Canara Bank vs M/S Harpreet Fashions Pvt. Ltd. & ...
2010 Latest Caselaw 4437 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


%                                                  Date of decision: 21.09.2010


+                               WP (C) No.6400/2010


CANARA BANK                                                     ...PETITIONER

                                Through:        Mr. Pradeep Dewan and
                                                Mr. Rajiv Samaiyar, Advocates.


                                          Versus


M/S HARPREET FASHIONS PVT. LTD. & ORS.                          ...RESPONDENTS

                                Through:        Nemo


CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE VALMIKI J. MEHTA

1.        Whether the Reporters of local papers
          may be allowed to see the judgment?                           No

2.        To be referred to Reporter or not?                            No

3.        Whether the judgment should be                                No
          reported in the Digest?


SANJAY KISHAN KAUL, J. (Oral)

CM No.12664/2010

Allowed subject to just exceptions.

WP(C) No.6400/2010

1. The petitioner-Bank granted loan facility to R-1 which was

secured by equitable mortgage of immovable asset of the

R-1/Company being plot No.362, Sector MIE, Bahadurgarh,

District: Rohtak (now District: Jhajjar), Haryana

_____________________________________________________________________________________________

admeasuring 2377.05 square yards apart from

hypothecation of stocks etc.

2. It is the case of the petitioner-Bank that R-1 and R-2 failed

to maintain the financial discipline and thus the petitioner

initiated proceedings exercising its rights and powers under

the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 ('the said

Act' for short). The R-1 invoked the jurisdiction of DRT

under Section 17(1) of the said Act, but interim relief was

declined and that order was sustained by the DRAT. This

court is stated to have granted certain interim reliefs

subject to conditions, but undisputedly those conditions

were not fulfilled resulting in the takeover of the physical

possession of the factory premises and the same being put

to auction.

3. In the auction held on 06.11.2009, R-3 made a bid for

Rs.2,02,99,999/- for the mortgaged property. R-3,

however, did not deposit 25 per cent of the amount

immediately at the fall of the hammer as per Rule 9(3) of

the Security Interest (Enforcement) Rules, 2002 ('the said

Rules' for short), but on the other hand sought an extension

of one week to deposit the balance 15 per cent of the

amount as only 10 per cent of the amount was deposited.

The petitioner-Bank favourably considered this request but

the amount was deposited on the next date of 07.11.2009.

The amount so deposited was, however, not encashed in

view of the covering letter dated 07.11.2009 by R-3 making

_____________________________________________________________________________________________

a grievance that though it was claimed by the petitioner-

Bank that 'title of the said property was clear & was

transferable' and that 'there are no dues & lien of any

government authorities', it had been found on checking-up

that a sum of Rs.25,62,386/- was owed to the Excise &

Taxation Office, Bahadurgarh, Haryana. Not only that, the

said Department had asked HUDA vide letter dated

28.07.2009 not to transfer /sale /lease out the said property

till recovery of outstanding dues. It was thus apprehended

that there may even be some other unknown/unassessed

dues of the R-1/company with a lien on the property. Thus

apart from the deposit of Rs.20,00,000/- at the fall of the

hammer, a cheque of Rs.30,75,000/- was given subject to

clearing of outstanding dues of all the government

authorities and other State authorities who have any

interest in the property in question.

4. R-1 approached DRT-II with an application challenging the

auction inter alia on the grounds of irregularities in the

conduct of the auction which was liable to be declared null

and void. The various grievances raised by R-1 were,

however, rejected by DRT in terms of Order dated

18.11.2009 including arising from the claim of the Excise &

Taxation Department. However, the conclusion was that

since it was only a single bid which had been received,

fresh auction should be held. This is also keeping in mind

that R-3 had sought further two months time to deposit the

balance 75 per cent of the amount. The Earnest Money

_____________________________________________________________________________________________

Deposit ('EMD' for short) deposited by R-3 was directed to

be retained.

5. R-1 and R-2 preferred an appeal before DRAT against the

order dated 18.11.2009. It is noted in the first paragraph

itself that the only question which was really involved in the

appeal was whether it was incumbent upon the petitioner-

Bank to forfeit the EMD deposited to the extent of 25% by

the auction purchaser.

6. The grievance of R-1 and R-2 that 25% of the amount was

not deposited in time as only 10% was deposited and the

balance amount of 15% was deposited on the next date as

also the factum of the balance price not being deposited

within 15 days of the confirmation of sale was noticed. It

was also urged that the public notice for the proposed sale

to be held on 06.11.2009 nowhere stipulated that the

authorized officer had power to extend the time to make

the payment. Such extension was stated to be an

colourable exercise of power. The DRAT as per the

impugned order dated 23.08.2010 has noticed that the sale

was yet to be confirmed and thus the question of paying

the balance consideration did not arise. The R-3/auction

purchaser on the other hand submitted that he had brought

a sum of Rs.1 crore representing 75 per cent of the balance

amount and requested the court that sale should be

confirmed in its favour or the money returned, but it was

recorded that no such request had been made before DRT

at the appropriate time.

