Andhra Pradesh High Court - Amravati
M/S Tropical Coatings ... vs The Authorized Officer on 13 April, 2023
HON'BLE SRI JUSTICE U. DURGA PRASAD RAO
AND
HON'BLE SRI JUSTICE B.V.L.N. CHAKRAVARTHI
Writ Petition No.22646 of 2021
ORDER: (Per Hon'ble Sri Justice U. Durga Prasad Rao)
The challenge in this writ petition at the instance of petitioners /
borrowers is the following order dated 24.09.2021 in S.A.No.227/2018
passed by the Presiding Officer, Debts Recovery Tribunal,
Visakhapatnam (for short, the DRT, VSP'):
"Therefore, considering the facts and circumstances of
the case and in view of the Not Press Memo filed by the
applicant to settle the matter under OTS, the present SA No.227
of 2018 along with IA.972/2018 is dismissed as not pressed and
the applicant is at liberty to approach the respondent bank for
settlement of the loan account under OTS and the respondent
bank may accept the OTS proposal in accordance with its
guidelines to settle the accounts with respect to other properties
except item No.1 of schedule mentioned property because it is
sold to auction purchaser in e-auction conducted by the
respondent bank on 1.12.2018. However, since the bank has
conducted e-auction on 1.12.2018 wherein M/s. Heritage Foods
Limited has become successful bidder in respect of item No.1 of
the SA schedule property and in view of dismissal of
SA.227/2018 and IA.972/2018 (stay petition), the respondent
bank can take steps to register the item No.1 of the SA schedule
property in favour of M/s. Heritage Foods Limited, who is
auction purchaser in the auction conducted on 1.12.2018
immediately by receiving the balance of 75% bid amount.
Accordingly, the SA No.227/2018 and IA.972/2018 is
dismissed, as not pressed with the above said observation."
2. The petitioners' case succinctly is thus:
(a) The 1st petitioner company to which the 2nd petitioner is the
Managing Director, engaged in manufacturing water proofing
membranes and allied products. In the year 2014, the petitioners availed
loan facility from the 1st respondent bank. Due to delay in payments, the
respondent bank declared the loan account of the petitioners as NPA and
issued demand notice under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (for short, 'the SARFAESI Act') on 17.08.2017. The
petitioners submitted a reply dated 09.10.2017 requesting the bank to
continue the operation of the petitioners' account and reschedule the
loan to enable them to discharge the loan. They also represented that the
petitioner company comes under the MSME and SSI unit under the RBI
guidelines. However, the bank failed to follow the procedure
contemplated under Section 13(3)(a) of the SARFAESI Act and
proceeded in the matter and issued possession notice dated 20.04.2018
claiming symbolic possession of the properties which was neither served
on the petitioners nor affixed on a conspicuous place.
(b) In the above circumstances, the petitioners file SA 227/2018
before the DRT, VSP challenging the demand notice dated 17.08.2017
and possession notice dated 20.04.2018. Along with SA, the petitioners
have also filed I.A.No.972/2018 seeking stay of all further proceedings
including sale of the property. However, the DRT has not passed any
orders in the stay application, but kept the petition pending. Taking
advantage of it, the bank proceeded further and issued sale notice fixing
the date of auction of the mortgage properties on 01.12.2018 while the
I.A.972/2018 stood posted to 06.12.2018 for hearing. Therefore, the
petitioners filed I.A.No.2186/2018 to advance the stay application and to
grant interim orders. The said application was posted to 03.12.2018 in
spite of the fact that the sale was scheduled on 01.12.2018. Hence, the
petitioners filed W.P.No.43745/2018 in the High Court of A.P.
challenging the inaction of the DRT, VSP. In the said writ petition, an
order was passed on 03.12.2018 directing notice to the parties and not to
confirm the sale which took place on 01.12.2018. The bank having
received notice appeared and writ petition was disposed of by order
dated 02.12.2019, wherein the High Court of A.P. was pleased to direct
the DRT, VSP to dispose of I.A.No.972/2018 expeditiously, within a
period of two months from the date of receipt of a copy of the order and
with a further direction to continue the interim order issued by the High
Court.
