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Hemalatha Ranganathan Versus The Authorised Officer Indian Bank, Chennai

2012 (8) TMI 1098 - MADRAS HIGH COURT

W.P.No.13091 of 2012 & M.P.Nos.1 & 2 of 2012 - Dated:- 13-8-2012 - MR. D.MURUGESAN AND MR. K.K.SASIDHARAN, JJ. For petitioner : Thiru.S. Sethuraman For respondents : Mrs. S. Hemalatha for M/s. THA. Sirish Chowdhary K.K.SASIDHARAN, J Introductory: The collusive sale made by the Authorised Officer, Indian Bank in favour of a person, who was not even a bidder and the conduct of auction proceedings, in spite of the stay granted by this Court, restraining the Bank from proceeding further with the sal .....

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ion. Background Facts: 2. M/s. Spark Chemicals and Pharmaceuticals Private Limited owned by Thiru S. Sundar, husband of the petitioner's sister availed financial assistance from Indian Bank, Hyderabad. The sister of the petitioner appears to have mortgaged her limited right in the property bearing Door No.7, M.G. Ramachandran Road, Kalashetra Colony, Besant Nagar, Chennai-90 in favour of the Bank. The Bank later initiated proceedings in O.A.No.1044 of 1999 before the Debts Recovery Tribunal .....

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was dismissed on 18 October 2010. 3. The order dated 18 October 2010 was challenged before the Debts Recovery Appellate Tribunal (hereinafter referred to as "DRAT"), Chennai in AIR.No.637 of 2010. During the currency of the interim order of stay granted by DRAT, the Bank issued an auction notice proposing to sell the property on 7 January 2011. This made the petitioner to file a writ petition in W.P.No.354 of 2011 before this Court challenging the auction proceedings. 4. The writ peti .....

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ction on 7 January 2011, the Authorised Officer proceeded with the sale, accepted the highest bid and thereafter issued a letter of confirmation to another person. The Authorised Officer along with Goondas, Police and Advocate Commissioner came to the subject premises on 28 July 2011 and made an attempt to take possession of property. This made the petitioner's mother to file a writ petition before this Court in W.P.No.18342 of 2011. This Court having found that possession was illegally take .....

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h the Advocate Commissioner, Police Officials and Goondas once again descended on the premises, locked a portion of the property and affixed a copy of the order dated 22 February 2012 passed by the Chief Metropolitan Magistrate, Egmore, permitting the Bank to take possession of the property from late Rajalakhsmi. The petitioner having found that the Authorised Officer without disclosing the true facts and suppressing material particulars and impleading a dead person obtained an order, filed this .....

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n the writ petition. Production of file: 8. When the writ petition came up for hearing on 9 July 2012, the learned Counsel for the petitioner contended that the Authorised Officer has not given the details regarding the name and address of the successful bidder, the amount fetched in the auction and other relevant particulars. The learned counsel further contended that the Authorised Officer by suppressing the material particulars obtained an order from the learned Chief Metropolitan Magistrate .....

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e produced by the Authorised Officer on 16 July 2012. On a perusal of the file, we found that the Authorised Officer has committed serious irregularities in the conduct of sale. The sale was made in utter violation of the mandatory provisions of the SARFAESI Act and the Rules made thereunder besides the terms and conditions of the auction notification issued by the Bank. The Authorised Officer confirmed in the name of a third party, accepted 75% of the sale consideration after a period of eighte .....

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Sundar has been in possession and enjoyment of the property, we set aside the order passed by the learned Chief Metropolitan Magistrate on 10 August 2011 and directed the Authorised Officer to put the petitioner in vacant possession of the property. The said order was ultimately complied with after the receipt of notice in the contempt proceedings. 13. Mrs. Rajalakshjmi died thereafter and the petitioner succeeded to the estate. The Authorised Officer, in the meantime, filed a fresh petition bef .....

