the petitioners sought permission of the bank to sell
the machineries and the bus belonging to the petitioners and by the sale of the
machineries and the bus, a sum of Rs.42,00,000/= was credited to the account of
the petitioners.
According to the petitioners, as per the advice of the bank,
they withdrew O.A.No.58 of 2006 on 3.10.2006 which was also disputed by the
bank.
Thereafter, on 8.12.2006, the bank sold the properties for a total sum of
Rs.1,23,10,000/= in favour of respondents 2 and 3 under a private treaty and the
sale certificate was issued on 15.12.2006 and the sale deeds were registered on
20.12.2006 which is challenged in this writ petition.
3. Mr.K.M.Vijayan, learned Senior Counsel for the writ petitioners
submitted that the sale conducted by the first respondent bank was not in
accordance with the provisions of sections 8 and 9 of the Security Interest
(Enforcement) Rules, 2002 and the bank has also not followed the provisions of
section 13(3A) of the SARFAESI Act and therefore, the sale is void and
respondents 2 and 3 will not get any right under the sale.
The learned Senior
Counsel further submitted that
during the pendency of the writ, on 20.3.2007,
the petitioners offered to pay Rs.1,41,00,000/= to respondents 2 and 3 and that
was also accepted by the first respondent as well as respondents 2 and 3 and
when the matter was posted on 24.3.2007, the petitioners produced the Demand
Draft for Rs.1,41,00,000/= and at that time, the counsel for the respondents
refused to accept the Demand Draft and by their own conduct, respondents 2 and 3
are estopped from going back on their words and they are bound to accept the
Demand Draft for Rs.1,41,00,000/= as agreed by them and release the properties
and therefore on that account, the sale in favour of respondents 2 and 3 is
liable to be set aside.
The learned Senior Counsel for the petitioner relied
upon the judgment reported in K.RAAMASELVAM v. INDIAN OVERSEAS BANK (2009 (5)
CTC 385) and submitted that when the sale was in contravention of Rules 8 and 9
of the Security Interest (Enforcement) Rules 2002, the sale is liable to be set
aside and also relied upon the judgments reported in RADHA RAMAN SAMANTA v. BANK
OF INDIA ((2004) 1 SCC 605), B.L.SREEDHAR v. K.M.MUNIREDDY ((2003) 2 SCC 355)
and CHHAGANBHAI NORSINBHAI v. SONI CHANDUBHAI GORDHANBHAI ((1976) 2 SCC 951) for
the proposition that respondents 2 and 3 are bound by the undertaking given
before this court to accept the sum of Rs.1,41,00,000/= and they are estopped
from going back from their words.
4. Learned counsel for the first respondent submitted that the accounts
became non-performing Assets and therefore, the bank has taken action under
SARFAESI Act and under section 13(2) followed by section 13(4) and notices were
given in accordance with the provisions of SARFAESI Act and even though the
petitioners came forward to settle the amount, it is proved by their conduct and
by various correspondence that they were not able to make the payment and
therefore, the bank has brought the property for sale by issuing auction notice
and on the date of auction, there were no bidders and even after that the
petitioners made a promise to bring the purchasers to settle their dues and they
were not able to bring the purchasers or to pay the amounts due and payable by
them and therefore, the bank has no other alternative except to enter into a
private treaty with respondents 2 and 3 for the sale of the property and as per
Rule 8(5)(d) of the Security Interest (Enforcement) Rules, the first respondent
is entitled to enter into private treaty for sale of the property ad therefore,
the same cannot be challenged by the petitioners. The learned counsel further
submitted that the writ filed by the petitioner is not maintainable and even if
they are aggrieved by the sale of the property, they will have to take steps
under the provisions of the SARFAESI Act as laid down by the Honourable Supreme
Court in the judgment reported in TRANSCORE v. UNION OF INDIA ((2008) 1 SCC 125)
and therefore, the writ is not maintainable.
5. Mr.Gnanadesikan, learned Senior Counsel for respondents 2 and 3 also
supported the case of the first respondent and submitted that the sale by the
first respondent bank in favour of respondents 2 and 3 is perfectly perfectly
legal and the sale was conducted as per Rule 8(5) of the Security Interest
(Enforcement) Rules and the same cannot be questioned by the petitioners.
Mr.Gnanadesikan, learned counsel for respondents 2 and 3 further submitted that
there is no question of estoppel against respondents 2 and 3 and on 20.3.2007,
the petitioners offered to pay a sum of Rs.1,49,23,061/= and respondents 2 and 3
agreed to accept the same and give back the properties to the petitioners on
condition of payment of the said amount on 21.3.2007, but, the petitioners were
not able to make payment on or before 21.3.2007 and therefore, the petitioners
cannot rely upon the said acceptance as they have not acted according to the
undertaking given by them. The learned counsel for respondents 2 and 3 further
submitted that the writ petition is not maintainable as the petitioners have got
alternative remedy under the provisions of SARFAESI Act and admittedly, no
compromise was entered into between the parties in writing and signed by the
counsel as per the provisions of Order XXIII Rules 1 to 3 of the Code of Civil
Procedure and the sale conducted by the first respondent cannot be set aside.
In support of his contention, the learned counsel for respondents 2 and 3 relied
upon the following judgments:-
1) GURPREET SINGH v. CHATUR BHUJ GOEL (AIR 1988 SC 400)
2) BYRAM PESTONJI GARIWALA v. UNION BANK OF INDIA (AIR 1991 SC 2234)
3) VENKATACHALA BHAT, K. v. KRISHNA NAYAK (2005(2) CTC 232)
4) ST. PAULA Y.S. CHURCH v. PAILY (AIR 1972 KERALA 180)
5) F.MOHD. ABDUL RAZAK v. CHARITY COMMISSIONER (AIR 1976 BOMBAY 304)
6) JASWANTLAL NATVARLAL THAKKAR v. SUSHILABEN MANILAL DANGARWALA (AIR 1991 SC
770)
7) RAJENDER SINGH v. RAMDHAR SINGH (2001 (2) CTC 617)
8) VENKATASWAMI CHETTIAR, V.P. v. A.MARIASUSAI (1997 (II) CTC 140)
9) MUNICIPAL CORPORATION OF DELHI v. PRAMOD KUMAR GUPTA ((1991) 1 SCC 633)
10) PREM RAJ v. IIIRD ADDITIONAL DISTRICT JUDGE (AIR 1992 ALLAHABAD 332)
11) SAGAR MAHILA VIDYALAYA, SAGAR v. PANDIT SADASHIV RAO HARSHE (AIR 1991 SC
1825)
12) JANAK RAJ v. GURDIAL SINGH (AIR 1967 SC 608)
13) HALDHAR PRASAD v. GIRIDIH MUNICIPALITY (AIR 1989 PATNA 321)
14) SARGUJA TRANSPORT SERVICE v. S.T.A.TRIBUNAL, GWALIOR (AIR 1987 SC 88)
15) RAM JUWAN v. DEVENDRA NATH (AIR 1960 MADHYA PRADESH 280)
16) AHMEDALI v. STATE OF MADHYA PRADESH (AIR 1960 MADHYA PRADESH 282)
17) BADRI DASS v. LABHU MAL (AIR 1959 PUNJAB 322)
18) NISHA KANTO v. SAROJ BASHINI (AIR 1948 CALCUTTA 294)
19) MAKHAN LAL v. AMRIT BANASPATI CO. (AIR 1953 ALLAHABAD 326)
6. According me,
the accounts of the petitioners became non-performing
assets and the bank has taken action under section 13(2) of the SARFAESI Act
followed by possession notice issued under section 13(4).
Having regard to the facts narrated above, in my opinion,
the action of the bank in taking
proceedings under section 13(2) and 13(4) of the SARFAESI Act, cannot be found
fault with and the bank has correctly taken action as per the provisions of the
SARFAESI Act when the assets of the petitioners became non-performing assets and
therefore, the arguments of the learned counsel for the petitioners that the
action taken under the SARFAESI Act as per sections 13(2) and (4) are not valid
cannot be accepted.
