Sri Mandava Srinvasu vs State Bank Of India And 2 Others
2023 Latest Caselaw 3439 AP

                                       1




            * HON'BLE SRI JUSTICE D.V.S.S. SOMAYAJULU

                 + WRIT PETITION No.40784 of 2018

                               % 14th July, 2023


# Sri Mandava Srinvasu
                                                               ... Petitioner..
AND

$ State Bank of India and 2 others.
                                                             ... Respondents.

! Counsel for the Petitioner : Sri Challa Gunaranjan

^ Counsel for the respondents : Sri C. Subodh

< Gist:

> Head Note:

? Cases referred:

1. 2018 (2) ALT 640

2. (2018) 5 SCC 543

3. 2016 (4) JCR 445

4. (2022) 9 SCC 341

5. (2014) 16 SCC 760

6. (1992) 1 SCC 508

HON'BLE SRI JUSTICE D.V.S.S.SOMAYAJULU and HON'BLE SRI JUSTICE V. SRINIVAS

WRIT PETITION No.40784 of 2018

ORDER: (per D.V.S.S.Somayajulu, J)

This Writ Petition is filed for the following relief, as per

the amendment permitted in I.A.No.1 of 2019 by order dated

25.07.2019:

"....to pass an order or orders or direction more particularly one in the nature of a writ of Mandamus declaring the action of respondent bank in not refunding the amount of Rs.98,07,650/- along with interest of 24% per annum deposited by the petitioner pursuant to the e- auction notices dated 12.07.2014, 19.07.2014 and 20.08.2014 as being arbitrary, illegal and in violation of the principles of natural justice and Article 14 and Article 21 of the Constitution of India and consequently direct the respondent Bank to refund the amount of Rs.98,07,650/- along with interest of 24% per annum and pass such other order or orders as this Hon'ble court may deem fit and proper in the circumstances of the case and interest of justice."

2) The writ petitioner is seeking refund of the amounts

deposited by him with the respondent bank. Respondent bank

advertised for sale of certain immovable and movable

properties. As the sale did not fructify for various reasons the

petitioner is seeking refund of the amounts with interest.

3) This Court has heard Sri Challa Gunaranjan,

learned counsel for the petitioner and Sri C. Subodh, learned

counsel appearing for the respondents.

4) Learned counsel for the petitioner submits that e-

auction was conducted for Item No.1, which is a house

property bearing Door No.21/31, situated at Balaji Nagar,

Kukatpally, Hyderabad; for Item No.2, which is a rice mill

situated in Nadimpalem village, Prattipadu Mandal, Guntur

District. For Item No.3 movable property (four pickup vans

and three delivery vans) a separate auction notice was issued.

5) Learned counsel points out that as far as house

property bearing Plot No.31 (Old D.No.21/31) is concerned a

sum of Rs.57,88,900/- was paid by the writ petitioner. As the

sale did not fructify this amount was returned only in January,

2019. Therefore, the writ petitioner seeks interest on this

amount which is refunded. For Item No.2 rice mill learned

counsel submits that e-auction notice was published on

19.07.2014 and the auction as held on 21.08.2014. Petitioner

paid a sum of Rs.39,10,000/- on 21.08.2014. The respondent

did not confirm the sale in favour of the petitioner as

mandated in the rules and the e-auction terms. Therefore,

further action could not be taken for payment of the balance.

This sale also did not fructify and the petitioner is seeking

refund of the amount with interest. As far as the movable

properties are concerned a separate auction notice was

published on 20.08.2014 for sale of the vans. The petitioner

paid a sum of Rs.1,08,750/- but Sale certificate was not

issued to the writ petitioner. Therefore, he is seeking refund of

this amount also. It is also pointed out that the original

borrower had resorted to litigation and also certain transfers

with regard to item No.1 viz., the house Plot No.31. The Debt

Recovery Tribunal, Hyderabad, has also issued direction to

defer the issuance of the sale certificate. The borrower also

gifted the property to his son, who in turn mortgaged the same

to another party. This also complicated the issue according to

the learned counsel thereby driving the petitioner to Court by

filing this writ petition seeking refund of the amount with

interest etc.

6) Respondent bank filed its counter and the learned

counsel argued in line with what is stated in his counter. It is

agreed that pursuant to the orders of this court money was

refunded in so far as item No.1 is concerned. As far as Item

No.2-rice mill is concerned it is argued that since the bidder-

writ petitioner failed to pay the balance sale consideration as

warranted under the rules, the amount deposited was

forfeited. Even with regard to movables viz., the vans, it is

contended that despite the sale confirmation being

communicated the writ petitioner failed to pay the balance

amount. Therefore, the amount paid by the writ petitioner was

forfeited. The bank firmly contended that it is the petitioner,

who is at fault and hence it is argued that the petitioner is not

entitled to any relief whatsoever.