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fidavit, the material portion of which, reads thus: "(i)Date of sale of subject property :- The date of sale of the subject property is on 7.1.2011 at 12.30 p.m. (ii) Total number of bidders along with names and addresses :- There were totally (5) five bidders :- The said bidders' details are as follows : 1.R. Ravi Kumar New No.25, Old No.13, Solai Aman Koil Street, Chennai 600 007. 2.R.Jayaraj 882/6, M.T.H. Road, Padi, Chennai 600 050. 3.Mrs.Varalakshmi, W/o B.Kumar No.24/69, Nehru Str .....

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te of confirmation of sale :- On 07.01.2011 the said B.Subramani 20/62, North Mada Street, Padi, Chennai 600 050, had issued a letter dated 07.01.2011, to confirm/ convey the sale in the name of CA S.Manisekaran, No.106/A, Kumarappa Mudali Street, Nungambakkam, Chennai 600 034 and accordingly, the sale was confirmed in the name of C.A. S.Manisekaran and a confirmation of sale letter was received by the said C.A. S.Manisekaran and accordingly, the same was acknowledged on 07.01.2011 at 1.25 p.m. .....

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Street, Nungambakka, Chennai 600 034 did not pay the balance amount for want of physical possession of the subject premises. Thus as the Bank had required the interest to be paid by C.A. S.Manisekaran, if he was required to register the sale certificate. C.A. S.Manisekaran had accordingly paid the balance amount together with interest amount vide cheque dated 11.06.2012 paid a sum of ₹ 1,20,00,000/- to and in favour of Indian Bank, ARMB Hyderabad. C.A. S.Manisekaran, had vide letter dated .....

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karan Viz., Mrs.V.Padmavathy, aged about 63 years, W/o Thiru.R.Vadivelu, Old No.5, New No.7, Ganesh Nagar, Anna Nagar, Cuddalore 607 001 on 12.06.2012. ix In case the sale certificate was registered, the date and details of registration: Sale Certificate was registered to and in favour of Mrs.V.Padmavathy, aged about 63 years W/o, Thiru.V.Vadivelu. Old No.5, New No.7, Ganesh Nagar, Anna Nagar, Cuddalore 607 001 on 14.06.2012. x.Whether the property was given possession and if so the person to wh .....

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vour of Thiru. S. Manisekaran and he should be given vacant possession of the property. The learned Chief Metropolitan Magistrate having found from the petition in Crl.M.P.No.821 of 2012 that the property has already been sold in favour of Thiru Manisekaran issued an order appointing an Advocate Commissioner to take possession of the property. 16. Since the Authorised Officer obtained an order from the Magistrate suppressing the material facts, including the basic fact that Thiru Manisekaran nev .....

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The said B. Subramani paid a sum of ₹ 17,63,000/- by way of demand draft dated 7 January 2011. 18. This Court granted stay of confirmation during the forenoon of 7 June 2011 in the immediate presence of the standing counsel for the Bank. The auction was conducted at the office of the Bank at Egmore, Chennai hardly four kilometres from the seat of the High Court. In spite of the order restraining the Bank from confirming the bid and the communication of the order by phone by the Standing Co .....

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idder. 19. The Authorised Officer has produced a copy of the letter issued by Thiru B. Subramani appointing Thiru S. Manisekaran as his nominee to pay the balance amount and he also made a request to the Bank to issue the sale certificate in favour of the nominee. The date of the letter was corrected as 7 January 2011. There is no indication as to the actual time of receipt of the said letter by the Authorised Officer. The confirmation letter proceeds as if Thiru S. Manisekaran himself took part .....

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give him vacant possession. The series of correspondence exchanged between Thiru S. Manisekaran and the Authorised Officer shows that the so called auciton purchaser was not prepared to deposit the balance amount in spite of the ultimatum given by the Bank. The amount was deposited only on 11 June 2012 and it was readily accepted by the Authorised Officer not withstanding the mandatory condition that the amount should be deposited within fifteen days of confirmation. 20. The auction notificatio .....

