TMI Blog2013 (4) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of the property. A publication was given on 28.08.2010 for auction of the same. M/s. United Steel Allied Industries Private Limited (Auction Purchaser) participated in the auction on 29.09.2010 and 25% of sale price was deposited. Subsequently, on 01.01.2010 S.B.I. Global Factors Limited has filed company petition for winding up as it is also a secured creditor and the petition was allowed on 18.07.2011 and the Official Liquidator was appointed to take possession of the property. After the auction a letter dated 18.10.2010 was addressed by the auction purchaser to the effect that their participation in the auction is subject to the following conditions:- 1) Satisfactory legal due diligence and clear marketable title over land, plant and machinery free from any lien, charge, encumbrances etc., 2) Indemnity guarantee from the Indian Bank with respect to future litigation, what so ever in nature, if any, 3) Indian Bank shall put us in the peaceful possession and handling over the land, plant and machinery and smooth functioning without any obstructions, what so ever in nature, from any quarter. In this connection, we would also like to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 giving the Bank liberty to proceed against the auction purchaser in accordance with law for recovery of the over due amounts and installments to the extent of default by the auction purchaser. As against that W.A. No. 17 of 2013 was filed and by order dated 09.01.2013 the modification ordered in W.P.M.P. No. 2850 of 2012 was deleted and the matter was directed to be dealt by this Court along with W.P. No. 33655 of 2011. That is how both the Writ Petitions were transferred to this Court. While these matters are pending the auction purchaser has filed COMP. A. No. 421 of 2013 to set aside the sale alleging several irregularities, suppression of facts and not following due process. It was also further pleaded that the properties are not properly valued and the encumbrances were not disclosed and possession was not delivered effectively. It was also pleaded that there were several claims of taxes etc., to a large sum of more than 1 Crore and as such the sale is liable to set aside. 2. The Indian Bank has denied all the allegations and supported the action taken under SARFAESI Act. The Official Liquidator claims that this sale is void under Section 446 as the leave was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Debt Recovery Tribunal it is the Company Court that has to deal with the validities. He also relied on a decision reported in Saroj Shivhare and Others Vs. Gaurav Enterprises and others 2012 (2) D.R.T.C. 47 (M.P.), whereunder it was held that the issue of the sale certificate itself is a completion of a sale and no registration is necessary. According to him, the correspondence and the admissions of the auction purchaser clearly goes to show that the possession was delivered. According to him, when once the possession was delivered, the subsequent interference is not the duty of the Bank to protect. He also contends that it is for the buyer to verify whether there are any encumbrances or not and if there are arrears of taxes etc., it shall be paid by the auction purchaser only in substance. According to him, neither the Official Liquidator nor the auction purchaser can question the sale before the Company Court and therefore their claims have to be rejected as the sale having been confirmed. The Registrar shall be directed to register the property. 5. On the other hand, the Official Liquidator contends that his attack on the sales is under Section 531 and 531(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also relied upon a decision of this Court reported in India Finlease Securities Limited, Chennai Vs. Indian Overseas Bank, Vijayawada, Krishna District and Others 2012 (6) ALD 345 (DB), whereunder the provisions of SARFAESI Act, the notion of sale and transfer have been considered and opined that the sale is not complete unless the property for which the price was paid is transferred to the buyer by a written proceedings. It was also considering the provisions of Rule 9 (2) and 9 (4) and found that the confirmation shall be by the secured creditor and not by the Authorized Officer. Incidentally, it was held that a sale certificate is not required to be registered and no registered sale deed is to be executed after the sale was confirmed by the Banks. He also relied upon a decision of the Supreme Court reported in Haryana Financial Corporation and another Vs. Rajesh Gupta (2010) 1 SCC 655, whereunder the defects in the formation of a contract can be agitated by the auction purchaser. 8. Therefore, in view of the above contentions, it is necessary now to see the provisions under Section 531, 531A and 537 of the Companies Act:- 531: Fraudulent Preference:- 1) Any tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, though several complaints were made about the nature of the publication and the contents therein, there is no material before the Court as to whether proper publication was given. It cannot be disputed that the S.B.I. Global is also a secured creditor, if the interest of the other creditors is not taken care of and if it is only for the benefit of single creditor even applying the principles under the Insolvency Law, the sale is a fraudulent one. The argument that the Indian Bank is prepared to place before the Court the amount realized by the sale for distribution of all the creditors does not hold good, for the reason that if at the time of the sale, if the auction purchaser is to know that there are other encumbrances on the property then the price to be quoted will be definitely different. In fact, there is no material on record as to what was the sale price quoted by the Authorized Officer and as to whether it was less or more than the price quoted by the auction purchaser. 