7) Learned counsel for the petitioner also relied upon

Rule 9 of the Security Interest (Enforcement) Rules, 2002 and

the following cases in support of his contentions:

i) Mr.Mandava Krishna Chaitanya v UCO Bank, Asset Management Branch1;

ii) Rakesh Birani (Dead) through LRs v Prem Narain Sehgal and Another2; and

iii) Kumar Rohit v Allahabad Bank and 2 others3 (Judgment of Jharkhand High Court)

2018 (2) ALT 640

(2018) 5 SCC 543

2016 (4) JCR 445

COURT:

8) Item No.1 is a house property bearing Plot No.31,

Old Door No.21/31. It is clear that the petitioner was the

successful bidder and the sale was confirmed in his favour by

a letter dated 14.08.2014. The petitioner also paid a sum of

Rs.57,88,900/-. It transpires that the original borrower filed

S.A.No.591 of 2014 before the Debt Recovery Tribunal,

Hyderabad, which gave an interim order in his favour. It also

directed the bank not to confirm the sale. The borrower had

also gifted the property to his son during the pendency of the

litigation. The son in turn mortgaged the property to another

party. All of these led to complications in the matter and

delayed the finalization of the sale. Even the counter affidavit

filed by the Bank states these facts only. It is also admitted

that pursuant to the orders passed by this Court the amount

was refunded to the writ petitioner in January, 2019. There is

only a claim for interest for this item. The claim for interest is

dealt with in subsequent paragraphs.

9) As far as Item No.2 is concerned it is for the sale of

rice mill measuring Ac.1-45 cents in all. The auction was held

on 21.08.2014. The petitioner was a bidder therein. His

contention is that the bank did not confirm that he was the

successful bidder as required under the rules and the

conditions of the auction. Rule 9 of the Rules, 2002 has been

considered by the Hon'ble Supreme Court of India in Rakesh

Birani case (2 supra). In paragraphs 8 and 9 it was held that

the deposit of the balance amount can only be made after the

confirmation by the secured creditor. Rule 9 (2) of the Rules,

2002 clearly states that the sale shall be confirmed in favour of

the purchasers, who has offered highest sale price, and shall

be subject to confirmation by the secured creditor. Thus there

are two confirmations which are necessary under Rule 9 (2).

10) Under Rule 9 (4) of the Rules, 2002 the balance

amount shall be paid by the purchaser on or before 15th day of

the confirmation of sale or such extended period as agreed

between the purchaser and the secured creditor. Both these

rules are crystal clear and make it evident that the bank /

secured creditor should in fact confirm the sale in favour of the

successful bidder. Even the terms of the auction very clearly

state in Clause 8 that the confirmation of the successful bidder

would be announced and information/ confirmation would be

communicated by the secured creditor through electronic

medium. Therefore, a reading of the rules 9(2) and later 9(4)

and the terms of the auction make it clear that the secured

creditor's confirmation had to be expressly given to the

borrower. The petitioner is before this Court stating that no

such confirmation was given and that consequently the 15 day

period for deposit of the balance sale consideration does not

commence. As a corollary he states that there is no default. It

is also interesting to note that as far as the house property

bearing Plot No.31 is concerned a sale confirmation was

expressly issued on the letterhead of the State Bank of

Hyderabad to the petitioner. He was directed to pay the

remaining bid amount within 15 days. Such a confirmation is

not produced, filed or even referred to in the counter affidavit

filed with regard to Item No.2-the mill property. Therefore, in

line with the judgment of the Hon'ble Supreme Court of India,

this Court has to agree that no default can be attributed to the

writ petitioner in this aspect. Time does not begin to run

unless express confirmation is given to the petitioner and so

the forfeiture of the amount deposited for the alleged default is

consequently bad in law.

11) As far as movable property is concerned a separate

notification dated 20.08.2014 has been published. This

auction is an on "as is where is" basis. The conditions of

auction also prescribed in Clause 2 that "successful bidder

must pay at least 25% immediately and the balance within 15

days". In this case also the petitioner is before this Court

stating that he has not been issued any notice whatsoever

stating that he is the successful bidder. Default can be

attributed to the writ petitioner only after he was put on notice

that he is the successful bidder and he was called upon to

deposit the balance amount. The record is conspicuously

silent on this aspect. Even during the hearing no document is

brought to this Court's notice to show that confirmation was

given. Therefore, this Court again opines that the respondent

cannot forfeit the amount deposited.

12) This Court is, therefore, is of the firm opinion that

as far as Item No.2 - rice mill etc., and the movables (Vans) are

concerned no breach or default can be attributed to the writ

petitioner. The forfeiture of the amounts on the ground that

the petitioner committed a default is not correct.

13) After the matter was reserved for the orders and the

judgment was about to be pronounced the counsel for the

respondent-bank brought to the notice of this Court that an

additional counter has been filed and certain facts have to be

brought to this Court's notice.

14) Despite the vehement objection of the petitioner's

counsel an opportunity was given to the learned counsel to

argue the matter.

15) It is his contention, based on the additional counter

affidavit that is filed, that the tender process was closed on the

screen itself and name of the petitioner was announced as

successful bidder during the auction itself. It is stated that

the communication through the website after closing of the e-

bidding is sufficient and no separate communication is to be

sent. It is also pleaded that the writ petitioner is aware of the

fact that he is the successful bidder as the same was

announced in the web site itself.