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bramani was declared as the highest bidder. The Authorised Officer received 25% of the earnest money from him. It was only thereafter and that too during the currency of the order of stay, the Authorised Officer received a letter from Thiru B.Subramani and issued the letter of confirmation in the name of Thiru S.Manisekaran. 22. The conditions of auction, more particularly, clause 23 provides that no time extension for making payment after the stipulated period will be granted nor shall the succ .....

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the successful bidder. The term "purchaser" would mean only a person in whose name the auction was confirmed originally and not a person who appears subsequently, as the nominee of the successful bidder. 25. The sale is Governed by the provisions of the SARFAESI Act and the Rules made thereunder. "(a) Rule 9(2) of the Security Interest (Enforcement) Rules 2002 provides that the sale shall be confirmed in favour of the purchaser, who has offered the highest sale price in his bid a .....

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may be agreed upon in writing between the parties. (d) Rule 9(5) gives authority to the Bank to forfeit 25% of the amount in case balance 75% is not deposited within the stipulated period. (e) Rule 9(6) gives power to the Authorised Officer to issue sale certificate indicating the sale of the immovable property in favour of the purchaser as per the form given in Appendix V to the Rules. (f) Rule 9(9) provides that the Authorised Officer shall deliver the property to the purchaser free from encu .....

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ed Officer very clearly stated in the letter of confirmation that in case the balance bid amount of 75% is not deposited on or before 22 January 2011, 25% of the bid amount already deposited will be forfeited without further notice. Therefore, it is clear that the Authorised Officer has not reserved any right to extend the time limit for deposit of balance 75% of the bid amount. Even though the order of confirmation was given in favour of Thiru S.Manisekaran on 7 January 2011 and he was directed .....

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d the letter of confirmation. 29. The issue regarding the power of the Recovery Officer to extend the time limit for payment of the balance amount came up for consideration before us in P. Kumar v. The Debts Recovery Appellate Tribunal 2011(6) CTC 369, in the context of Rule 57(1) and (2) of II Schedule to the Income Tax Act, 1961 which is made applicable to the sale under the Recovery of Debts Due to Banks and Financial Institutions Act. We made the position clear in paragraph 26 of the said ju .....

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d conditions in the sale notice itself and in the absence of such modification in the sale notice, the Recovery Officer cannot extend the time for payment of the balance amount of 75 percent beyond the period of 15 days; (iv) in the event the conditions of the sale notice provide for such extension and on the strength of the same if any extension is granted, the same can be tested before the Competent Authority on the ground of arbitrary exercise of power, unjustifiable for extraneous considerat .....

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was not a bidder at all. The fact that Thiru S.Manisekaran paid a sum of ₹ 1,20,00,000/- on 11 June 2012 accompanied by a letter nominating Mrs. V.Padmavathy to receive the Sale Certificate in her name, indicates that the payment was made by none other than Mrs. V.Padmavathy. This clearly proves the undue interest shown by the Authorised Officer. 32. The Authorised Officer assisted Thiru S.Manisekaran and Mrs. V.Padmavathy to conduct a profitable real estate business at the cost of Bank an .....

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d Officer was restrained from confirming the bid and that was the text of the order passed on 7 January 2011 in the presence of the learned Counsel for the Bank. The Authorised Officer now says that he was informed of the restraint order only at 1.25 p.m. It is therefore clear that at least from 1.25 p.m. on 7January 2011 he had the knowledge of the direction given by this Court. Therefore, in all fairness, he should have maintained the status quo thereafter. However, very strangely in spite of .....

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ct, issued the Sale Certificate in favour of Mrs. V.Padmavathy and handed over possession to her. This shows that the Authorised Officer was determined to sell the property at any cost. 34. Most recently the Supreme Court in Ram Kishun & Ors. v. State of U.P. & Ors. (2012(5) Scale 673) observed that the Authorised Officers of the Banks should not behave like property dealers and dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory p .....

