Delhi High Court
Mahipal Singh Yadav vs Union Bank Of India & Anr. on 24 January, 2022
$~45
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 07.01.2022
Pronounced on: 24.01.2022
+ W.P.(C) 357/2022 & CM APPLs.988 - 989/2022
MAHIPAL SINGH YADAV ..... Petitioner
Through: Mr. Amarjeet Singh Rakhra, Adv.
versus
UNION BANK OF INDIA & ANR. ..... Respondents
Through: Mr. Samarendra Kumar, Adv. for
Union Bank of India.
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT OF THE COURT
1. The present writ petition has been filed by the petitioner assailing the
order dated 13.12.2021 passed by the Debt Recovery Tribunal (DRT),
Jaipur, whereby the learned DRT has rejected the Interim Relief
Application filed by the petitioner in pending Securitisation
Application (S.A.) No. 22 of 2019 renumbered as T.S.A. application 50
of 2021. In addition, the petitioner is also challenging the action of the
respondent Bank (formerly known as Andhra Bank) taken in
consequence of the passing of the impugned order dated 13.12.2021,
namely, the execution of Sale Certificate dated 16.12.2021 in favour of
respondent No.2.
2. The primary prayers in the writ petition are as under:-
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―A. Issue Writ, Order, or Direction in the nature of Certiorari
quashing the order dated 13.12.2021 passed by DRT, Jaipur in
Transferred Securitization Application No. 50 of 2021;
Mahipal Singh Yadav vs. Union Bank of India;
B. Issue Writ, Order, or Direction quashing the Sale Certificate
dated 16.12.2021, drawn in favour of O.P. No.2 which is a
consequential act of the Respondent Bank, as a result of the
passing of the impugned order dated 13.12.2021;
3. Even though in terms of the provisions of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest (SARFAESI) Act, 2002 (hereinafter referred as the SARFAESI
Act), any person aggrieved by an order of the DRT has a right to prefer
an appeal before the Debt Recovery Appellate Tribunal (DRAT) under
Section 18 of the Act, 2002, however, the office of DRAT has been
lying vacant since 30.10.2021.
4. The Supreme Court in its order dated 16.12.2021 has requested the
concerned High Court(s) to entertain the matters falling within the
jurisdiction of DRTs and DRATs, as a stop-gap arrangement, with the
objective of addressing the grievance of the petitioner who, on account
of such vacancy, may not be able to exercise their legal rights. In this
view of the matter, the petitioner has preferred the writ petition and the
same is being entertained by this Court.
5. The facts and the disputes in the present case lay within a narrow
compass.
6. One M/s J.S. Medimax Pvt. Ltd. availed a loan of about Rs. 27.09
Crores from the respondent Bank during 2015-17, and the petitioner
stood as a Guarantor for the said loan account by offering his
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residential house bearing No. D-2/13, Plot No.23, Khasra No. 16/25,
Village Dabri, Vashisth Park, New Delhi - 110046 (hereinafter
referred as the subject property) as security. On 30.12.2017, the loan
account of M/s J.S. Medimax Pvt. Ltd. became NPA, and consequently
a notice under Section 13(2) of the SARFAESI Act was issued by the
respondent Bank on 02.01.2018.
7. Since the amount demanded by the respondent Bank in its notice under
Section 13(2) of the SARFAESI Act was not paid by the Borrower, the
respondent Bank on 03.07.2018 issued a notice under Section 13(4) of
the SARFAESI Act in respect of the mortgaged property. The
respondent Bank issued another notice dated 04.07.2018 under Section
13(2) of the Act, and on 09.09.2018, the petitioner received a notice
dated 03.08.2018, informing the petitioner about the sale of the subject
property.
8. Since the petitioner felt that the notice was violative of Rule 6(2), 8(5)
and 8(6) of the Security Interest (Enforcement) Rules, 2002, the
petitioner filed a Securitisation Application under Section 17 of the
SARFAESI Act, 2002 before DRT-I, Delhi being S.A. No. 22 of 2019.,
The respondent Bank filed its reply.
9. Since the auction, which was proposed to be conducted pursuant to the
notice dated 03.08.2018 could not materialise, the property was again
put to auction by issuing 15 days‟ e-auction notice on 19.08.2021,
stating that the property would be auctioned on 15.09.2021 at a reserve
price of Rs. 2,65,00,000/-.
10. It is the case of the petitioner that the petitioner throughout has been
requesting the respondent Bank to accept the amount of Rs. 2.65 crores,
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being the reserve price fixed by the Bank, but the Bank has not paid
any heed to the request of the petitioner. The auction was conducted on
15.09.2021, and respondent no.2 was declared as the successful bidder
having bid the reserve price, 25 % of the bid amount was deposited by
the bidder. We may observe that the petitioner has not placed on record
any material to show that the petitioner actually had, or tendered the
amount of Rs. 2.65 crores to the respondent No.1. This plea of the
petitioner is, therefore, neither here nor there.
