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Polisetty Haranadh Muralidhar Versus Authorized Officer, Indian Overseas Bank, Kirlampudi Layout, Visakhapatnam and others

Procedure followed by the bank in accordance with the statutory mandate of the SARFAESI Act and the Rules of 2002 - auction sale held by bank - Held that:- The 7th respondent/auction purchaser is put to loss owing to a lapse primarily attributable to the bank in following the mandatory procedure stipulated in the Rules of 2002. Be it noted that the judgment in MATHEW VARGHESE [2015 (1) TMI 461 - SUPREME COURT ] was delivered as long back as on 10.02.2014, but the bank chose to ignore the legal p .....

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bidder in MATHEW VARGHESE1 who had also parted with his monies. The amount so determined shall be refunded by the bank to the 7th respondent within two weeks from the date of receipt of a copy of this order by way of a pay order/bankers cheque. The writ petition is accordingly allowed setting aside the order passed by the Debts Recovery Tribunal, Visakhapatnam. We further hold that the sale held by the Indian Overseas Bank on 15.07.2015 was illegal, being in utter violation of the statutory m .....

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quently, he seeks an order allowing S.A.No.201 of 2015 and setting aside the proceedings initiated by the Indian Overseas Bank (hereinafter, the bank) under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, the SARFAESI Act), including the auction sale held on 15.07.2015. This sale related to the land admeasuring 393 square yards with a two storied R.C.C. building thereon, bearing Door No.9-19-20A, Layout No.2 .....

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ter from time to time. On 02.12.2015, this Court took note of the petitioners allegation that though the auction was conducted on 15.07.2015, the 7th respondent/auction purchaser did not deposit 25% of the bid amount on the day of the auction and also failed to deposit the balance 75% of the bid amount within 15 days as required, and directed the Chief Manager and Authorised Officer of the bank to file an additional affidavit indicating the date when the bid of the 7th respondent/auction purchas .....

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ues of the bank along with interest within thirty days from the date of the order. The Tribunal further directed that in the event he failed to pay the dues within the time stipulated, the sale would stand confirmed. In the event he paid the amount, the bank was directed to refund the amount paid by the auction purchaser with simple interest thereon at 4% per annum which would be recoverable from the applicant. The bank was further directed to defer delivery of possession to the auction purchase .....

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13% with monthly rests, were directed to be paid within sixty days. Upon non-compliance, the bank initiated proceedings under Section 13(4) of the SARFAESI Act by issuing possession notice dated 10.09.2014 in terms of Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (hereinafter, the Rules of 2002). It appears that the bank then initiated auction sale proceedings which did not fructify. Thereafter, sale notice dated 29.05.2015 was issued by the bank in terms of Rule 8(6) of the Rules .....

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2,53,13,000/- as against the reserve price of ₹ 2,52,88,000/-. The petitioner alleged that the 7th respondent failed to deposit 25% of the bid amount on the day of the auction and also failed to deposit the balance 75% within fifteen days. He further contended that the sale was contrary to the mandate of the SARFAESI Act and the Rules of 2002. Significantly, the petitioner raised the issue of postponement of the sale from 01.07.2015 to 15.07.2015 in S.A.No.201 of 2015, but the same was br .....

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he bank had no power or authority to postpone the sale from 01.07.2015 to 15.07.2015 without issuing a fresh sale notice. In its counter-affidavit, the bank stated that after issuance of the auction sale notice dated 29.05.2015 to the borrowers under Rule 8(6) of the Rules of 2002, it published the same in the newspapers, viz., Eenadu Telugu Newspaper and Hindu English Newspaper, on 30.05.2015, notifying the date of auction as 01.07.2015. The bank further stated that as bidders had problems logg .....

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despite issuance of the sale certificate. In its additional counter-affidavit, the bank stated that the e-auction sale was completed on 15.07.2015 at 2.00 P.M. but the sale was confirmed in favour of the highest bidder on 16.07.2015 at 10.57 A.M. The auction purchaser, the 7th respondent herein, was stated to have paid 15% of the bid amount on 16.07.2015. 10% of the bid amount was paid by the 7th respondent by way of the earnest money deposit on 29.06.2015 itself. The balance 75% of the bid amo .....

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, this very issue fell for consideration. That was a case where after issuance of the sale notice dated 14.08.2007 under Rule 8(6) of the Rules of 2002 and the newspaper publication on 23.08.2007 under Rule 9(1) of the Rules of 2002, the sale proposed to be held thereunder on 25.09.2007 did not materialize owing to the Debts Recovery Tribunals order and stood postponed. After dismissal of the case by the Tribunal on 27.12.2007, the bank straightaway accepted the tender of the bidder on 28.12.20 .....

