2022 (1) TMI 1459 - HC - Indian Laws

Rejection of Interim Relief Application filed by the petitioner - Rule 9(2) of the Security Interest (Enforcement) Rules 2002 - HELD THAT - The insertion of the second proviso to Rule 9(2) is to provide greater flexibility so that the endeavour to sell the secured asset is not defeated. There may be a situation where the highest bid received in the tender/ auction process may be even below the reserve price and the borrower and the secured creditor with a view to extinguish or reduce the outstanding liability of the borrower may still consider it to be financial prudent to accept such a bid and may give their consent to the confirmation of the sale. To deal with a situation like that the second proviso has been built into Rule 9(2). The second proviso to Rule 9(2) provides flexibility to the concerned parties namely the borrower and the secured creditor to sell the secured asset with their consent at a price which is even below the reserve price. No doubt the purpose of holding a public auction/ tender to sell an immovable asset is to secure the highest and best price since that would inure to the benefit of not only the borrower but also the secured creditor. The word such price appearing in second proviso to rule 9(2) means the highest bid price which is lesser than the reserve price. If the property could be sold at the reserve price only with the consent of the Borrower the said condition will make first proviso absolutely nugatory and meaningless. There are no merit in the present petition and the same is dismissed.

Issues Involved:
1. Challenge to the DRT order dated 13.12.2021.
2. Challenge to the Sale Certificate dated 16.12.2021.
3. Interpretation of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002.
4. Requirement of borrower's consent for sale confirmation at reserve price.

Issue-wise Detailed Analysis:

1. Challenge to the DRT order dated 13.12.2021:
The petitioner challenged the Debt Recovery Tribunal (DRT), Jaipur's order dated 13.12.2021, which rejected the Interim Relief Application in the pending Securitisation Application No. 22 of 2019 (renumbered as T.S.A. application 50 of 2021). The petitioner contended that the DRT did not address the argument regarding the auction being violative of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002. The DRT only considered the objection regarding the incomplete description of the subject property in the auction notice, which was rightly rejected.

2. Challenge to the Sale Certificate dated 16.12.2021:
The petitioner also challenged the Sale Certificate dated 16.12.2021 issued in favor of respondent No.2, arguing that the auction and its confirmation were violative of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002. The petitioner claimed that the respondent Bank did not obtain the consent of the petitioner for confirming the sale at the reserve price, which was required under the second proviso to Rule 9(2).

3. Interpretation of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002:
The court examined Rule 9(2) and its provisos in detail. Rule 9(2) states that the sale shall be confirmed in favor of the highest bidder, subject to confirmation by the secured creditor. The first proviso mandates that no sale shall be confirmed if the sale price is less than the reserve price. The second proviso allows the sale at the reserve price with the consent of the borrower and the secured creditor if a higher price is not obtained.

4. Requirement of borrower's consent for sale confirmation at reserve price:
The petitioner argued that the second proviso to Rule 9(2) required the borrower's consent for confirming the sale at the reserve price. The respondent countered that the consent was only necessary if the sale price was below the reserve price. The court agreed with the respondent, stating that the second proviso provides flexibility to sell the property below the reserve price with the borrower's consent. The court emphasized that the purpose of fixing a reserve price is to set a minimum benchmark, and requiring the borrower's consent for a sale at the reserve price would defeat this purpose.

Conclusion:
The court dismissed the petition, finding no merit in the arguments presented by the petitioner. The interpretation of Rule 9(2) by the petitioner was rejected, and the court upheld the auction and sale confirmation at the reserve price without the borrower's consent. The court also disagreed with the decisions of the Madras High Court in K. Raamaselvam and A. Varalakshmi, stating that these interpretations rendered the first proviso to Rule 9(2) nugatory. The court supported its view with the judgment in Varghese Ukken.

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