(c) In spite of specific direction as above, the DRT has not passed
any order in I.A.No.972/2018. The bank also has not proceeded further
in the matter as the auction purchaser has not deposited the balance 75%
of the sale amount. As per Rule 9(4) of the Security Interest
(Enforcement) Rules, 2002 (for short, 'Rules 2002'), the successful
bidder has to deposit the balance 75% of the bid amount within a
maximum period of 90 days. Since the DRT has not passed orders in
I.A.No.972/2018 within two months, the interim order granted by the
High Court of A.P. stood extinguished by 1st week of December 2020
and therefore, the auction purchaser was under the obligation to deposit
balance 75%.
(d) While the matter stood thus, the petitioners submitted an
application dated 11.12.2019 to the respondent bank to extend OTS
facility wherein a settlement was arrived at to the effect that the bank
would close the loan account of the petitioner on payment of Rs.6.00 Cr.
and accordingly, a OTS sanction letter dated 03.01.2020 was issued.
The petitioners have remitted an upfront amount of Rs.1.01 Cr. as per
the sanction letter and for deposit of balance amount of Rs.4.99 Cr., the
petitioners had time till 31.03.2020. However, due to prevalence of
COVID-19 pandemic, the petitioners could not pay the balance amount
within time. In the meanwhile, the RBI issued guidelines for
reschedulement of loan facilities and also moratorium which has to be
followed by all the banks. However, in the instant case, the respondent-
bank has not extended the benefits under MSME scheme and not even
informed petitioners to make an application for reschedulement of the
loan. However, time was extended by the bank for payment of the
balance amount under OTS scheme. The petitioners secured investment
from the foreign investor who transferred an amount of Rs.4.99 Cr. on
10.07.2020 directly to the bank. However, the said amount could not be
credited to the account of the bank in view of some objections raised by
Enforcement Directorate, which was beyond the control of petitioners.
This fact was intimated to the bank by the petitioners and time was
sought to be extended for payment of the balance amount.
(e) As the matter stood thus, in obeisance of the conditions of
OTS settlement, the petitioner filed a Memo on 18.02.2020 before the
DRT, VSP seeking withdrawal of the S.A.227/2018. However, the DRT
kept pending the said Memo. In the meanwhile, the auction purchaser
filed I.A.No.473/2020 to implead him stating that the bank has not
received the balance amount and was cancelling the auction. The bank
filed a counter stating that the allegations in the said petition were false
and that auction purchaser's presence is not required and that the
petitioners have already filed withdrawal memo. However, subsequently
the bank and auction purchaser i.e., respondents 1 & 2 colluded together
and the auction purchaser has withdrawn the impleadment petition. The
bank filed a memo stating that S.A. may be closed as withdrawn and
permission may be accorded to receive the balance amount from the
auction purchaser and to go ahead with the registration. The petitioners
have filed detailed objections against the said memo stating that the
auction cannot be continued as there was a violation of Rule 9(4) and
balance amount cannot be accepted by the bank. The petitioners have
raised several other objections on the validity of the auction. The DRT,
VSP, which kept pending the withdrawal memo for 16 months, has
suddenly passed the impugned order on the withdrawal memo without
hearing the petitioners on the merits of the S.A. and also the validity of
the auction. The observations made in its order directing the bank to
receive the balance 75% amount from the auction purchaser and confirm
the auction in respect of item No.1 of the property sold in the auction is
beyond the jurisdiction of the DRT.
Hence, the writ petition.