10. There cannot be any doubt of the fact from the dates given earlier that the transfer was within a period of six months from the date of presentation of the liquidation proceedings and conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is to be noted that the powers conferred under the SARFAESI Act for the Bank or the Authorized Officer is only in order to avoid the delay of legal proceedings and it does not give any right or advantage to misuse the power of quasi judicial nature in order to convert a Non Performing Asset and realize the money by adopting improper mode. Any Authorized Officer who is conducting the sale is discharging the quasi-judicial functions and he has to follow the rules and conduct the sale according to law. There cannot be an understanding or agreement between the borrower, auction purchaser or the creditor by violating mandatory provisions, in order to get undue benefit to the Creditor Bank. 14. In this connection, it is useful to refer to Rule 9 (1) (2) (3) (4) and (5) of SARFAESI Act:- Rule 9: Time of Sale, issues 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or to any part of the sum for which it may subsequently be sold. 16. Under the provisions of Rules 85 and 86, if the full purchase money is not paid within fifteen days, further steps have to be taken. But the only difference under Rule 9 (4) is that the time can be extended by agreement in writing between both the parties, it evidently means that such an extension shall be within 15 days period stipulated under Clause 4. But, in this case no such thing has happened. 17. The tender cum bid agreement also stipulates the same, which reads as under:- 33. Sale is subject to confirmation by the Bank. Bank will confirm the sale only after ensuring that initial payment of 25% of sale price is paid/deposited (on the same date) by way of DD/BPO. 34. The EMD deposited by the successful tenderer shall be held as Security Deposit for due performance of the contract. Successful tenderer shall deposit the balance amount within 15 days of confirmation of the sale by the Bank or within the extended period as agreed between the parties. Such deposit will be made in the form of Demand Draft/Bankers' Pay Order on a Bank, payable at Hyderabad. 35. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for extension of the time within the fifteenth day for payment of balance consideration and an order in writing granting such extension, as claimed, which are mandatory under Rule 9 and Tender-cum-Bid agreement. The above facts are telltale about the failure of the Authorized Officer to proceed according to law and the consequential advantage the creditor bank has got. It is abundantly fraudulent. When once the sale fails to have any legal effect by application of Rule 9 it cannot be said to be a valid sale and neither the auction purchaser nor the creditor can derive any benefits and such sales are to be ignored. 20. Therefore, taking any view of the matter, it is quite clear the sale in this case is statutorily void under Section 531, 531-A and 537 of the Companies Act and also under Rule 9 of the SARFAESI Act, that being so the creditor cannot claim any benefits. 21. It is sought to be contended that there was no need for registration and the sale certificate itself is sufficient probably under the SARFAESI Act it appears to be so. But if the parties have contracted to the contrary, the same cannot be avoided. In this connection, it is useful to refer to Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as the sales are statutorily void and the Official Liquidator has got every right to take possession of the property by ignoring them, the letter written by him for restraining the registration itself is an action of assertion that the sale is void. In fact, such action is being questioned in the Writ Petition and also Comp. A. No. 1927 of 2011. The point in these cases is the binding nature of the sale on the Official Liquidator and when once the sales are void and when the decision rests on this aspect, there need not be any separate application to be filed by the Official Liquidator for setting aside the sale. If once his letter seeking for stopping of registration is held to be valid, consequently, it has to be held that as the void sale need not be set aside, they have to be ignored and challenge made by the Creditor Bank is not valid. 25. So far as the auction purchaser is concerned, evidently, he is challenging the letter written by the Creditor Bank about the pressure for realization of the amount due under a void sale and the reasons given above clearly goes to show that the Creditor Bank cannot take advantage of the void sale and therefore, the necessary r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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