Having held that the action taken by the first respondent
is legal, we will have to see the following points:-
1) whether the bank has violated the provisions of Rules 8 and 9 of the Security
Interest (Enforcement) Rules (hereinafter referred to as Rules 2002) while
selling the property;
2) whether the non-observance of the procedure contemplated under Rules 8 and 9
as alleged by the petitioners will vitiate the sale.
3) Whether respondents 2 and 3 are estopped from going back on their words in
refusing the accept the offer made by the petitioners.
7. Point Nos.1 and 2:- Mr.K.M.Vijayan, learned Senior Counsel appearing
for the petitioners submitted that
as per Rule 8 (5) of the Rules 2002, the bank
is entitled to sell the property by following any of the methods stated in Rule
8(5) (a) to (d) of the Rules.
According to the learned Senior counsel,
the bank
has decided to conduct public auction and public auction sale notice was
published in the daily Dinamalar dated 23.5.2006 and also in another newspaper
and as per the auction notice, the sale was to take place on 7.7.2006 and the
reserve price for the factory land and building in S.No.665 of an extent of 76
cents was fixed at Rs.110 lakhs and the reserve price for the lands and factory
building belonging to M/s.Pandias situate at Thanakkankulam Village of an extent
of 5.51 acres with building was fixed at Rs.55 lakhs.
Admittedly, on the auction
date, there were no bidders and therefore, the auction was not conducted and
therefore, without informing the petitioners and without the knowledge of the
petitioners, the bank entered into a treaty with respondents 2 and 3 and the
properties were sold for a total sum of Rs.1,23,10,000/= and even prior to the
sale of the property on 8.12.2006, after getting permission from the bank, the
petitioners sold the machineries and the bus for a total sum of Rs.43,00,000/=
and that was remitted into their account and thereafter, without reducing the
above said reserve price and without calling for public auction and without
giving one month's notice as per Rule 8(6) of the Rules, 2002, the bank
clandestinely entered into a private treaty with respondents 2 and 3 and sold
the properties and the properties in S.No.665 of an extent of 76 cents was sold
for Rs.69 lakhs against the reserve price of Rs.110/= lakhs and the properties
of an extent of 5.51 acres was sold for a sum of Rs.54 lakhs against the reserve
price of Rs.55 lakhs and as per the Division Bench of this Court in 2009 (5) CTC
385 (cited supra) and
as per the provisions of Rule 9(2), when the property is
sold for a price less than the reserve rice, the same can be done only with the
consent of the borrower and secured creditors and in this case, admittedly, the
consent of the borrower was not obtained. Further, before entering into a
private treaty with respondents 2 and 3, as per Rule 8(6), the first respondent
ought to have served a notice of 30 days to the petitioners and admittedly, the
notice was not given and therefore, the sale of the properties in favour of
respondents 2 and 3 by the first respondent is not valid.
The learned Senior
Counsel further submitted that the writ petition was posted on 20.2.2007 and
Mr.Jayabalan, husband of the third respondent and the father of the second
respondent, who is also a practising Advocate, appeared on behalf of respondents
2 and 3 in court and represented in open court that if the petitioners were
willing to pay Rs.1,49,23,061/= within three days, respondents 2 and 3 would
vacate the property in question and later it was agreed that the petitioners
shall pay Rs.1,41,00,000/= and the case was adjourned to 21.3.2007 for fixing
the time for making payment and on 21.3.2007, it was represented by the
petitioners that they would make payment on 24.3.27 and when the petitioners
presented the demand draft on 24.3.2007, Mr.Jayabalan, learned counsel for
respondents 2 and 3 refused to accept the same and therefore, the conduct of the
respondents in making the offer of acceptance for Rs.1,41,00,000/= in full quit
and the same was accepted by the petitioners and the case was adjourned to
24.3.2007 for making payment, a contract came into existence and therefore,
respondents 2 and 3 cannot go back on their words and they are estopped from
their going back on their words and they are bound to accept a sum of
Rs.1,41,00,000/= and deliver possession of the property.
8. On the other hand, Mr.Gnanadesikan, learned counsel for respondents 2
and 3 submitted that once the sale has become final, the same cannot be set
aside by filing a writ petition and if at all, the petitioners are aggrieved by
the sale, they will have to file application before the Debt Recovery Tribunal
by invoking the provision of SARFAESI Act and therefore, the writ petition is
not maintainable and relied upon the judgment reported in CHIDAMBARA MANICKAM,K.
v. SHAKEENA (2008 (1) CTC 660).
Mr.Gnanadesikan, learned counsel for
respondents 2 and 3 also submitted that the understanding between the parties
was that the petitioners have to make payment on or before 21.3.2007 and as they
did not make the payment on that day, the agreement between the parties came to
an end and it cannot be enforced thereafter and therefore, when the petitioner
attempted to make payment on 24.3.2007, it was rightly refused by respondents 2
and 3 as it was made beyond the period agreed and therefore, there is no
question of estoppel against respondents 2 and 3. The learned counsel for the
first respondent also supported respondents 2 and 3.
9. We shall first see
whether the private treaty entered into between
respondents 2 and 3 is valid in law.
As per Rule 8(5), the first respondent can
sell the property by obtaining quotations from the persons dealing with similar
secured assets or others interested in buying such assets or by inviting tenders
from public.
These two options were not followed and admittedly, the property
was attempted to be sold by conducting public auction and as there were no
bidders, the property could not be sold by public auction.
Thereafter, on
8.12.2006, the first respondent entered into a private treaty with respondents 2
and 3 for the sale of the property on the same date, respondents 2 and 3 paid
the amount aforementioned and
whether the sale of the properties by entering
into private treaties on 8.12.2006 is in accordance with rules is the subject
matter of this writ.
Admittedly, the bank is entitled to enter into private treaty for sale of the properties.
10. It is further not in dispute that the reserve price for the 76 cents
of property in S.No.665 part was fixed at Rs.110/= lakhs and by entering into a
private treaty, it was sold for a sum of Rs.69,00,000/=.
As per the proviso to
Rule 9(2), no sale shall be confirmed when the amount offered by the sale price
is less than the reserve price.
The second proviso to Rule 9(2) further
provides that if the authorised officer fails to obtain a price higher than the
reserve price, he may, with the consent of the borrower and the secured
creditor, have the sale at such price.
Therefore, a reading of the two
provisos to Rule 9(2), would make it clear that when the sale price is less than
the reserve price, a sale can be effected with the consent of the borrower and
the secured creditor.
In this case, as stated supra, the reserve price for 76
cents was fixed at Rs.110 lakhs but the first respondent entered into a private
treaty for a sum of Rs.69,00,000/= only.
Therefore, when the secured creditor
fails to obtain a price higher than the reserve price, the sale can be confirmed
however with the consent of the borrower and secured creditor and admittedly,
the consent of the borrower was not obtained while effecting the sale.
As
stated supra, the land of an extent of 5.51 acres was sold for Rs.54,10,000/=
against the reserve price of Rs.55,00,000/= and the land of an extent of 76
cents was sold for Rs.69,00,000/= against Rs.110 lakhs.
Therefore, the sale of
properties effected by the first respondent for a consideration below the
reserve price without the consent of the borrower is not in accordance with the
provisions of Rule 9(2).
11. In the judgment reported in 2009(5) CTC 385 (cited supra), this fact
has been dealt with by the Division Bench of this court and the Honourable
Division Bench, after incorporating Rule 9(2) held as follows:-
"8. Since the question raised would depend upon interpretation of Rule 9(2) of
the Security Interest (Enforcement) Rules, 2002, the relevant provisions are
extracted hereunder:-
"9. Time of sale, issue of sale certificate and delivery of possession, etc.--
(1) No sale of immovable property under these rules shall take place before the
expiry of thirty days from the date on which the public notice of sale is
published in newspapers as referred to in the proviso to sub-rule (6) or notice
of sale has been served to the borrower.