11. The petitioner proceeded to file I.A. No. 2199 of 2021 before DRT-I,
New Delhi in pending S.A. No. 22 of 2019, seeking setting aside of the
auction conducted on 15.09.2021, and for issuance of directions to the
respondent Bank not to confirm the sale of the subject property in
favour of the auction purchaser, i.e. the respondent no.2.
12. As per the petitioner, the petitioner had repeatedly been writing to the
respondent Bank for disclosing the name of the auction purchaser as
well as the bid amount, and only on 27.10.2021, the respondent Bank
informed the petitioner that the bid amount received by it was of Rs.
2,65,00,000/-, and the successful auction bidder is Mrs. Sudesh Rani,
wife of Mr. Anil Kumar, respondent No.2 herein.
13. Since the highest bid amount received by the respondent Bank was the
reserve price, the auction purchase was confirmed at the reserve price.
The petitioner contended that the said auction at the reserve price, and
confirmation thereof, are violative of Rule 9(2) of the Security Interest
(Enforcement) Rules, 2002.
14. The argument of the auction being violative of Rule 9(2) of the
Security Interest (Enforcement) Rules, 2002 has not been adverted to
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by the DRT in the impugned order. The only ground adverted to by the
DRT was with regard to details of the subject property not being
completely described in the auction notice. The Tribunal has rejected
that objection of the petitioner, and in our view rightly so. The
petitioner has also not pressed the said issue before us.
15. The only argument of Mr. Rakhra, learned counsel for the petitioner is
that the auction and its confirmation are violative of Rule 9(2) of the
Security Interest (Enforcement) Rules, 2002. His sole argument is that
the respondent Bank did not obtain the consent of the petitioner for
confirming the sale in favour of respondent No.2 at the reserve price
for the auction determined by the respondent bank. He submits that the
said ground was specifically raised before the DRT, but was not dealt
by the DRT.
16. It is the case of the petitioner that as per the second proviso to Rule
9(2) of the Security Interest (Enforcement) Rules, 2002, when the sale
is sought to be confirmed at the reserve price, prior consent of the
Borrower is a must, and any sale confirmed without the consent of the
Borrower is violative of Rule 9(2) of the Security Interest
(Enforcement) Rules, 2002, and hence is liable to be set aside. learned
counsel for the petitioner has placed reliance on the decisions of the
Division Bench of Madras High Court in K. Raamaselvam and Others
vs Indian Overseas Bank and Another, 2009 SCC OnLine MAD 1230
and A. Varalakshmi v. The Chief Manager Punjab National Bank
Asset Recovery Management Branch (ARMB) Khivraj Buildings,
First Floor 634, Anna Salai Chennai 600006 & Another 2012 SCC
OnLine Mad 2366.
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17. Per contra Mr. Samarendra Kumar has submitted that no consent of the
Borrower is required, in case the property /secured asset is sought to be
sold at the reserve price. The consent of the Borrower is required, only
in case the property is sought to be sold below the reserve price. To
substantiate his argument, he has relied on three judgments, viz. Anil
Kumar Srivastava v. State of U.P. And Anr., 2004 8 SCC 671; Sri. K.
Sunder Babu v. Union of India & Anr., 2018 SCC OnLine Kar 835
and Varghese Ukken v. State Bank of India, 2010 SCC OnLine Ker
4745.
18. We have heard the learned counsels for the parties and have gone
through the record and Judgments cited before us.
19. Rule 9(2) of the Security Interest (Enforcement) Rules, 2002 reads as
under:-
9. Time of sale, Issue 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 sale shall be confirmed in favour of the purchaser who
has offered the highest sale price in his bid or tender or
quotation or offer to the authorised officer and shall be subject
to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the
amount offered by sale price is less than the reserve price,
specified under sub-rule (5) of rule 8.
Provided further that if the authorised officer fails to obtain a
price higher than the reserve price, he may, with the consent of
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the borrower and the secured creditor effect the sale at such
price.‖
xxxxx
20. The SARFAESI Act, 2002 was enacted to regulate securitisation and
reconstruction of financial assets and enforcement of security interest.
It further provides a central database of security interests created on
property rights, and for matters connected therewith or incidental
thereto. The Act, generally speaking, allows the financial institutions
and banks to sell the mortgaged properties to recover their dues, in case
the borrower fails to repay their loans after the loan account(s) is/are
declared NPA. The Act was brought to ensure that lenders are able to
swiftly take possession and sell secured assets mortgaged to them by
the borrowers/ guarantors, in line with global standards.