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the DRT to consider as to whether any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security were in accordance with the provisions of the Act and Rules made thereunder. 37. The view taken by the Supreme Court in United Bank of India v. Satyawati Tandon (2010 (8) SCC 110) that the action taken under Section 14 of the SARFAESI Act is appealable under Section 17(1) of the Act was reiterated in Kanyalal Lalchand Sachdev v. State of Ma .....

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itan Magistrate in the present case, these basic facts must necessarily be taken note of. 39. The application submitted by the Authorised Officer before the Chief Metropolitan Magistrate in Crl.M.P.No.821 of 2012 does not contain any details with regard to the earlier proceedings. Even though the earlier order passed by the Magistrate under Section 14 of the SARFAESI Act was set aside primarily on the ground that the deceased person was shown as a party in possession of the property, the fact re .....

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nk. Therefore it is evident that the interest of the Bank was not safeguarded by the Authorised Officer. 41. We make the position clear that the Authorised Officer has no authority to accept the request from the highest bidder to issue the Sale Certificate in favour of a third party. The sale should be confirmed in the name of the highest bidder and not in the name of his nominee. The privity of contract would only be between the successful bidder and the Bank. The sale certificate should be iss .....

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r passed by the learned Chief Metropolitan Magistrate, Egmore, earlier on 29 June 2011 in Crl.M.P.No.2522 of 2011 permitting the Bank to take possession of the property was set aside by this Court. The said order was duly communicated to the learned Chief Metropolitan Magistrate. The Bank thereafter approached the Magistrate with an application in Crl.M.P.No.821 of 2012. The very same learned Magistrate has considered the subsequent application and passed an order on 22 February 2012 appointing .....

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ief Metropolitan Magistrate is bound to pass an order at the instance of the Bank even without furnishing the required particulars. 43. We have noticed in several cases that the Magistrates were passing orders under Section 14 of he SARFAESI Act in the routine manner and as a matter of course. The Advocate Commissioners appointed by the Court were given liberty to take the assistance of police, to break open the lock and to take forcible possession of property. The Banks are projecting a case of .....

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ise only in case the Commissioner is not in a position to take possession. There were instances where the Advocate Commissioner with the assistance of police locked the premises without even allowing the inmates to take the cooked food or uniforms and books of school going children. Therefore, in normal circumstances, it is not necessary to order police protection and permission to break open the lock and similar other drastic steps at the first instance. It is always open to the Magistrate to i .....

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es integra in view of the judgment of Supreme Court in All Bengal Excise Licensees' Association v.Raghabendra Singh, (2007) 11 SCC 374. 46. In All Bengal Excise Licensees' Association, the High Court passed an interim order to the effect that the parties will be at liberty to process the applications for grant of licences for excise shops but no final selection in respect of such shops shall be made without obtaining specific leave of the Court. However, the excise department issued lice .....

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g the direction, observed that a party to the litigation cannot be allowed to take an unfair advantage by committing breach of an interim order and escape the consequences thereof. The Supreme Court further said: "34. It is settled law that a party to the litigation cannot be allowed to take an unfair advantage by committing breach of an interim order and escape the consequences thereof by pleading misunderstanding and thereafter retain the said advantage gained in breach of the order of th .....

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he wrong doing. In our opinion, the inherent power will not only be available under Section 151 CPC, as available to us in such a case, but it is bound to be exercised in that manner in the interest of justice and public interest. 39. As rightly observed by the Full Bench of the Madras High Court in Century Flour Mills Ltd. that as a matter of judicial policy the court should guard against itself being stultified in circumstances like this by holding that it is powerless to undo a wrong done in .....

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Flour Mills v. S. Suppiah (AIR 1975 Madras 217) and the judgment of the Supreme Court in All Bengal Excise Licensees' Association (2007(1) SCC 374), cancel the auction held on 7 January 2011. 48. Since the Authorised Officer of the Bank violated the mandatory provisions of the SARFAESI Act and the Rules made thereunder and suppressed material particulars and made false statements to take possession of property stating that it was sold to Mr.S.Manisekaran not withstanding the fact that he was .....

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