_____________________________________________________________________________________________

7. The DRAT came to a finding that the notice of auction dated

06.11.2009 itself was defective as it had not given a clear

public notice. The factum of the liability towards the Excise

and Taxation Department had not been mentioned and the

petitioner-Bank had no authority to extend the time. In

such a situation, the money of the auction purchaser could

not have been withheld and a direction should have been

issued to return the money after setting aside the sale.

Simultaneously, the DRAT put some fault at the door of the

auction purchaser as proper enquiry should have been

made by the auction purchaser as a vigilant person since

the sale was on 'as is where is' basis and thus enquiry

should have been made about the encumbrances. The

amount of Rs.3,00,000/- out of the deposit made by the

auction purchaser was directed to be forfeited.

8. The present writ petition under Articles 226 and 227 of the

Constitution of India has been filed by the petitioner-Bank

impugning this order making the following prayers:

a) "issue a writ of certiorari or any other appropriate writ/ order / direction for quashing / setting aside the impugned order dated 23.08.2010 passed by the learned Debts Recovery Appellate Tribunal, New Delhi in Misc.Appeal No.342 of 2009 quashing the auction of the secured asset held on 06.11.2009 and directing the petitioner to refund the EMD and forfeiting a sum of Rs.3,00,000/- therefrom.

b) Direct that the secured asset consisting of land and factory building bearing plot No.362, Sector MIE, Bahadurgarh, Haryana having an area of 2377.05 square yards be _____________________________________________________________________________________________

sold in favour of R-3 in terms of the auction held on 06.11.2009 on receipt of the balance 75% of the sale price."

9. We put to learned counsel for the petitioner at the inception

itself that prayer (b) could not be entertained as it would

amount to a specific performance in favour of the

petitioner-Bank and against R-3/auction purchaser even

though there were defects in the advertisement. The

prayer (a) really arose out of the findings as to whether the

petitioner-Bank was blameworthy and whether any blame

could be laid at the door of the R-3/auction purchaser.

10. We are in agreement with the findings contained in the

impugned order to the effect that the advertisement dated

06.11.2009 itself was defective. When it is stated that the

sale is on „as is where is‟ basis, it does not imply that

known liabilities are not to be disclosed. The petitioner-

Bank cannot claim ignorance about the liability towards the

Excise and Taxation Department. The advertisement dated

06.11.2009 also contained an assurance by the petitioner-

Bank that there were no dues and lien of any government

authorities. The defect thus lay with the advertisement

itself.

11. The second irregularity in the process of auction was the

failure of R-3 to deposit the 25% of the amount at the fall of

the hammer.

12. Learned counsel for the petitioner sought to contend that

Rule 9(3) of the said Rules only requires deposit to be made

„immediately‟ and this would not amount to deposit to be _____________________________________________________________________________________________

made at the fall of the hammer and thus the deposit made

on the next date would suffice.

13. We are unable to accept this plea as the phraseology used

is very clear in the said Rule 9(3) of the said Rules that the

purchaser „shall immediately pay/deposit 25% of auction

price‟. This is also as per the normal practice of such

amount being deposited at the fall of the hammer. The

deposit made by R-3 of 10% of the auction price thus did

not conform to Rule 9(3) of the said Rules and the auction

should have been declared unsuccessful since R-3 did not

have the requisite funds to deposit 25% of the auction price

at the fall of the hammer. The petitioner-Bank, in fact,

granted one week‟s extension to R-3/auction purchaser to

make the deposit of balance 15% which had to be

deposited at the fall of the hammer though the amount was

deposited on the next day i.e.07.11.2009.

14. We are, however, unable to appreciate as to why a part of

the blame lay at the door of the auction purchaser in

respect of the petitioner-Bank not disclosing the liability

towards the Excise and Taxation Department as it is not

incumbent upon the auction purchaser to presume that tax

liability would be hidden from it. The enquiry would be for

purposes of title and „as is where is‟ basis can only imply

the location and situation of the land and plant &

machinery. Thus no blame can be laid at the door of the

auction purchaser in this behalf as is sought to be

_____________________________________________________________________________________________

apportioned by the DRAT and there was thus no real reason

for penalizing the auction purchaser.

15. We are, however, not required to pass any direction in this

behalf as the auction purchaser has not filed any petition as

yet challenging the order of DRAT dated 23.08.2010 insofar

as the retention of Rs.3,00,000/- is concerned. The fact,

however, remains that no action should have been taken in

pursuance to the earlier auction in view of the failure of the

sole unsuccessful party failing to deposit 25% of the

amount immediately at the fall of the hammer. The fact

that a second auction has been unsuccessful cannot be a

ground to re-validate the first auction as is sought to be

urged by learned counsel for the petitioner. It is open to

the petitioner-Bank to re-auction the property in

accordance with law.

16. There is no reason to exercise jurisdiction under Articles

226 & 227 of the Constitution of India in favour of the

petitioner-Bank insofar as its grievance is concerned.

17. Dismissed.

CM No.12663/2010 (Stay)

Dismissed.

SANJAY KISHAN KAUL, J.

SEPTEMBER 21, 2010                                              VALMIKI J. MEHTA, J.
dm

_____________________________________________________________________________________________