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M/s. Sridhar Enterprises Versus Bank of Baroda

2016 (3) TMI 551 - ANDHRA PRADESH HIGH COURT

Validity of auction orders - auction conducted by respondent No.1 - Bank of Baroda, ARM Branch, Himayath Nagar, Hyderabad, and consequential issuance of Certificate of sale of moveable properties in favour of respondent No.2 in respect of movable properties of the petitioner - non receipt of balance 75% of the bid price within fifteen (15) days after confirmation of sale - contravention of the mandatory requirement provided by the provisions of Sub-Rule (4) of Rule 9 of Rules 2002

He .....

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ures attached to the lands, which are secured assets in the form of immovable properties sought to be sold in the auction held on 13-03-2015, and therefore, the Bank has waited till disposal of writ appeal on 04-08-2015 for demanding the auction purchaser to deposit the balance 75% of bid price which was deposited on 02-09-2015.

The reasons assigned by the Bank are absolutely unconvincing, since, though, the movables were attached to the lands sought to be sold in the auction held on .....

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ted him to pay the remaining balance amount of ₹ 63.50 lakhs immediately to avoid forfeiture of the amount paid and further mentioning that on receiving full amount, it will issue sale certificate. The auction purchaser given a reply to the Bank on 11-08-2015 stating that he was inclined to pay total balance amount before the end of that month i.e., 31-08-2015 and requested to cooperate and oblige. But, the auction purchaser has paid the balance amount of ₹ 63.50 lakhs on 02-09-2015. .....

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spondent No.2 is liable to be set aside on account of contravention of mandatory provisions of Rules 9(3) and (4) of Rules 2002, and, therefore, the same is set aside. However, we direct the Bank - respondent No.1 to return the bid amount of ₹ 85,00,000/- (Rupees eighty five lakhs only), without any interest thereon, to the auction purchaser - respondent No.2; granting liberty to take measures in accordance with law. - WRIT PETITION Nos.36652 OF 2015, WRIT PETITION Nos.36652, 36625 & 38600 .....

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r seeking Mandamus to declare the auction, dated 10-03-2015, conducted by respondent No.1 - Bank of Baroda, ARM Branch, Himayath Nagar, Hyderabad, and consequential issuance of Certificate of sale of moveable properties, dated 24-09-2015, in favour of respondent No.2 in respect of movable properties of the petitioner as unconstitutional, unjust, illegal and violative of principles of natural justice. 3. W.P. No.36625 of 2015 is also filed by the petitioner in W.P. No.33652 of 2015 seeking Mandam .....

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onferred under Section 13 of the Act read with Rule 12 of Security Interest (Enforcement) Rules, 2002 ( for short Rules 2002) by respondent No.1 - Bank of Baroda, ARM Branch, Himayath Nagar, Hyderabad, as unconstitutional, unjust, illegal and violative of principles of natural justice, and to set aside the same. 4. W.P. No.38600 of 2015 is filed by Smt. Patalapally Atchamma, who is mother of P. Sridhar (proprietor of the petitioner in the former two writ petitions), seeking the very same relief .....

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ed under Section 13 of the Act read with Rule 12 of Security Interest (Enforcement) Rules, 2002 by respondent No.1 - Bank of Baroda, ARM Branch, Himayath Nagar, Hyderabad, as unconstitutional, unjust, illegal and violative of principles of natural justice, and to set aside the same. 5. In the former two writ petitions, the petitioner is M/s. Sridhar Enterprises represented by its proprietor, P. Sridhar and in the latter writ petition, the petitioner is Smt. P. Atchamma. However, in all the writ .....

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es on 19-10-2010 from respondent No.1 - Bank of Baroda, Himayathnagar Branch, Hyderabad, (hereinafter referred to as Bank) for its business purpose. Bank sanctioned a cash credit facility to M/s. Sridhar Enterprises to the tune of ₹ 190.00 lakhs and term loan of ₹ 50.00 lakhs, on mortgaging immovable properties belonging to Sridhar, who is proprietor of Sridhar Enterprises, which are admeasuring Acs.15-00 in Survey No.100 and Acs.10-00 in Survey No.100, situate in Jiyapally village, .....