16) This additional ground as stated in paragraphs 8

and 9 is highlighted while relying upon condition 8 of the

auction notice.

17) Learned counsel for the writ petitioner points out

that after the arguments are over an altogether new plea is

raised, which was not stated earlier. He points out that during

the course of the correspondence or earlier counter this issue

is not raised. He states there is no proof for the same also. He

strongly opposed the permission granted by this court to the

counsel for the respondent to argue.

18) This Court notices that on 09.05.2023 an order was

passed after the arguments were concluded for clarification on

limited point - Whether the formal communication by e-mail or

otherwise was given to the bidder / writ petitioner that he was

the successful bidder?

19) Instead of answering this limited question,

additional counter affidavit has been filed with the contention

that no separate communication would be addressed and that

the communication would be displayed on the screen itself. As

rightly pointed out by the counsel for the petitioner, this plea

was not taken earlier during the correspondence or in the

earlier counter affidavit filed. A reading of the publication in

Telugu makes it clear that after the secured creditor /

authorized officer confirms the same సమాచారం (Communication)

will be issued. In Telugu it states as follows:

"సమాచారం జారీ చేయబడును"

20) This is also in line with Rule 9 (2) which states that

the sale shall be "confirmed" in favour of the purchaser who

has offered the highest sale price in his bid/tender/quotation

or offered to the authorized officer and shall be subject to

confirmation by the secured creditor.

21) If the contention of the Bank is that no separate

confirmation will be issued is to be accepted the same should

have been spelt out with clarity in the terms and conditions of

the auction itself. The auction terms should have clearly

stated that the person who gives the highest or best bid will be

declared successful on the screen itself and no separate

communication would be sent. It is also pertinent to note that

the respondent Bank did not file any proof that this was in fact

displayed like a screen shot etc. They did not raise this plea

earlier. Therefore, the additional ground urged by the

respondent bank is also rejected.

INTEREST:

22) As far as interest is concerned it is clear that there

is no provision either in the Act, in the Rules or in the auction

notice for payment of interest. The petitioner is relying upon

(a) the notice dated 23.11.2015 claiming refund of

Rs.57,88,900/-; (b) the notice dated 17.04.2018 claiming

refund of Rs.39,10,000/- and (c) the notice dated 17.04.2018

claiming refund of Rs.1,08,250/-. Subsequent notices also

issued by the writ petitioner did not evoke any response. The

law is also clear that if there is no agreement etc., between the

parties the Interest Act, 1978 or a similar statue providing for

payment of interest can be pressed into service to claim

interest. In the case on hand the petitioner has issued notices

demanding interest. As mentioned earlier no fault can be

attributed to the writ petitioner in this case. The Division

Bench of the combined High Court reported in Mandava

Krishna Chaitanya case (1 supra) directed the refund of

amount along with interest at the rate of 18% p.a. The power

of this Court and to grant interest while directing refund of the

amount has also been upheld in many cases including the

judgment in Union of India and Others v Willowood

Chemicals Private Limited and Another4. Both on grounds

of equity, as there is no provision in the statute etc., and as a

notice was issued, this Court is of the opinion that the

petitioner is entitled to refund of the amount payable along

with interest. This Court also draws support from State of

U.P. v. Jaswant Sugar Mills Ltd.,5.

23) However, interest rates keep fluctuating, they are

not static and they depend on market condition. This Court

cannot directly award interest at 24% as prayed for. No clear

proof is filed for this rate of interest. The respondent Bank did

not expressly deny or contest this claim for interest. A person

deprived of the use of his money is entitled to compensation /

interest / damages by whatever name it is called (Irrigation

Deptt., Govt. of Orissa v. G.C. Roy6). The ratio of this case is

applicable to this Writ also. At the same time this Court

notices that no proof is filed about the contemporaneous

interest rates. This duty has to be discharged by a party

claiming interest. However, when such proof is not

forthcoming and the Court finds that the petitioner is not

(2022) 9 SCC 341

(2014) 16 SCC 760

(1992) 1 scc 508

guilty of any default etc., rules of justices / equity will allow

the Court to grant reasonable rate of interest. Considering the

fact that this is a public sale of commercial property by a Bank

which is in the business of lending money award of interest at

the rate of 12% p.a. is deemed to be reasonable in the

circumstances.

24) Hence, the writ petition is allowed (a) directing the

payment of interest at the rate of 12% p.a. on Rs.57,88,900/-

from 01.09.2014 till 01.02.2019; (b) directing the respondents

to refund the amount of Rs.39,10,000/- with interest at the

rate of 12% from 21.08.2014 till the date of realization; and (c)

a further direction to the respondent is given to refund the

sum of Rs.1,08,750/- with interest at the rate of 12% p.a. from

28.08.2014 till the date of realization. There shall be no order

as to costs.

25) Consequently, pending Miscellaneous Applications,

if any, shall stand closed.

__________________________ D.V.S.S.SOMAYAJULU, J

________________ V. SRINIVAS, J Date:14.07.2023.

Note: LR copy be marked.

B/o Ssv