3. Respondents 1 and 2 filed separate counters and opposed the Writ
Petition mainly contending that there are no merits in the Writ Petition;
the petitioners have to file appeal against the impugned order and Writ
Petition is not maintainable; the petitioners have not honoured OTS and
paid the stipulated amount in time and therefore the 1st respondent can
receive the balance 75% of bid amount from the 2nd respondent and
execute and register sale certificate pursuant to the e-auction dated
01.12.2018; the Tribunal having rightly considered the said fact,
excluded item No.1 of the schedule property from the OTS proposal
while dismissing the S.A.No.227/2018.
4. Heard arguments of Sri Ambadipudi Satyanarayana, learned
counsel for the petitioners and Sri Satyanarayana Dhara, learned counsel
for 1st respondent and Ms. S. Pranathi, representing Ginjupalli Subba
Rao, learned counsel for 2nd respondent.
5. While severely remonstrating the order dated 24.09.2021 in SA
No.227/2018 passed by DRT, VSP, learned counsel for the petitioners
Sri Ambadipudi Satyanarayana would argue that the petitioners have
initially filed SA No.227/2018 before DRT, VSP challenging the
demand notice dt: 17.08.2017 U/s 13(2) and possession notice dt:
20.04.2018 issued U/s 13(4) of SARFAESI Act, 2002 and when the
matter stood pending, due to some turn of events, more prominently, due
to the OTS arrived at by the petitioners and 1st respondent on the
condition of payment of stipulated amount, the petitioners filed a not
press memo dt: 24.02.2020 in SA No.227/2018 requesting the tribunal to
dismiss the SA as not pressed. Learned counsel would further submit
that in terms of the said not press memo, the tribunal ought to have
dismissed SA No.227/2018 as the petitioners have not sought for any
relief thereunder except making an innocuous prayer of dismissal of SA.
(a) While so, as against the not press memo, the 1st respondent
bank filed its objections stating that it has no objection for dismissal of
SA but it has already sold item No.1 of the subject property in the
auction in favour of 2nd respondent herein who deposited 25% of the bid
amount but the balance amount could not be received due to stay order
in WP No.43745/2018 and further the petitioners failed to adhere to OTS
terms and as such after dismissal of SA the respondent bank was ready
to effect registration of sale in favour of auction purchaser after
receiving the balance 75% of bid amount.
(b) Learned counsel would further submit that as against the above
objections, the petitioners in turn filed memo dated 21.09.2021 stating
therein that the petitioners have already deposited Rs.1.01 crores
pursuant to the OTS and due to some problems they could not deposit
the balance amount and the auction purchaser failed to pay balance 75%
of the bid amount even after lapse of three years and hence the bank has
to conduct a fresh sale of secured assets and at any rate, the petitioners
were willing to pay the balance of OTS amount and sought 3 months
time for such payment.
(c) Learned counsel would strenuously argue that in the light of
averments and counter averments as mentioned supra, the tribunal ought
to have either, simply dismissed the SA No.227/2018 without going into
the merits of the contentions of either party or otherwise, if the tribunal
proposed to consider and give a ruling on the validity of auction sale
held by 1st respondent bank in respect of item No.1, it must have
conducted a regular enquiry and afforded hearing to all parties
concerned and passed an order on merits on the not press memo filed by
the petitioners. Learned counsel would lament that instead of following
the principles of natural justice the tribunal passed the impugned order
validating the disputed auction sale of item No.1 of the subject property.
Learned counsel would make it clear that the petitioners have no
grievance against the impugned order to the extent the tribunal
dismissing the SA No.227/2018 along with IA No.972/2018 in view of
not press memo and granting liberty to the petitioners to approach the
respondent bank for settlement of the loan account under OTS and
observing that the respondent bank may accept the OTS proposal in
accordance with its guidelines to settle the accounts. However, the
grievance of the petitioners is only in respect of later part of the
impugned order whereunder the Tribunal excluded Item No.1 of
schedule mentioned property for consideration in OTS proposal on the
ground that it was sold to auction purchaser in the e-auction held on
01.12.2018 and directing the respondent bank to take steps to register
Item No.1 in favour of the 2nd respondent herein by receiving the balance
75% of the bid amount. Learned counsel would formidably argue that
when the petitioners have been vehemently questioning the legal validity
of auction sale, the Tribunal ought not to have endorsed its stamp of
approval of the sale unilaterally without hearing the objections of the
petitioners. He reiterated that by din't of aforesaid order, principles of
natural justice became a casualty. He thus prayed to allow the writ
petition and set aside the impugned order to the extent it affects the
rights of the petitioners or remand the matter back to the Tribunal to
conduct enquiry and pass order afresh on merits.