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tion notification, dated 06-02-2015. iv) According to the petitioners, in the last week of September 2015, when some unknown persons entered into the factory premises (secured assets) proclaiming that they purchased the same from the Bank and attempted to dispossess them from it, which was resisted by them successfully, but, they went back threatening that they would come again with the aid of police and take possession forcibly. Even, Sridhar was summoned to the police station, where he was pro .....

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005 (for short RTI Act) and, thus, they came to know that the secured assets were put to e-auction by the Bank and bids were opened on 13-03-2015 and that there was only one bidder, who is respondent No.2. v) It is also stated that the Bank has addressed a letter, dated 04-08-2015, to the auction purchaser stating that he was successful bidder for the bid amount of ₹ 85.00 lakhs and called upon him to pay balance amount of ₹ 63.50 lakhs as ₹ 21.50 lakhs was already paid. The st .....

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50 lakhs was received on 02-09-2015 and that due to pendency of W.P. No.7642 of 2015, filed by Sridhar Enterprises, which was subsequently dismissed, the balance amount was paid by the auction purchaser on 02-09-2015. The petitioners narrated the details of dates and the amounts paid in a table in paragraph No.7 of the affidavit in W.P. No.38600 of 2015. vi) The petitioners also claimed that the Bank has never explained the reasons why the auction purchaser had deposited huge amount of ₹ 1 .....

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unt of ₹ 15.00 lakhs was received by the Bank as legitimate payment for the purpose of auction, though auction purchaser was required to deposit ₹ 6.50 lakhs on 13-03-2015, which did not occur thereby making the auction failure. Therefore, petitioners expressed suspicion that the auction purchaser regularly parks funds with the Bank making it convenient to use the same for various contingent purposes. The second violation, according to the petitioners, was payment of remaining 75% bi .....

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petition or order in force. According to them, the secured immovable assets were not subject matter in W.P. No.7462 of 2015 and they never challenged the auction notification, dated 06.02.2015, as such, deposit of balance of 75% bid amount on 02.09.2015 is illegal and, thus, the Bank has clearly violated the provisions of the SARFAESI Act. viii) The petitioners also agitated that valuation of the secured assets was not properly done, and the very valuation made by the Bank demonstrates its mala .....

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matter in W.P. Nos.36625 of 2015 and 38600 of 2015, respectively. 7. So far as secured movable assets constituting subject matter in W.P. No.36652 of 2015 are concerned, while mentioning the very same averments, narrated in the above, further stated that the petitioner filed W.P. No.7462 of 2015 challenging the auction notice published in Hans India English News Paper, dated 12-03-2015, and the same was dismissed by this Court on 01-06-2015 holding that the Bank has right to proceed under the co .....

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24-09-2015, is challenged in the instant writ petition i.e., W.P. No.36652 of 2015. 8. Bank has filed its counter on 10-12-2015 stating that pursuant to the auction conducted on 13-03-2015, successful bidder made payments in accordance with the rules of auction and allege that the petitioners are making attempts to invent some kind of alleged irregularities to challenge the auction. i) Bank states that e-auction bids have been received through on-line only and all the relevant details have been .....

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sked to pay the balance amount of ₹ 21.50 lakhs being 25% of the bid amount of ₹ 85.00 lakhs and the amount of ₹ 6.50 lakhs was paid on 17-03-2015, and subsequently balance bid amount of ₹ 63.50 lakhs was paid on 02-09-2015, and since earnest money deposit was required to be paid on or before 12-03-2015 for two mortgaged properties, auction-purchaser paid ₹ 15.00 lakhs on 04-03-2015 and, thus, the auction purchaser has complied with the required amount of earnest mo .....

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ome lands which is pressed into service by the petitioners is irrelevant and valuation of the said properties at ₹ 12.00 lakhs per acre is relatable to the land in Survey No.67, while the subject lands are situated in Survey No.100 and, therefore, the petitioners cannot claim any prejudice in conducting the e-auction and completing the formalities. 9. Additional counter affidavit was filed by the Bank on 26-12-2015 giving further details, as the counter affidavit earlier filed was bereft o .....