(2) The sale shall be confirmed in favour of the purchaser who has offered the
highest sale price in his bid or tender or quotation or offer to the authorised
officer and shall be subject to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the amount offered
by sale price is less than the reserve price, specified under sub-rule (5) to
Rule 8:
Provided further that if the authorised officer fails to obtain a price higher
than the reserve price, he may, with the consent of the borrower and the secured
creditor effect the sale at such price.(Emphasis added)
9. A bare reading of Rule 9(2) makes it clear that three contingencies can arise
when an auction takes place. Those are, (i) the bidder offers an amount, which
is more than the upset price, (ii) the bidder offers an amount, which is less
than the reserve price, and (iii) the bidder offers an amount, which is neither
less nor more than the upset price. If the amount offered by the highest bidder
is more than the upset price fixed under Rule 8(5) the sale shall be confirmed
in favour of such higher bidder. This however, is subject to confirmation by the
Secured Creditor. If the bid amount is less than the upset price, no sale shall
be confirmed as contemplated under the first proviso to Rule 9(2). The second
proviso makes it clear that if the authorised officer fails to obtain a price
higher than the reserve price, the sale can be confirmed only with the consent
of the borrower and the secured creditor. It is thus obvious that if the price
offered is same as the reserve price, it cannot be said that the Authorised
Officer has obtained a price higher than the reserve price. A combined reading
of all the provisions contained in Rule 9(2) makes it clear that if the price
offered is higher than the reserve price, it shall be confirmed by the
Authorised Officer, but such confirmation is subject to the further confirmation
by the Secured Creditor. If however, price offered is not higher than the
reserve price, which means it may be on par with the reserve price or less than
the reserve price, the auction can be confirmed only with the consent of the
borrower and the Secured Creditor and not otherwise. Learned counsel for the
Bank by relying upon the decision of the Supreme Court, has submitted that in
normal circumstances, reserve price is fixed to indicate the minimum price at
which property can be sold. We do not think that such a contention can be
accepted in view of second proviso to Rule 9(2)is to the effect that if the
Authorised Officer fails to obtain a price higher than the reserve price it can
be confirmed only with the consent of the Secured creditor as well as the
borrower and not bereft of such consent. But the learned counsel for the Bank as
well as purchaser had submitted that since the proceeding under Section 17 is
pending, the question now raised in the writ petition as well raised in the
proceedings and in view of such existence of such alternative remedy, the writ
petition should not be entertained."
12. The Honourable Division Bench further held that secured creditor acts
as a trustee and he has to take into consideration the interest of the borrower
while selling the property and if the properties were sold for a good price, the
balance amount can be refunded to the borrower and therefore, while selling the
property, the provisions of Rule 9 have to be strictly adhered and held as
follows:-
"22. A fair reading of the provisions contained in Rule 9 makes it clear that if
the highest bid is higher than the upset price, such highest bid shall be
confirmed by the authorised officer in favour of the highest bidder, which,
however, is subject to confirmation by the secured creditor. This provision is
apparent from the provisions contained in Rule 9(2). At that stage, obviously a
discretion is given to the secured creditor to accept the highest bid or even go
in for a fresh bid.
For example, if the secured creditor, on the basis of the relevant
materials, comes to a conclusion that the highest bid offered, even though
higher than the reserve price, does not reflect the true market value and there
has been any collusion among the bidders, the secured creditor in its discretion
may refuse to confirm such highest bid notwithstanding the fact that the highest
bid is more than the upset price. This is because the secured
creditor is not only interested to realise its debt, but also expected to act as
a trustee on behalf of the borrower so that the highest possible amount can be
generated and surplus if any can be refunded to the borrower. The first proviso
in no uncertain terms makes it clear that no sale can be confirmed by the
authorised officer, if the amount offered is less than the reserve price
specified under the Rule 8(5). However, the subsequent proviso gives discretion
to the authorised officer to confirm such sale even if the bid is less than the
reserve price, provided the borrower and the secured creditor agree that the
sale may be effected at such price which is not above the reserve price. This is
obviously so because the property belongs to the borrower and as security for
the secured creditor and both of them would be obviously interested to see that
the property is sold at a price higher than the reserve price. However, if both
of them agree that the property can be sold, even it has not fetched a price
more than the reserve price, the authorised officer in its discretion may
confirm such auction."
13. Therefore, as per the above judgment a sale by the secured creditor
viz., the first respondent in favour of respondents 2 and 3 for a price less
than the reserve price is against the provisions of Rule 9(2) and therefore, the
sale is not valid and no title passes and the sale is liable to be quashed.
14. In the same judgment, the Honourable Division Bench also discussed
about the alternate remedy and held that the availability of alternative remedy
is not a bar in filing a writ to quash the sale and held that the writ is
maintainable.
Therefore, in my opinion, even though the petitioners, have not
availed the alternative remedy, as per section 17 of the SARFAESI Act, having
regard to the fact that the sale was not conducted in accordance with the
provisions of Rule 9(2), the sale is not valid and therefore, it is liable to be
quashed.
15. Further, as per Rule 8(6), thirty days notice should be given to the
borrower before taking action as per Rule 8(5). In this case, the auction
notice was issued on 23.5.2006 informing the date of auction as 7.7.2006. On
that date, the sale could not take pace as there were no bidders. Thereafter,
the bank entered into a private treaty on 8.8.2006 and a reading of Rule 8(5)
and (6), in my opinion, makes it clear that when the bank resorts to another way
of selling the property, thirty days notice ought to have been given to the
borrower as per Rule 8(6). Further, as per Rule 8(8), when a sale is conducted
by any other method otherwise public auction or public tender, it shall be on
such terms as may be settled between the parties in writing.
16. Under Rule 9(2), if the sale price is higher than the reserve price,
the sale shall be confirmed in favour of the purchaser subject to the
confirmation by the secured creditor and when the sale price is less than the
reserve price, it can also be confirmed with the consent of the borrower and the
secured creditor. Therefore, a reading of Rule 8(8) and 9(2) would also make it
clear that in case of sale by obtaining quotation from the persons dealing with
similar secured assets or others interested in buying such assets or by private
treaty as contemplated under Rule 8(5) (a) and (d), the sale shall be on such
terms as may be settled between the parties in writing and the phrase 'between
the parties in writing' must only mean the borrower, secured creditor and the
prospective purchasers.
17. It cannot be contended that the consent of the borrower is not
necessary for effecting the sale by obtaining quotation as per Rule 8(5)(a) or
by entering into private treaty as per Rule 8(5) as it would give a free hand
to the secured creditor to sell the property for any sum detrimental to the
interest of the borrower and as held by the Division Bench of the Honourable in
2009 (5) CTC 385 cited supra, the secured creditors are in the position of the
trustee for the borrower and therefore, before finalising the private treaty,
the consent of the borrower has to be obtained for the simple reason that the
borrower must be aware of the sum for which the property is to be sold.
18. Further, as per Rule 8(6), thirty days notice ought to have been given
when the sale is to be effected by any of the modes under Rule 8(5) (a) to (d)
and admittedly, no notice was given as per Rule 8(6) and therefore, there is
violation of Rule 8(6) and 8(8) in conducting the sale and on that ground also,
the sale is liable to be quashed.
19. Point No.3:- Next we shall see
whether respondents 2 and 3 are
estopped from going back on their commitment. According to me, the provisions
of Order XXIII Rule 1 will not be applicable to the facts and circumstances of
this case as there was no compromise entered into in writing between the parties
and that was presented before the court. It is stated by the petitioners that
there was a demand of Rs.1,49,23,061 by respondents 2 and 3 and it was agreed
between the parties that the petitioners shall pay Rs.1,41,00,000/= and on such
payment respondents 2 and 3 agreed to set aside the sale and give possession of
the properties. It is contended by respondents 2 and 3 that though they agreed
to receive Rs.1,41,00,000/=, it was not an absolute offer and they agreed to
receive the same provided the said sum is paid on or before 21.3.2007 and the
amount was not paid on 21.3.2007 and therefore, they are not bound by the offer
made by the petitioners.