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ny one on its behalf, is not allowed to exploit the situation. Apropos the statutory procedural prescriptions in Rules 8 and 9 of the Rules of 2002, the Supreme Court opined that the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days individual notice to the borrower and also a public notice by way of publication in the newspapers. In other words, per the Supreme Court, while the publication in a newspaper should provide 30 days clear notice, as Rule 9(1) also states that suc .....

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ESI Act. In paragraph 53 of the judgment, the Supreme Court further pointed out that in the event any sale, properly notified after giving 30 days clear notice to the borrower, does not take place as scheduled for reasons which cannot be solely attributed to the borrower, the secured creditor cannot effect the sale of the secured asset on any subsequent date by relying upon the notification issued earlier and once such sale does not take place pursuant to a notice issued under Rules 8 and 9, rea .....

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As in that case the bank had effected the sale on 28.12.2007 by accepting the tender of the bidder straight away and went about confirming the sale thereafter, the Supreme Court condemned the whole procedure followed by the bank and the ultimate confirmation of the sale was also held to be vitiated as it was not in conformity with the provisions of the SARFAESI Act and the Rules framed thereunder. This was the result, notwithstanding the fact that the bank had already confirmed the sale and had .....

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of the Income Tax Act, 1961, in the first place it will have to be stated that a reading of the said Rule does not in any way conflict with either Section 13(8) of the SARFAESI Act or Rules 8 and 9 of the 2002 Rules. As far as sub-rule (1) of Rule 15 is concerned, it only deals with the discretion of the Tax Recovery Officer to adjourn the sale by recording his reasons for such adjournment. The said Rule does not in any way conflict with either Rules 8 or 9 or Section 13, in particular sub-sect .....

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3 or Rules 8 and 9. In fact there is no provision relating to grant of adjournment or issuance of a fresh proclamation for effecting the sale after the earlier date of sale was not adhered to in the SARFAESI Act. In such circumstances going by the prescription contained in Section 37 of the SARFAESI Act, as we have reached a conclusion that the provision contained in Section 29 of the RDDB Act will be in addition to and not in derogation of the provisions of the SARFAESI Act, the provisions cont .....

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d in no other manner. However, para 53 of the judgment, wherein the ratio decidendi has been spelt out, is most relevant and reads as under: 53. We, therefore hold that unless and until a clear 30 days notice is given to the borrower, no sale or transfer can be resorted to by a secured creditor. In the event of any such sale properly notified after giving 30 days clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the secu .....

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the only other provision to be noted is sub-rule (8) of Rule 8 as per which sale by any method other than public auction or public tender can be on such terms as may be settled between the parties in writing. As far as sub-rule (8) is concerned, the parties referred to can only relate to the secured creditor and the borrower. It is, therefore, imperative that for the sale to be effected under Section 13(8), the procedure prescribed under Rule 8 read along with Rule 9(1) has to be necessarily fol .....

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hile holding, on the one hand, that Rule 15 of Schedule-II, Part-1 of the Income Tax Act, 1961, is also applicable to sale proceedings under the SARFAESI Act and that the same should be followed in a situation where a sale notified as per Rules 8 and 9(1) of the Rules of 2002 gets postponed, the Supreme Court however held in para 53 that if any sale, properly notified after giving 30 days clear notice to the borrower, did not take place as scheduled for reasons which cannot be solely attributed .....

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n the scheduled date. Given the clear mandate of the aforestated judgment, notwithstanding the seeming contradiction between paragraphs 52 and 53, we are of the opinion that the Authorised Officer of the bank could not have resorted to postponing the date of auction even by 15 days by taking recourse to Rule 15 Schedule-II, Part-1 of the Income Tax Act, 1961. Once the sale did not take place on 01.07.2015, due to a reason not at all attributable to the petitioner, the bank necessarily had to tak .....

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f immovable property, the purchaser shall immediately make the deposit of 25% of the sale price with the Authorised Officer and in default of such deposit the property shall forthwith be sold again. Rule 9(4) of the Rules of 2002 mandates that the balance amount of the purchase price shall be paid to the Authorised Officer on or before the 15th day of the confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. In the present ca .....

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the sale, time can only be extended as agreed upon in writing by the parties. According to the bank, the 7th respondent/auction purchaser sought extension of time under its letter dated 29.07.2015 and the same was granted by the bank up to 12.08.2015. Perusal of the banks letter dated 29.07.2015 granting such extension does not reflect the petitioner being taken into confidence or his consent being obtained for granting such extension. As to whether the petitioner, being the borrower, was requi .....

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to extend time for deposit of the balance sale consideration, it could have done so only by taking the petitioner, the borrower, into confidence and after obtaining his consent. Admittedly, this procedure was not followed. On the above analysis, we are of the opinion that the Tribunal erred in brushing aside the statutory mandate of Rules 8 and 9 of the Rules of 2002, and passing the order dated 15.09.2015. However, we are conscious of the fact that the 7th respondent/auction purchaser is put to .....

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