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khs on 17-03-2015. i) Bank states that in the meantime, this Court was pleased to pass interim order staying confirmation of sale of movable properties, which are situated as fixtures on the land which was put to auction under the provisions of the SARFAESI Act, and on 01-06-2015, this Court dismissed W.P. No.7462 of 2015 and subsequently the petitioner preferred Writ Appeal No.718 of 2015 and the same was also dismissed on 20-08-2015. Bank states that confirmation of sale of land could not be m .....

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antime writ appeal was preferred by the petitioners which was dismissed by this Court on 20-08-2015, auction purchaser made payment of balance amount in respect of both the pieces of land by 02-09-2015. ii) Bank, therefore, contends that extension of time for payment of balance amount was necessitated because of the proceedings initiated by the petitioners and also in view of the fact that it was not in a position to confirm the sale and deliver the land without removing the movable properties, .....

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s, Sri K. Mallikarjuna Rao, learned Standing Counsel for respondent No.1 - Bank, and Sri Sharath Sanghi, learned counsel for respondent No.2 - auction purchaser. 11. Learned counsel for the petitioners would submit that the Bank has never informed as to what transpired subsequent to the date of auction so far as auction of immovable properties are concerned and, therefore, the petitioners secured the information by making an application under the RTI Act and came to know that only the auction pu .....

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ation of mandatory provisions of Sub-Rule (3) of Rule 9 of Rules 2002 and thereby submits that the auction purchaser regularly parks funds with the bank making it convenient to use the same for various contingent purposes. i) He would further submit that there was inordinate delay in making the balance payment of 75% of the bid amount though Sub-Rule (4) of Rule 9 of Rules 2002 mandates that within fifteen (15) days from the date of confirmation of sale the auction purchaser has to deposit balan .....

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as any amount of suspicion would arise in regard to completion of sale process and, therefore, sought to set aside the sale held on 13-03-2015 by declaring it as illegal. ii) Learned counsel also would submit that Bank undervalued the secured immovable assets though adjacent immovable secured asset was valued at ₹ 12.00 lakhs per acre when they were scheduled to be sold in the auction on 17-11-2015 pursuant to the auction notification dated 06-10-2015, but the Bank fixed the value in the i .....

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ng that the Bank has not committed any illegality or irregularity and that payment of 25% of the bid amount and the remaining 75% of bid amount were made in accordance with the provisions of the SARFAESI Act and the rules made thereunder, and that the delay was only due to the act of the petitioners in filing W.P. No.7462 of 2015 and obtaining interim order therein and after dismissal of the same, preferring W.A. No.718 of 2015, and, only after dismissal of the writ appeal, 75% of the bid amount .....

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and Infrastructure Limited v. State Bank of India . i) For the proposition that once sale is confirmed, the same cannot be reopened, learned standing counsel placed reliance on the decisions of the Honble Supreme Court in Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and others ; and Sadashiv Prasad Singh v. Harendar Singh and others . ii) Learned standing counsel also placed reliance on the decision of the Honble Supreme Court in Rosali V. v. Taic .....

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n notice, dated 10-03-2015, published in Hans India News Paper, dated 12-03-2015, proposing to auction the movables set aside, and even the petitioner being unsuccessful in W.A. No.718 of 2015, as this Bench declined to grant relief and dismissed the writ appeal by pronouncing the judgment therein on 20.08.2015. Further, we intend to refer to the relief prayed in W.P. No.7462 of 2015, which reads thus: Petition under Article 226 of the Constitution of India praying that in the circumstances stat .....

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Finished product Storage Bin (viii) Vibrating Screen and (ix) Diesel Generator) on 23-03-2015, as unconstitutional, illegal, arbitrary, unjust, against the guidelines issued by Respondent NO.2/RBI and violative of principles of Natural Justice. i) At the cost of repetition, we intend to extract the relief sought for by the petitioner in the instant writ petition (W.P. No.36652 of 2015), which is thus: For the reasons stated in the accompanying affidavit the petitioner herein prays that this Hon .....