20. To find out whether respondents 2 and 3 agreed to receive
Rs.1,41,00,000/= if made on or before 21.3.2007 or on a later date, we will have
to see the orders passed by this court on those two days. Admittedly, the case
was listed on 20.3.2007 and according to respondents 2 and 3, the petitioners
offered to make payment on 21.3.2007 and on that date, they did not make payment
and therefore, they are not bound to honour the offer. It is seen from the
orders passed in M.P.No.3 of 2007 dated 21.3.2007, that there was no such
condition that the amount must be paid on or before 21.3.2007 and on 24.3.2007,
the following order was passed by this court :-
"Mr.B.Saravanan, learned counsel appearing on behalf of the petitioners,
Mr.N.Murugesan, learned counsel appearing on behalf of the first respondent Bank
and Mr.K.P.Thiagarajan, learned counsel appearing on behalf of the second and
third respondents have admitted the fact that it was agreed before this court
that the petitioners shall pay the amount of Rupees One Crore and Forty One
Lakhs to the second and third respondents and on receipt of which the second and
third respondents would vacate the property, which is the subject matter in the
present Writ Petition."
21. Therefore, from the above order, it is made clear that respondents 2
and 3 admitted that they agreed to receive Rs.1,41,00,000/= in full quit. If
really, respondents 2 and 3 had agreed to receive the said sum of
Rs.1,41,00,000/= only on or before 21.3.2007 and not later, they would have
informed the court that the offer lapsed as the payment was not made on
21.3.2007 and they will not accept the commitment if the amount is paid later.
As per order dated 24.3.2007, if respondents 2 and 3 had any reservation about
the receipt of Rs.1,41,00,000/=, they would have mentioned ad that would have
been incorporated in the said order.
22. Further, on 23.4.2007, another order was passed in the writ petition
and as per the said order, both the parties counsel submitted that there is a
chance of amicable settlement in the matter and therefore, the court directed
the matter to be posted before the Mediation Centre. If really respondents 2
and 3 had stated that their commitment to receive Rs.1,41,00,000/= will lapse on
the failure on the part of the petitioners to make payment on or before
21.3.2007, they would not have submitted before this court that there is every
likelihood of compromise. Therefore, from the conduct of the parties and from
the orders passed in this writ petition, I am of the opinion that respondents 2
and 3 have agreed to receive the sum of Rs.1,41,00,000/= in full quit for
setting aside the sale and to deliver possession of the property and admittedly,
the Demand Drafts were also made ready for the said sum on 24.3.2007 and
therefore, the offer made by respondents 2 and 3 was accepted and the
petitioners also acted on the said offer and made ready the sum of
Rs.1,41,00,000/= and therefore, respondents 2 and 3 are estopped from going back
from their offer.
23. The law of estoppel has been discussed in detail in the judgment in
(2003) 2 SCC 355 cited supra and the Honourable Supreme Court held that
"18. Though estoppel is described as a mere rule of evidence, it may have the
effect of creating substantive rights as against the person estopped. An
estoppel, which enables a party as against another party to claim a right of
property which in fact he does not possess is described as estoppel by
negligence or by conduct or by representation or by holding out ostensible
authority.
19. Estoppel, then, may itself be the foundation of a right as against the
person estopped, and indeed, if it were not so, it is difficult to see what
protection the principle of estoppel can afford to the person by whom it may be
invoked or what disability it can create in the person against whom it operates
in cases affecting rights. Where rights are involved estoppel may with equal
justification be described both as a rule of evidence and as a rule creating or
defeating rights. It would be useful to refer in this connection to the case of
Depuru Veeraraghava Reddi v. Depuru Kamalamma, (AIR 1951 Madras 403) where
Vishwanatha Sastri, J., observed:
"Estoppel though a branch of the law of evidence is also capable of being viewed
as a substantive rule of law in so far as it helps to create or defeat rights
which would not exist and be taken away but for that doctrine. ..."
20. Of course, an estoppel cannot have the effect of conferring upon a
person a legal status expressly denied to him by a statute. But where such is
not the case a right may be claimed as having come into existence on the basis
of estoppel and it is capable of being enforced or defended as against the
person precluded from denying it.
*** *** ***
32. In view of the factual conclusions arrived at by the High Court, which
are perfectly in order, the appeals are bound to fail. The rule of estoppel has
clear application, and in view of this finding it is not necessary to go into
the question whether Explanation 6 of Section 11 C.P.C. has any application or
not."
24. The Honourable Supreme Court relied upon the earlier Supreme Court
judgments and law relating to estoppel dealt by Arthur Caspersz under the title
"Conduct of Indifference or Acquiscence" and held as stated above. Therefore,
respondents 2 and 3 are also bound by their conduct and they are bound to accept
the amount agreed to be paid by the petitioners.
25. Though I held that the sale of the properties by the first respondent
in favour of respondents 2 and 3 are vitiated by reason of not following of the
mandatory provisions of Rules 8(5), 8(6) and 9(2), as per the judgment of the
Division Bench in 2009 (5) CTC 385 cited supra, the aforesaid bank may be
permitted to conduct further auction. But, in this case, as respondents 2 and 3
have agreed to receive Rs.1,41,00,000/= in full quit and that was also accepted
by the petitioners and also made the amount ready, respondents 2 and 3 are
bound to receive the same. Further, the amount was made ready by the petitioners
in the month of March 2007. Therefore, there is no need to permit the first
respondent to conduct further auction. As the petitioners have the benefit of
money with them, they are liable to pay the said sum with interest at the rate
of 9% per annum from April 2007. The petitioners are granted time to make
payment of the said amount within a period of thirty days from the date of
receipt of copy of this order. The sales in favour of respondents 2 and 3 shall
be set aside on payment of the aforesaid sum of Rs.1,41,00,000/= with interest
at 9% per annum from April 2007. If respondents 2 and 3 refuse to receive the
same, the petitioner shall deposit the amount with the first respondent bank.
In the result, the writ petition is allowed. No costs. The connected
miscellaneous petitions are closed.
ssk
To
The Assistant General Manager &
Authorised Officer,
State Bank of India,
Commercial Branch,
Post Box No.162,
6-A West Veli Street,
Madurai 625 001.
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATE: 21/02/2011
CORAM
THE HON'BLE MR.JUSTICE R.S.RAMANATHAN
W.P.(MD)No.325 of 2007
and
M.P.Nos.2 and 3 of 2007
1. M/s.Pandiyas
rep by its Proprietor
T.Rajapandian,
Thanakkankulam,
Thirunagar,
Madurai 625 006.
2. M/s.Suruthi Fabrics,
rep by its Partner
R.A.Padmavathi,
H-8, SIDCO Industrial Estate,
Kappalur, Madurai 625 008. ... Petitioners
vs.
1. The Assistant General Manager and
Authorised Officer,
State Bank of India,
Commercial Branch,
Post Box No.162,
6-A West Veli Street,
Madurai 625 001.
2. J.Rajiv Subramanian
3. Mrs.Nirmala Jeyabalan ... Respondents
Writ Petition filed under Article 226 of the Constitution of India for
issue of a
writ of declaration declaring the impugned sale certificate dated
20.12.2006 vide document No.8508 of 2006 on the file of the District Sub
Registrar, Madurai South relating to the properties of M/s.Suruthi
Farms/Pandiyas and vide Document Registration Receipt No.P200600337 of 2006 on
the file of the District Sub Registrar, Thirumangalam, Madurai District relating
to properties of M/s.Suruthi Fabrics as null and void and
direct the first
respondent to restore the properties of the petitioners in a same position as it
was before and give sufficient time to sell the land and building of above said
M/s.Suruthi Farms/Pandiyas and M/s.Suruthi Fabrics as per the market value in
the presence of the 1st respondent till the realization of the remaining loan
amount as agreed upon.