6. Sri Satyanarayana Dhara, learned counsel for 1st respondent bank
would argue that the petitioners' loan amount was declared as NPA due
to their failure to redeem the loan and thereafter, the bank by following
the provisions of SARFAESI Act conducted sale of item No.1 wherein
the 2nd respondent stood as successful bidder and paid 25% of the sale
amount. In the meanwhile, on the request of petitioners, the bank agreed
for OTS for Rs.6 Cr. but the petitioners could pay only Rs.1.01 Cr. and
committed default and on their request time was extended for 10 days.
The petitioners as per the terms of OTS filed not press memo in
S.A.No.227/2018 before DRT VSP and the 1st respondent bank filed
objection memo stating that it has no objection for dismissal of S.A. but
the bank has already sold item No.1 in auction and 2nd respondent
deposited 25% and after dismissal of S.A. the bank would receive
balance amount and issue registered sale certificate in favour of the 2nd
respondent. The learned counsel would argue that on considering all the
aforesaid facts, the DRT VSP while dismissing the S.A. by virtue of not
press memo, directed the bank to receive balance 75% of amount from
the 2nd respondent and issue registered sale certificate in favour of the 2nd
respondent. He would emphasize that the said order is perfectly valid
and there is no legal infirmity therein warranting interference by this
Court. He would further argue that the Writ Petition is not maintainable
for, the petitioner, as against the impugned order has efficacious and
alternative relief of appeal before the Appellate Tribunal.
7. Ms. S.Pranathi, learned counsel for 2nd respondent while arguing
similar to 1st respondent, additionally submitted that the contention of
the petitioners that the 2nd respondent failed to deposit balance 75% of
amount within ninety (90) days of sale as stipulated in Rule 9(4) of
Rules 2002 and thereby sale became invalid is preposterous for the
reason that the 2nd respondent has promptly deposited 25% of the sale
amount on the date of sale itself and was ready with the balance 75% of
the bid amount and requesting the 1st respondent bank to receive and
issue registered sale certificate. However, due to the stay order passed by
this Court and pendency of S.A.No.227/2018 before DRT VSP, the bank
could not receive the amount and extended the time for payment.
Ultimately after dismissal of S.A.No.227/2018, the 2nd respondent
deposited the balance amount and obtained sale certificate. Learned
counsel placed reliance on the decision in General Manager, Sri
Siddeshwara Cooperative Bank Limited and another v. Ikbal and
others1 to canvas that Rule 9(4) of Rules 2002 is not mandatory and by
agreement the parties can waive the same.
8. The points for consideration are:
(i) Whether the impugned order is sustainable ?
(ii) Whether Writ Petition is not maintainable due to availability
of efficacious and alternative remedy ?
9. POINT No.1: We gave our anxious consideration to the pleadings
and arguments of either side. Admittedly, the petitioner borrowed
(2013) 10 SCC 83
amounts from 1st respondent bank and committed default and therefore
the bank having declared the loan account of the petitioners as NPA,
issued demand notice dated 17.08.2017 under Section 13(2) of
SARFAESI Act. The petitioners said to have submitted reply notice
dated 09.10.2017, but the bank having been not satisfied, issued
possession notice dated 20.04.2018 claiming symbolic possession of the
subject properties under Section 13(4) of SARFAESI Act. It is a further
admitted fact that aggrieved, the petitioners filed S.A.No.227/2018
before DRT VSP challenging the demand notice dated 17.08.2017 and
possession notice dated 20.04.2018 issued under Sections 13(2) and
13(4) of SARFAESI Act respectively. The petitioners, along with S.A.