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oduct Storage Bin (viii) Vibrating Screen and (ix) Diesel Generator} as unconstitutional, illegal, arbitrary, unjust and violative of principles of Natural Justice and set aside the same and pass such other order or orders as this Honourable Court deems fit and necessary in the justice and equity. ii) A learned single Judge of this Court dismissed the Writ Petition No.7462 of 2015, holding thus: Apart from the maintainability of writ petition in respect of a simple dispute under a loan/composite .....

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under agreement of hypothecation and the petitioner having not filed any rejoinder to the reply and documents placed on record by 1st respondent cannot be heard to complain that the impugned auction is unauthorized and unconstitutional. In my considered view, the decisions relied on by the petitioner are distinguishable on the fact situation of this case, and as tried to be persuaded by petitioner, this Court is not prepared to exercise the jurisdiction under Article 226 of Constitution of Indi .....

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sistance to the case of petitioner. In view of the findings recorded by the learned Single Judge, we are of the view that the action taken by the respondents is in terms of the hypothecation agreement. Further, it is brought to our notice that auction was already conducted and confirmation was stayed in view of the interim order passed by the learned single Judge, but after disposal of the writ petition, even the sale is confirmed in favour of the 3rd party-purchaser and the 1st respondent-bank .....

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ame auction, which was challenged in W.P. No.7462 of 2015. Therefore, in our considered view, if the instant writ petition is entertained and any order is passed, it would amount to reviewing the judgment passed by this Division Bench in W.A. No.718 of 2015. Therefore, we find no merit at all in the instant writ petition (W.P. No.36652 of 2015) and, accordingly, the instant writ petition is dismissed. W.P. Nos.36625 & 38600 of 2015: 15. Turning to the reliefs claimed in W.P. Nos.36625 and 38 .....

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; 15.00 lakhs on 04-03-2015. Auction was conducted on 13-03-2015. Balance amount towards 25% of bid amount of ₹ 6.50 lakhs was tendered by the auction purchaser on 17-03-2015. Remaining 75% of bid amount i.e. ₹ 63.50 lakhs was tendered by the auction purchaser on 02-09-2015. ii) Sub-Rule (3) of Rule 9 provides that the purchaser shall immediately pay a deposit of twenty-five per cent of the amount of the sale price to the authorised officer conducting the sale and in default of such .....

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mala fides to the Bank as well as auction purchaser. Even, over looking such allegation, when looked at the delay in depositing balance amount of ₹ 6.50 lakhs, certainly, it amounts to infraction of mandatory requirement of Sub-Rule (3) of Rule 9. When the auction was held on 13-03-2015, auction purchaser was required to deposit ₹ 6.50 lakhs to make it 25% on 13-03-2015 itself. As seen from the e-auction sale notice, auction was scheduled to be held on 13-03-2015 between 11.00 a.m. a .....

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ll by the Bank in its counter or in its additional counter. iii) Learned standing counsel for the Bank argued that the word immediately occurring in Sub-Rule (3) of Rule 9 has to be construed as within reasonable time and when viewed in that context making payment of ₹ 6.50 lakhs on 17-03-2015 cannot be construed as infraction of Sub-Rule (3) of Rule 9. In the said context, he has placed reliance on the decision of the Honble Supreme Court in Rosalis Case (Supra 9), wherein the Honble Supr .....

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e construed as meaning with all reasonable speed, considering the circumstances of the case. ( See Halsburys Laws of England, 4th Edn., Vol.23, Para 1618, p.1178.) 32. In a given situation, the term immediately may mean within reasonable time. Where an act is to be done within reasonable time, it must be done immediately. {See Gangavishan Heeralal v. Gopal Digambar jain [AIR 1980 MP 119: 1980 MPLJ 246]. AIR at p.123, Keshava S. jamkhandi v. Ramachandra S. Jamkhandi [AIR 1981 Kant 97: (1980) 2 Ka .....