!For petitioners... Mr.K.M.Vijayan, Senior Counsel for
Mr.B.Saravanan
^For R1 ... Mr.N.Murugesan
For RR 2 and 3 ... Mr.B.S.Gnanadesikan
:ORDER
The petitioners prayed for a declaration that the sale certificate is null
and void and to restore the properties of the petitioners to them.
2. The brief facts that are necessary for deciding the issue are as
follows:-
The petitioner Firms availed loan from the State Bank of India and there
was default in payment of dues and according to the first respondent, the
accounts of the petitioners became non-performing assets and therefore, action
was taken under the SARFAESI Act and section 13(2) notice dated 8.6.2005 was
issued directing the petitioners to pay a sum of Rs.1,62,60,158.65 being the
amount payable by the two Firms.
It was followed by section 13(4) possession
notice dated 12.1.2006 and possession was taken by the secured creditors.
Thereafter, various correspondence took place between the petitioners and the
first respondent and the petitioners also wanted to avail one time settlement
and the petitioners also filed various writ petitions before this court for
various reliefs.
According to the petitioners, as per the advice of the first
respondent bank, the petitioners withdrew the writ petitions which fact was
disputed by the first respondent.
Auction notice was issued on 23.5.2006 fixing
the date of auction on 7.7.2006 and the properties belonging to Sruthi Fabrics
viz., 76 cents in S.No.665 part was valued at Rs.110 lakhs being the reserve
price and Rs.55 lakhs was fixed as reserve price for the lands with building
belonging to Sruthi Firms and Factory building of Pandias.
The petitioner
challenged the auction notice by filing O.A.No.58 of 2006 before the Debt
Recovery Tribunal and conditional order was passed directing the petitioners to
pay a sum of Rs.20,00,000/= and the petitioners could not comply with the
condition.
Thereafter, the petitioners sought permission of the bank to sell
the machineries and the bus belonging to the petitioners and by the sale of the
machineries and the bus, a sum of Rs.42,00,000/= was credited to the account of
the petitioners.
According to the petitioners, as per the advice of the bank,
they withdrew O.A.No.58 of 2006 on 3.10.2006 which was also disputed by the
bank.
Thereafter, on 8.12.2006, the bank sold the properties for a total sum of
Rs.1,23,10,000/= in favour of respondents 2 and 3 under a private treaty and the
sale certificate was issued on 15.12.2006 and the sale deeds were registered on
20.12.2006 which is challenged in this writ petition.
3. Mr.K.M.Vijayan, learned Senior Counsel for the writ petitioners
submitted that the sale conducted by the first respondent bank was not in
accordance with the provisions of sections 8 and 9 of the Security Interest
(Enforcement) Rules, 2002 and the bank has also not followed the provisions of
section 13(3A) of the SARFAESI Act and therefore, the sale is void and
respondents 2 and 3 will not get any right under the sale.
The learned Senior
Counsel further submitted that
during the pendency of the writ, on 20.3.2007,
the petitioners offered to pay Rs.1,41,00,000/= to respondents 2 and 3 and that
was also accepted by the first respondent as well as respondents 2 and 3 and
when the matter was posted on 24.3.2007, the petitioners produced the Demand
Draft for Rs.1,41,00,000/= and at that time, the counsel for the respondents
refused to accept the Demand Draft and by their own conduct, respondents 2 and 3
are estopped from going back on their words and they are bound to accept the
Demand Draft for Rs.1,41,00,000/= as agreed by them and release the properties
and therefore on that account, the sale in favour of respondents 2 and 3 is
liable to be set aside.
The learned Senior Counsel for the petitioner relied
upon the judgment reported in K.RAAMASELVAM v. INDIAN OVERSEAS BANK (2009 (5)
CTC 385) and submitted that when the sale was in contravention of Rules 8 and 9
of the Security Interest (Enforcement) Rules 2002, the sale is liable to be set
aside and also relied upon the judgments reported in RADHA RAMAN SAMANTA v. BANK
OF INDIA ((2004) 1 SCC 605), B.L.SREEDHAR v. K.M.MUNIREDDY ((2003) 2 SCC 355)
and CHHAGANBHAI NORSINBHAI v. SONI CHANDUBHAI GORDHANBHAI ((1976) 2 SCC 951) for
the proposition that respondents 2 and 3 are bound by the undertaking given
before this court to accept the sum of Rs.1,41,00,000/= and they are estopped
from going back from their words.
4. Learned counsel for the first respondent submitted that the accounts
became non-performing Assets and therefore, the bank has taken action under
SARFAESI Act and under section 13(2) followed by section 13(4) and notices were
given in accordance with the provisions of SARFAESI Act and even though the
petitioners came forward to settle the amount, it is proved by their conduct and
by various correspondence that they were not able to make the payment and
therefore, the bank has brought the property for sale by issuing auction notice
and on the date of auction, there were no bidders and even after that the
petitioners made a promise to bring the purchasers to settle their dues and they
were not able to bring the purchasers or to pay the amounts due and payable by
them and therefore, the bank has no other alternative except to enter into a
private treaty with respondents 2 and 3 for the sale of the property and as per
Rule 8(5)(d) of the Security Interest (Enforcement) Rules, the first respondent
is entitled to enter into private treaty for sale of the property ad therefore,
the same cannot be challenged by the petitioners. The learned counsel further
submitted that the writ filed by the petitioner is not maintainable and even if
they are aggrieved by the sale of the property, they will have to take steps
under the provisions of the SARFAESI Act as laid down by the Honourable Supreme
Court in the judgment reported in TRANSCORE v. UNION OF INDIA ((2008) 1 SCC 125)
and therefore, the writ is not maintainable.
5. Mr.Gnanadesikan, learned Senior Counsel for respondents 2 and 3 also
supported the case of the first respondent and submitted that the sale by the
first respondent bank in favour of respondents 2 and 3 is perfectly perfectly
legal and the sale was conducted as per Rule 8(5) of the Security Interest
(Enforcement) Rules and the same cannot be questioned by the petitioners.
Mr.Gnanadesikan, learned counsel for respondents 2 and 3 further submitted that
there is no question of estoppel against respondents 2 and 3 and on 20.3.2007,
the petitioners offered to pay a sum of Rs.1,49,23,061/= and respondents 2 and 3
agreed to accept the same and give back the properties to the petitioners on
condition of payment of the said amount on 21.3.2007, but, the petitioners were
not able to make payment on or before 21.3.2007 and therefore, the petitioners
cannot rely upon the said acceptance as they have not acted according to the
undertaking given by them. The learned counsel for respondents 2 and 3 further
submitted that the writ petition is not maintainable as the petitioners have got
alternative remedy under the provisions of SARFAESI Act and admittedly, no
compromise was entered into between the parties in writing and signed by the
counsel as per the provisions of Order XXIII Rules 1 to 3 of the Code of Civil
Procedure and the sale conducted by the first respondent cannot be set aside.