filed I.A.No.972/2018 seeking stay of all further proceedings including
sale of the properties. It appears that the DRT VSP has not passed orders
on the stay application and therefore the 1st respondent bank fixed date
of auction on 01.12.2018. The petitioners filed I.A.No.2186/2018 to
advance I.A.No.972/2018 from 06.12.2018, to hear the same and pass
necessary orders. Since there was no positive response from the DRT
VSP, the petitioners filed Writ Petition No.43745/2018 before the High
Court of Andhra Pradesh wherein the Court passed order dated
02.12.2018 directing the DRT VSP to dispose of I.A.No.972/2018
within two months from the date of receipt of the order with a further
direction to continue the interim order earlier passed by it and not to
confirm the sale which took place on 01.12.2018. It appears that in spite
of said order, the DRT VSP has not disposed of I.A.No.972/2018 within
the stipulated time.
10. Be that as it may, pursuant to the application dated 11.12.2019 of
the petitioners, the bank seems to have extended OTS facility on the
condition of petitioners depositing Rs.6 Cr. but the petitioners remitted
only Rs.1.01 Cr. as upfront amount and failed to pay the balance
amount. According to petitioners, the balance amount could not be paid
within time due to COVID-19 and it obtained some investment from
foreign investor to pay the amount to the bank but due to some
objections raised by Enforcement Director the balance amount was not
transferred to bank within time.
11. In the above backdrop, in view of the understanding under OTS,
the petitioners filed a not press memo dated 24.02.2020 seeking
dismissal of S.A.No. 227/2018. The memo, a copy which is filed along
with "Chronology of Events" by the petitioners reads thus:
MEMO FILEID BY THE APPLICANTS
The Applicants filed the above S.A. challenging the Possession
Notice and directing the Respondent bank from taking further steps under
the SARFAESI Act. Thereafter, the Applicants approached Respondent
bank for OTS and accordingly the above matter has been compromised
under OTS for payment of Rs.6.00 crores on or before 31-03-2020. It
was further agreed that the Respondent bank will withdraw
O.A.1028/2019 in view of OTS.
Therefore, the pendency of the above S.A. is no longer necessary
and the Applicants pray that the above S.A. may be dismissed as "not
pressed" as settled under OTS.
Hence, this Memo
For Tropical Coatings International Pvt. Ltd.
Managing Director
12. It appears the respondent bank in its turn filed a memo dated
15.09.2021 whereunder, while reporting no objection for dismissal of
S.A., it has stated that the bank sold item No.1 of schedule property in
the e-auction sale on 01.12.2018 in favour of 2nd respondent which has
deposited 25% and balance could not be deposited as stay order in Writ
Petition No. 43745/2018 was pending and the petitioners though filed
not press memo in terms of OTS but failed to adhere to the terms of OTS
and therefore after dismissal of S.A.No.227/2018 the bank would
proceed further for registration of sale in favour auction purchaser by
receiving balance of 75% bid amount.
(a) As against the above memo the petitioners filed a memo dated
21.09.2021 informing that in terms of OTS, the petitioners deposited
Rs.1.01 Cr. and their financier transferred Rs.4.99 Cr. on 10.07.2020 to
the bank and thus complied the terms of OTS. The bank was trying to
execute sale certificate in favour of auction purchaser on the ground that
the amount of Rs.4.99 Cr. had not reached the bank. The petitioners
further mentioned in the memo that the purchaser has not deposited the
balance of 75% bid amount even after the lapse of three years contrary to
the provisions of SARFAESI Act and therefore the bank has to conduct
fresh sale of the secured asset. Finally the petitioners submitted that the
amount transferred by their financier could not reach the bank due to
some technical problems and sought three months time for payment.