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w, the fact that the banks at that time were closed, directed the auction purchaser to deposit the amount by the next day, and the auction purchaser obliged the direction of the executing Court and deposited the amount on 27-10-1988 and the balance amount on 11-11-1988. Certainly, the said fact-situation is not akin to the one occurring in the instant case. In the instant case, though, auction had taken place on 13-03-2015, auction purchaser has not deposited the balance amount to make it 25% ei .....

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was deposited on 02-09-2015 by the auction purchaser. Sub-Rule (4) of Rule 9 mandates that balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. Even, consequence of committing default is provided by the provisions of Sub-Rule (5) of Rule 9. 17. It is, now, to be seen whether the reason assigned by .....

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, and also the factum of preferring W.A. No.718 of 2015 by the petitioners which was also dismissed on 20-08-2015, and stating that only on obtaining certified copy of the order of dismissal of the writ appeal on 04.08.2015, it has informed the auction purchaser to deposit the balance bid price; (b) further reason assigned by the Bank is that the movables sought to be auctioned were, in fact, fixtures attached to the lands, which are secured assets in the form of immovable properties sought to b .....

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in fifteen (15) days after confirmation of sale. Thus, we are of the strong view, that there has been contravention of the mandatory requirement provided by the provisions of Sub-Rule (4) of Rule 9 of Rules 2002. 20. Further, even a perusal of the letter addressed by the Bank to the auction purchaser on 04-08-2015 shows that the Bank has congratulated the auction purchaser and requested him to pay the remaining balance amount of ₹ 63.50 lakhs immediately to avoid forfeiture of the amount p .....

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2015 basing on the reply given by him, but the said correspondence would not satisfy the requirement of Sub-Rule (4) of Rule 9 and, therefore, absolutely, there is no reason leaving apart plausible reason in getting over the time limit prescribed by Sub-Rule (4) of Rule 9 of Rules 2002. In the said context, learned counsel for the petitioners placed reliance on the decision of the Honble Supreme Court in Mathew Vargheses Case (Supra 3) referring to paragraph Nos.39 and 40, thus: 39. In Ram kishu .....

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old property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide Lachhman Dass v. Jagat Ram and State of M.P. v. Narmada bachao Andolan). Thus, the condition precedent for taking away someones property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions. 28.In view of the above, the law can be summarized to the effect that the recover .....

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down by this Court also makes it clear that though the recovery of public dues should be made expeditiously, it shold be in accordance with the procedure prescribed bylaw and that it should not frustrate a Constitutional Right, as well as the Human Right of a person to hold a property and that in the event of a fundamental procedural error occurred in a sale, the same can be set aside. Thus, the Honble Supreme Court emphasised that recovery of public dues should be made in accordance with the p .....

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Case (Supra 4), Ikbals Case (Supra 1), and also the decisions of this Court in Trinethra Infra Ventures Ltds Case (Supra 5) and Knovus Steels and Infrastructure Limiteds Case (Supra 6) to fortify his stand that the petitioners ought to have approached the Debts Recovery Tribunal as an efficacious alternative remedy is available to them under Section 17 of the SARFAESI Act, and, therefore, the instant writ petitions are not maintainable. 22. Learned counsel for the petitioners, on the other hand .....

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explained the word parties occurring in the said expression, held that it includes secured debtor, borrower and auction purchaser, placed reliance on the observations of the Honble Supreme Court contained in paragraph No.14, thus: 14. A reading of sub-rule (1) of Rule 9 makes it manifest that the provision is mandatory. The plain language of Rule 9(1) suggests this. Similarly, Rule 9(3) which provides that the purchaser shall pay a deposit of 25% of the amount of the sale price on the sale of im .....

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xtension. What is the meaning of the expression written agreement between the parties in Rule 9(4)? The 2002 Rules do not prescribe any particular form for such agreement except that it must be in writing. The use of the term written agreement means a mutual understanding or an arrangement about relative rights and duties by the parties. For the purpose of Rule 9(4), the expression written agreement means nothing more than a manifestation of mutual assent in writing. The word parties for the pur .....

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