In support of his contention, the learned counsel for respondents 2 and 3 relied
upon the following judgments:-
1) GURPREET SINGH v. CHATUR BHUJ GOEL (AIR 1988 SC 400)
2) BYRAM PESTONJI GARIWALA v. UNION BANK OF INDIA (AIR 1991 SC 2234)
3) VENKATACHALA BHAT, K. v. KRISHNA NAYAK (2005(2) CTC 232)
4) ST. PAULA Y.S. CHURCH v. PAILY (AIR 1972 KERALA 180)
5) F.MOHD. ABDUL RAZAK v. CHARITY COMMISSIONER (AIR 1976 BOMBAY 304)
6) JASWANTLAL NATVARLAL THAKKAR v. SUSHILABEN MANILAL DANGARWALA (AIR 1991 SC
770)
7) RAJENDER SINGH v. RAMDHAR SINGH (2001 (2) CTC 617)
8) VENKATASWAMI CHETTIAR, V.P. v. A.MARIASUSAI (1997 (II) CTC 140)
9) MUNICIPAL CORPORATION OF DELHI v. PRAMOD KUMAR GUPTA ((1991) 1 SCC 633)
10) PREM RAJ v. IIIRD ADDITIONAL DISTRICT JUDGE (AIR 1992 ALLAHABAD 332)
11) SAGAR MAHILA VIDYALAYA, SAGAR v. PANDIT SADASHIV RAO HARSHE (AIR 1991 SC
1825)
12) JANAK RAJ v. GURDIAL SINGH (AIR 1967 SC 608)
13) HALDHAR PRASAD v. GIRIDIH MUNICIPALITY (AIR 1989 PATNA 321)
14) SARGUJA TRANSPORT SERVICE v. S.T.A.TRIBUNAL, GWALIOR (AIR 1987 SC 88)
15) RAM JUWAN v. DEVENDRA NATH (AIR 1960 MADHYA PRADESH 280)
16) AHMEDALI v. STATE OF MADHYA PRADESH (AIR 1960 MADHYA PRADESH 282)
17) BADRI DASS v. LABHU MAL (AIR 1959 PUNJAB 322)
18) NISHA KANTO v. SAROJ BASHINI (AIR 1948 CALCUTTA 294)
19) MAKHAN LAL v. AMRIT BANASPATI CO. (AIR 1953 ALLAHABAD 326)
6. According me,
the accounts of the petitioners became non-performing
assets and the bank has taken action under section 13(2) of the SARFAESI Act
followed by possession notice issued under section 13(4).
Having regard to the facts narrated above, in my opinion,
the action of the bank in taking
proceedings under section 13(2) and 13(4) of the SARFAESI Act, cannot be found
fault with and the bank has correctly taken action as per the provisions of the
SARFAESI Act when the assets of the petitioners became non-performing assets and
therefore, the arguments of the learned counsel for the petitioners that the
action taken under the SARFAESI Act as per sections 13(2) and (4) are not valid
cannot be accepted.
Having held that the action taken by the first respondent
is legal, we will have to see the following points:-
1) whether the bank has violated the provisions of Rules 8 and 9 of the Security
Interest (Enforcement) Rules (hereinafter referred to as Rules 2002) while
selling the property;
2) whether the non-observance of the procedure contemplated under Rules 8 and 9
as alleged by the petitioners will vitiate the sale.
3) Whether respondents 2 and 3 are estopped from going back on their words in
refusing the accept the offer made by the petitioners.
7. Point Nos.1 and 2:- Mr.K.M.Vijayan, learned Senior Counsel appearing
for the petitioners submitted that
as per Rule 8 (5) of the Rules 2002, the bank
is entitled to sell the property by following any of the methods stated in Rule
8(5) (a) to (d) of the Rules.
According to the learned Senior counsel,
the bank
has decided to conduct public auction and public auction sale notice was
published in the daily Dinamalar dated 23.5.2006 and also in another newspaper
and as per the auction notice, the sale was to take place on 7.7.2006 and the
reserve price for the factory land and building in S.No.665 of an extent of 76
cents was fixed at Rs.110 lakhs and the reserve price for the lands and factory
building belonging to M/s.Pandias situate at Thanakkankulam Village of an extent
of 5.51 acres with building was fixed at Rs.55 lakhs.
Admittedly, on the auction
date, there were no bidders and therefore, the auction was not conducted and
therefore, without informing the petitioners and without the knowledge of the
petitioners, the bank entered into a treaty with respondents 2 and 3 and the
properties were sold for a total sum of Rs.1,23,10,000/= and even prior to the
sale of the property on 8.12.2006, after getting permission from the bank, the
petitioners sold the machineries and the bus for a total sum of Rs.43,00,000/=
and that was remitted into their account and thereafter, without reducing the
above said reserve price and without calling for public auction and without
giving one month's notice as per Rule 8(6) of the Rules, 2002, the bank
clandestinely entered into a private treaty with respondents 2 and 3 and sold
the properties and the properties in S.No.665 of an extent of 76 cents was sold
for Rs.69 lakhs against the reserve price of Rs.110/= lakhs and the properties
of an extent of 5.51 acres was sold for a sum of Rs.54 lakhs against the reserve
price of Rs.55 lakhs and as per the Division Bench of this Court in 2009 (5) CTC
385 (cited supra) and
as per the provisions of Rule 9(2), when the property is
sold for a price less than the reserve rice, the same can be done only with the
consent of the borrower and secured creditors and in this case, admittedly, the
consent of the borrower was not obtained. Further, before entering into a
private treaty with respondents 2 and 3, as per Rule 8(6), the first respondent
ought to have served a notice of 30 days to the petitioners and admittedly, the
notice was not given and therefore, the sale of the properties in favour of
respondents 2 and 3 by the first respondent is not valid.
The learned Senior
Counsel further submitted that the writ petition was posted on 20.2.2007 and
Mr.Jayabalan, husband of the third respondent and the father of the second
respondent, who is also a practising Advocate, appeared on behalf of respondents
2 and 3 in court and represented in open court that if the petitioners were
willing to pay Rs.1,49,23,061/= within three days, respondents 2 and 3 would
vacate the property in question and later it was agreed that the petitioners
shall pay Rs.1,41,00,000/= and the case was adjourned to 21.3.2007 for fixing
the time for making payment and on 21.3.2007, it was represented by the
petitioners that they would make payment on 24.3.27 and when the petitioners
presented the demand draft on 24.3.2007, Mr.Jayabalan, learned counsel for
respondents 2 and 3 refused to accept the same and therefore, the conduct of the
respondents in making the offer of acceptance for Rs.1,41,00,000/= in full quit
and the same was accepted by the petitioners and the case was adjourned to
24.3.2007 for making payment, a contract came into existence and therefore,
respondents 2 and 3 cannot go back on their words and they are estopped from
their going back on their words and they are bound to accept a sum of
Rs.1,41,00,000/= and deliver possession of the property.
8. On the other hand, Mr.Gnanadesikan, learned counsel for respondents 2
and 3 submitted that once the sale has become final, the same cannot be set
aside by filing a writ petition and if at all, the petitioners are aggrieved by
the sale, they will have to file application before the Debt Recovery Tribunal
by invoking the provision of SARFAESI Act and therefore, the writ petition is
not maintainable and relied upon the judgment reported in CHIDAMBARA MANICKAM,K.
v. SHAKEENA (2008 (1) CTC 660).
Mr.Gnanadesikan, learned counsel for
respondents 2 and 3 also submitted that the understanding between the parties
was that the petitioners have to make payment on or before 21.3.2007 and as they
did not make the payment on that day, the agreement between the parties came to
an end and it cannot be enforced thereafter and therefore, when the petitioner
attempted to make payment on 24.3.2007, it was rightly refused by respondents 2
and 3 as it was made beyond the period agreed and therefore, there is no
question of estoppel against respondents 2 and 3. The learned counsel for the
first respondent also supported respondents 2 and 3.
9. We shall first see
whether the private treaty entered into between
respondents 2 and 3 is valid in law.
As per Rule 8(5), the first respondent can
sell the property by obtaining quotations from the persons dealing with similar
secured assets or others interested in buying such assets or by inviting tenders
from public.
These two options were not followed and admittedly, the property
was attempted to be sold by conducting public auction and as there were no
bidders, the property could not be sold by public auction.
Thereafter, on
8.12.2006, the first respondent entered into a private treaty with respondents 2
and 3 for the sale of the property on the same date, respondents 2 and 3 paid
the amount aforementioned and
whether the sale of the properties by entering
into private treaties on 8.12.2006 is in accordance with rules is the subject
matter of this writ.
Admittedly, the bank is entitled to enter into private treaty for sale of the properties.
10. It is further not in dispute that the reserve price for the 76 cents
of property in S.No.665 part was fixed at Rs.110/= lakhs and by entering into a
private treaty, it was sold for a sum of Rs.69,00,000/=.
As per the proviso to
Rule 9(2), no sale shall be confirmed when the amount offered by the sale price
is less than the reserve price.