13. Now the bone of contention is the impugned order dated
24.09.2021 passed by the DRT VSP on the above memos. The said order
would show, while dismissing the S.A.No.227/2018 in view of the not
press memo and granting liberty to the petitioners to approach the
respondent bank for OTS, the Tribunal, however put a rider to the effect
that the respondent bank may accept the OTS proposal and settle the
accounts with respect to other properties except item No.1 of schedule
property since the said item was sold by the bank in e-auction dated
01.12.2018 in favour of 2nd respondent. The Tribunal has further made it
clear that the bank can take steps to register item No.1 in favour of
auction purchaser by receiving balance of 75% bid amount.
14. We are constrained to observe that while tacitly upholding the
validity of auction sale of item No.1, the Tribunal has not considered and
discussed the objections raised by the petitioners in their memo dated
21.09.2021. Nor it seems, a hearing was afforded to all the parties
concerned in respect of the objections raised by the petitioners. Thus, as
rightly argued by learned counsel for petitioners, principles of natural
justice were flagrantly violated in that regard. The Tribunal could have
simply dismissed the S.A.No.227/2018 in the light of not press memo
without going into the contentions of both parties regarding the sale of
item No.1 leaving open to the parties to agitate the said issue in separate
proceedings or if it proposed to decide the said controversial issue, the
Tribunal ought to have accorded an opportunity of hearing to the
petitioners and respondent No.1 and 2 herein and passed order on merits.
Since such course was not adopted, the impugned order is liable to be set
aside and matter requires to be remanded to the Tribunal for fresh
disposal. The decision in Ikbal's case cited by learned counsel for 2nd
respondent has no application to the present case as the said decision was
rendered in respect unamended Rule 9(4) of Rules 2002 whereas the
auction in this case took place subsequent to the amendment dated
04.11.2016 to the said Rule. This point is answered accordingly.
15. POINT No.2: We find no merits in the contention of the
respondents against the maintainability of Writ Petition. Here is a case of
gross infraction of principles of natural justice and as such, this Court
can exercise its plenary jurisdiction under Article 226 of Constitution in
the light of the judgment in Whirlpool Corporation v. Registrar of
Trade Marks, Mumbai and Ors2 wherein the Apex Court held that the
alternative remedy will not operate as a bar in atleast three contingencies,
where the Writ Petition has been filed for the enforcement of any of the
Fundamental Rights or where there has been a violation of principle of
natural justice or where the order or proceedings are wholly without
jurisdiction or the vires of an act is challenged. Hence, we find no merits
in the contention of the respondents.
16. In the result, the Writ Petition is allowed and the order dated
24.09.2021 in S.A.No.227/2018 passed by DRT VSP is set aside and the
matter is remitted back to the said Tribunal to pass an order afresh on the
not press memo filed by the petitioners:
(i) either dismissing the S.A.No.227/2018 in the light of not press
memo and giving liberty to the petitioners and 1st respondent bank to
proceed with the OTS proposal in accordance with the bank guidelines
without going into the other merits in the case of either party,
particularly the validity of e-auction sale of item No.1 of schedule
1998 (8) SCC 1
property by leaving the parties to settle the said issue in separate
proceedings or;
(ii) if the Tribunal proposes to decide the validity of e-auction sale
of item No.1 of schedule property along with not press memo, then it
shall afford an opportunity of hearing to the petitioners and respondents
1 and 2 herein and consider their submissions and pass an order on
merits in accordance with law expeditiously. No costs.
As a sequel, interlocutory applications, pending if any in this Writ
Petition, shall stand closed.
_________________________
U. DURGA PRASAD RAO, J
___________________________
B.V.L.N. CHAKRAVARTHI, J
13.04.2023
mva/krk/nnn
HON'BLE SRI JUSTICE U. DURGA PRASAD RAO
AND
HON'BLE SRI JUSTICE B.V.L.N. CHAKRAVARTHI
Writ Petition No.22646 of 2021
13th April, 2023
mva/krk/nnn