The second proviso to Rule 9(2) further
provides that if the authorised officer fails to obtain a price higher than the
reserve price, he may, with the consent of the borrower and the secured
creditor, have the sale at such price.
Therefore, a reading of the two
provisos to Rule 9(2), would make it clear that when the sale price is less than
the reserve price, a sale can be effected with the consent of the borrower and
the secured creditor.
In this case, as stated supra, the reserve price for 76
cents was fixed at Rs.110 lakhs but the first respondent entered into a private
treaty for a sum of Rs.69,00,000/= only.
Therefore, when the secured creditor
fails to obtain a price higher than the reserve price, the sale can be confirmed
however with the consent of the borrower and secured creditor and admittedly,
the consent of the borrower was not obtained while effecting the sale.
As
stated supra, the land of an extent of 5.51 acres was sold for Rs.54,10,000/=
against the reserve price of Rs.55,00,000/= and the land of an extent of 76
cents was sold for Rs.69,00,000/= against Rs.110 lakhs.
Therefore, the sale of
properties effected by the first respondent for a consideration below the
reserve price without the consent of the borrower is not in accordance with the
provisions of Rule 9(2).
11. In the judgment reported in 2009(5) CTC 385 (cited supra), this fact
has been dealt with by the Division Bench of this court and the Honourable
Division Bench, after incorporating Rule 9(2) held as follows:-
"8. Since the question raised would depend upon interpretation of Rule 9(2) of
the Security Interest (Enforcement) Rules, 2002, the relevant provisions are
extracted hereunder:-
"9. Time of sale, issue of sale certificate and delivery of possession, etc.--
(1) No sale of immovable property under these rules shall take place before the
expiry of thirty days from the date on which the public notice of sale is
published in newspapers as referred to in the proviso to sub-rule (6) or notice
of sale has been served to the borrower.
(2) The sale shall be confirmed in favour of the purchaser who has offered the
highest sale price in his bid or tender or quotation or offer to the authorised
officer and shall be subject to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the amount offered
by sale price is less than the reserve price, specified under sub-rule (5) to
Rule 8:
Provided further that if the authorised officer fails to obtain a price higher
than the reserve price, he may, with the consent of the borrower and the secured
creditor effect the sale at such price.(Emphasis added)
9. A bare reading of Rule 9(2) makes it clear that three contingencies can arise
when an auction takes place. Those are, (i) the bidder offers an amount, which
is more than the upset price, (ii) the bidder offers an amount, which is less
than the reserve price, and (iii) the bidder offers an amount, which is neither
less nor more than the upset price. If the amount offered by the highest bidder
is more than the upset price fixed under Rule 8(5) the sale shall be confirmed
in favour of such higher bidder. This however, is subject to confirmation by the
Secured Creditor. If the bid amount is less than the upset price, no sale shall
be confirmed as contemplated under the first proviso to Rule 9(2). The second
proviso makes it clear that if the authorised officer fails to obtain a price
higher than the reserve price, the sale can be confirmed only with the consent
of the borrower and the secured creditor. It is thus obvious that if the price
offered is same as the reserve price, it cannot be said that the Authorised
Officer has obtained a price higher than the reserve price. A combined reading
of all the provisions contained in Rule 9(2) makes it clear that if the price
offered is higher than the reserve price, it shall be confirmed by the
Authorised Officer, but such confirmation is subject to the further confirmation
by the Secured Creditor. If however, price offered is not higher than the
reserve price, which means it may be on par with the reserve price or less than
the reserve price, the auction can be confirmed only with the consent of the
borrower and the Secured Creditor and not otherwise. Learned counsel for the
Bank by relying upon the decision of the Supreme Court, has submitted that in
normal circumstances, reserve price is fixed to indicate the minimum price at
which property can be sold. We do not think that such a contention can be
accepted in view of second proviso to Rule 9(2)is to the effect that if the
Authorised Officer fails to obtain a price higher than the reserve price it can
be confirmed only with the consent of the Secured creditor as well as the
borrower and not bereft of such consent. But the learned counsel for the Bank as
well as purchaser had submitted that since the proceeding under Section 17 is
pending, the question now raised in the writ petition as well raised in the
proceedings and in view of such existence of such alternative remedy, the writ
petition should not be entertained."
12. The Honourable Division Bench further held that secured creditor acts
as a trustee and he has to take into consideration the interest of the borrower
while selling the property and if the properties were sold for a good price, the
balance amount can be refunded to the borrower and therefore, while selling the
property, the provisions of Rule 9 have to be strictly adhered and held as
follows:-
"22. A fair reading of the provisions contained in Rule 9 makes it clear that if
the highest bid is higher than the upset price, such highest bid shall be
confirmed by the authorised officer in favour of the highest bidder, which,
however, is subject to confirmation by the secured creditor. This provision is
apparent from the provisions contained in Rule 9(2). At that stage, obviously a
discretion is given to the secured creditor to accept the highest bid or even go
in for a fresh bid.
For example, if the secured creditor, on the basis of the relevant
materials, comes to a conclusion that the highest bid offered, even though
higher than the reserve price, does not reflect the true market value and there
has been any collusion among the bidders, the secured creditor in its discretion
may refuse to confirm such highest bid notwithstanding the fact that the highest
bid is more than the upset price. This is because the secured
creditor is not only interested to realise its debt, but also expected to act as
a trustee on behalf of the borrower so that the highest possible amount can be
generated and surplus if any can be refunded to the borrower. The first proviso
in no uncertain terms makes it clear that no sale can be confirmed by the
authorised officer, if the amount offered is less than the reserve price
specified under the Rule 8(5). However, the subsequent proviso gives discretion
to the authorised officer to confirm such sale even if the bid is less than the
reserve price, provided the borrower and the secured creditor agree that the
sale may be effected at such price which is not above the reserve price. This is
obviously so because the property belongs to the borrower and as security for
the secured creditor and both of them would be obviously interested to see that
the property is sold at a price higher than the reserve price. However, if both
of them agree that the property can be sold, even it has not fetched a price
more than the reserve price, the authorised officer in its discretion may
confirm such auction."
13. Therefore, as per the above judgment a sale by the secured creditor
viz., the first respondent in favour of respondents 2 and 3 for a price less
than the reserve price is against the provisions of Rule 9(2) and therefore, the
sale is not valid and no title passes and the sale is liable to be quashed.
14. In the same judgment, the Honourable Division Bench also discussed
about the alternate remedy and held that the availability of alternative remedy
is not a bar in filing a writ to quash the sale and held that the writ is
maintainable.
Therefore, in my opinion, even though the petitioners, have not
availed the alternative remedy, as per section 17 of the SARFAESI Act, having
regard to the fact that the sale was not conducted in accordance with the
provisions of Rule 9(2), the sale is not valid and therefore, it is liable to be
quashed.
15. Further, as per Rule 8(6), thirty days notice should be given to the
borrower before taking action as per Rule 8(5). In this case, the auction
notice was issued on 23.5.2006 informing the date of auction as 7.7.2006. On
that date, the sale could not take pace as there were no bidders. Thereafter,
the bank entered into a private treaty on 8.8.2006 and a reading of Rule 8(5)
and (6), in my opinion, makes it clear that when the bank resorts to another way
of selling the property, thirty days notice ought to have been given to the
borrower as per Rule 8(6). Further, as per Rule 8(8), when a sale is conducted
by any other method otherwise public auction or public tender, it shall be on
such terms as may be settled between the parties in writing.
16. Under Rule 9(2), if the sale price is higher than the reserve price,
the sale shall be confirmed in favour of the purchaser subject to the
confirmation by the secured creditor and when the sale price is less than the
reserve price, it can also be confirmed with the consent of the borrower and the
secured creditor. Therefore, a reading of Rule 8(8) and 9(2) would also make it
clear that in case of sale by obtaining quotation from the persons dealing with
similar secured assets or others interested in buying such assets or by private
treaty as contemplated under Rule 8(5) (a) and (d), the sale shall be on such
terms as may be settled between the parties in writing and the phrase 'between
the parties in writing' must only mean the borrower, secured creditor and the
prospective purchasers.
17. It cannot be contended that the consent of the borrower is not
necessary for effecting the sale by obtaining quotation as per Rule 8(5)(a) or
by entering into private treaty as per Rule 8(5) as it would give a free hand
to the secured creditor to sell the property for any sum detrimental to the
interest of the borrower and as held by the Division Bench of the Honourable in
2009 (5) CTC 385 cited supra, the secured creditors are in the position of the
trustee for the borrower and therefore, before finalising the private treaty,
the consent of the borrower has to be obtained for the simple reason that the
borrower must be aware of the sum for which the property is to be sold.
18. Further, as per Rule 8(6), thirty days notice ought to have been given
when the sale is to be effected by any of the modes under Rule 8(5) (a) to (d)
and admittedly, no notice was given as per Rule 8(6) and therefore, there is
violation of Rule 8(6) and 8(8) in conducting the sale and on that ground also,
the sale is liable to be quashed.
19. Point No.3:- Next we shall see
whether respondents 2 and 3 are
estopped from going back on their commitment. According to me, the provisions
of Order XXIII Rule 1 will not be applicable to the facts and circumstances of
this case as there was no compromise entered into in writing between the parties
and that was presented before the court. It is stated by the petitioners that
there was a demand of Rs.1,49,23,061 by respondents 2 and 3 and it was agreed
between the parties that the petitioners shall pay Rs.1,41,00,000/= and on such
payment respondents 2 and 3 agreed to set aside the sale and give possession of
the properties. It is contended by respondents 2 and 3 that though they agreed
to receive Rs.1,41,00,000/=, it was not an absolute offer and they agreed to
receive the same provided the said sum is paid on or before 21.3.2007 and the
amount was not paid on 21.3.2007 and therefore, they are not bound by the offer
made by the petitioners.
20. To find out whether respondents 2 and 3 agreed to receive
Rs.1,41,00,000/= if made on or before 21.3.2007 or on a later date, we will have
to see the orders passed by this court on those two days. Admittedly, the case
was listed on 20.3.2007 and according to respondents 2 and 3, the petitioners
offered to make payment on 21.3.2007 and on that date, they did not make payment
and therefore, they are not bound to honour the offer. It is seen from the
orders passed in M.P.No.3 of 2007 dated 21.3.2007, that there was no such
condition that the amount must be paid on or before 21.3.2007 and on 24.3.2007,
the following order was passed by this court :-
"Mr.B.Saravanan, learned counsel appearing on behalf of the petitioners,
Mr.N.Murugesan, learned counsel appearing on behalf of the first respondent Bank
and Mr.K.P.Thiagarajan, learned counsel appearing on behalf of the second and
third respondents have admitted the fact that it was agreed before this court
that the petitioners shall pay the amount of Rupees One Crore and Forty One
Lakhs to the second and third respondents and on receipt of which the second and
third respondents would vacate the property, which is the subject matter in the
present Writ Petition."
21. Therefore, from the above order, it is made clear that respondents 2
and 3 admitted that they agreed to receive Rs.1,41,00,000/= in full quit. If
really, respondents 2 and 3 had agreed to receive the said sum of
Rs.1,41,00,000/= only on or before 21.3.2007 and not later, they would have
informed the court that the offer lapsed as the payment was not made on
21.3.2007 and they will not accept the commitment if the amount is paid later.
As per order dated 24.3.2007, if respondents 2 and 3 had any reservation about
the receipt of Rs.1,41,00,000/=, they would have mentioned ad that would have
been incorporated in the said order.
22. Further, on 23.4.2007, another order was passed in the writ petition
and as per the said order, both the parties counsel submitted that there is a
chance of amicable settlement in the matter and therefore, the court directed
the matter to be posted before the Mediation Centre. If really respondents 2
and 3 had stated that their commitment to receive Rs.1,41,00,000/= will lapse on
the failure on the part of the petitioners to make payment on or before
21.3.2007, they would not have submitted before this court that there is every
likelihood of compromise. Therefore, from the conduct of the parties and from
the orders passed in this writ petition, I am of the opinion that respondents 2
and 3 have agreed to receive the sum of Rs.1,41,00,000/= in full quit for
setting aside the sale and to deliver possession of the property and admittedly,
the Demand Drafts were also made ready for the said sum on 24.3.2007 and
therefore, the offer made by respondents 2 and 3 was accepted and the
petitioners also acted on the said offer and made ready the sum of
Rs.1,41,00,000/= and therefore, respondents 2 and 3 are estopped from going back
from their offer.
23. The law of estoppel has been discussed in detail in the judgment in
(2003) 2 SCC 355 cited supra and the Honourable Supreme Court held that
"18. Though estoppel is described as a mere rule of evidence, it may have the
effect of creating substantive rights as against the person estopped. An
estoppel, which enables a party as against another party to claim a right of
property which in fact he does not possess is described as estoppel by
negligence or by conduct or by representation or by holding out ostensible
authority.
19. Estoppel, then, may itself be the foundation of a right as against the
person estopped, and indeed, if it were not so, it is difficult to see what
protection the principle of estoppel can afford to the person by whom it may be
invoked or what disability it can create in the person against whom it operates
in cases affecting rights. Where rights are involved estoppel may with equal
justification be described both as a rule of evidence and as a rule creating or
defeating rights. It would be useful to refer in this connection to the case of
Depuru Veeraraghava Reddi v. Depuru Kamalamma, (AIR 1951 Madras 403) where
Vishwanatha Sastri, J., observed:
"Estoppel though a branch of the law of evidence is also capable of being viewed
as a substantive rule of law in so far as it helps to create or defeat rights
which would not exist and be taken away but for that doctrine. ..."
20. Of course, an estoppel cannot have the effect of conferring upon a
person a legal status expressly denied to him by a statute. But where such is
not the case a right may be claimed as having come into existence on the basis
of estoppel and it is capable of being enforced or defended as against the
person precluded from denying it.
*** *** ***
32. In view of the factual conclusions arrived at by the High Court, which
are perfectly in order, the appeals are bound to fail. The rule of estoppel has
clear application, and in view of this finding it is not necessary to go into
the question whether Explanation 6 of Section 11 C.P.C. has any application or
not."
24. The Honourable Supreme Court relied upon the earlier Supreme Court
judgments and law relating to estoppel dealt by Arthur Caspersz under the title
"Conduct of Indifference or Acquiscence" and held as stated above. Therefore,
respondents 2 and 3 are also bound by their conduct and they are bound to accept
the amount agreed to be paid by the petitioners.
25. Though I held that the sale of the properties by the first respondent
in favour of respondents 2 and 3 are vitiated by reason of not following of the
mandatory provisions of Rules 8(5), 8(6) and 9(2), as per the judgment of the
Division Bench in 2009 (5) CTC 385 cited supra, the aforesaid bank may be
permitted to conduct further auction. But, in this case, as respondents 2 and 3
have agreed to receive Rs.1,41,00,000/= in full quit and that was also accepted
by the petitioners and also made the amount ready, respondents 2 and 3 are
bound to receive the same. Further, the amount was made ready by the petitioners
in the month of March 2007. Therefore, there is no need to permit the first
respondent to conduct further auction. As the petitioners have the benefit of
money with them, they are liable to pay the said sum with interest at the rate
of 9% per annum from April 2007. The petitioners are granted time to make
payment of the said amount within a period of thirty days from the date of
receipt of copy of this order. The sales in favour of respondents 2 and 3 shall
be set aside on payment of the aforesaid sum of Rs.1,41,00,000/= with interest
at 9% per annum from April 2007. If respondents 2 and 3 refuse to receive the
same, the petitioner shall deposit the amount with the first respondent bank.
In the result, the writ petition is allowed. No costs. The connected
miscellaneous petitions are closed.
ssk
To
The Assistant General Manager &
Authorised Officer,
State Bank of India,
Commercial Branch,
Post Box No.162,
6-A West Veli Street,
Madurai 625 001.
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