21. The Security Interest (Enforcement) Rules, 2002 were framed vide
notification issued on 20.09.2002 by the Central Government in
exercise of powers conferred upon it by Sections 38(1) and 38(2)(b)
read with Section 13(4), (10) & (12) of the SARFAESI Act. The Rules
provide the procedure which the banks and financial institutions - who
are entitled to invoke the provisions of the SARFAESI Act, should
adopt in the matter of liquidation of the secured assets. Insofar as they
are relevant for our purpose, we make take note of Rules 8 & 9.
22. Rule 8 deals with the aspect of sale of immovable secured assets. The
„authorised officer‟ as defined in the Rules shall take, or cause to be
taken, possession, by delivering of the prescribed notice to the
borrower and by affixing the possession notice on the outer door or at a
conspicuous place of the property. Rule 8(5) is relevant, and the same
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reads as follows:
―8. Sale of immovable secured assets.
x x x x x x x x x
(5) Before effecting sale of the immovable property referred to in
sub-rule (1) of rule 9, the authorised officer shall obtain
valuation of the property from an approved valuer and in
consultation with the secured creditor, fix the reserve price of
the property and may sell the whole or any part of such
immovable secured asset by any of the following methods:--
(a) by obtaining quotations from the persons dealing with
similar secured assets or otherwise interested in buying the
such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty.
(6) The authorised officer shall serve to the borrower a notice
of thirty days for sale of the immovable secured assets, under
sub-rule (5): Provided that if the sale of such secured asset is
being effected by either inviting tenders from the public or by
holding public auction, the secured creditor shall cause a public
notice in two leading newspapers one in vernacular language
having sufficient circulation in the locality by setting out the
terms of sale, which shall include,--
(a) The description of the immovable property to be sold,
including the details of the encumbrances known to the
secured creditor;
(b) the secured debt for recovery of which the property is to be
sold;
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which
sale by any other mode shall be completed;
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(e) depositing earnest money as may be stipulated by the
secured creditor;
(f) any other thing which the authorised officer considers it
material for a purchaser to know in order to judge the nature
and value of the property.
(7) Every notice of sale shall be affixed on a conspicuous part
of the immovable property and may, if the authorised officer
deems if fit, put on the web-site of the secured creditor on the
Internet.‖ (emphasis supplied)
23. Thus, the authorised officer is obliged to obtain the valuation of the
property from an approved valuer, and in consultation of the secured
creditor, to fix the reserve price of the property. Thereafter, he may sell
all, or any part of any immovable secured assets by any of the
prescribed methods. The methods prescribed, inter alia, include
invitation of tenders from the public, or by public auction.
24. The proviso to Rule 8(6) obliges the secured creditor to cause a public
notice in two leading newspapers - one of which is in vernacular
language, having sufficient circulation in the locality by setting out the
terms of sale which, inter alia, include the "reserve price, below which
the property may not be sold".
25. From the above, it would be seen that the purpose of fixation of the
reserve price of the immovable property is to set a benchmark, i.e. the
minimum price at which the property may be sold, and below which
price the property may not be sold - which is also clear from the
reading of Clause (c) of the proviso to Rule 8(6).
26. We may now turn to Rule 9 of the aforesaid Rules. Rule 9(2) has been
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set out hereinabove. It provides that the sale shall be confirmed in
favour of the purchaser who has offered the highest sale price in his
bid, or tender, or quotation of offer to the authorised officer, and shall
be subject to confirmation by the secured creditor.
27. The first proviso to Rule 9(2) mandates that any sale made under Rule
9 shall not be confirmed, if the amount offered towards sale price is
"less than the reserve price specified under sub-Rule (5) of Rule 8‖.
Thus, the embargo is against confirmation of the sale price, which is
less than the reserve price. The sequitur is that there is no embargo
against confirmation of a sale, where the highest offered price is equal
to, or more than the reserve price. Once a reserve price is fixed, the
Borrower, as well as the world at large, are aware that it is the bare
minimum price at which the mortgaged property could be sold. The
reserve price is put in public domain, and the bidders are free to offer
their bid at the reserve price, or above.
28. The second proviso is relied upon by the petitioner and the same
provides that "if the authorised officer fails to obtain a price higher
than the reserve price, he may, with the consent of the borrower and
the secured creditor effect the sale at such price".
29. The submission of the petitioner is that the words "such price" used in
the second proviso to Rule 9(2) refers to the reserve price, whereas, the
submission of the respondent is that the expression "such price" refers
to the highest offered price, which is not higher than or equal to the
reserve price. That is, it is lower than the reserve price.
30. No doubt, the second proviso to Rule 9(2) of the Security Interest
(Enforcement) Rules, 2002 is not very happily worded, but it is for the
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Court to find the true meaning of the said Rule, - a meaning which
advances the object of the Act and the Rules. At this juncture, we may
refer to the observations of Lord Denning in the case of Seaford Court
Estates Ltd. v. Asher [1994] 2 All ER 155 wherein he held: "When a
defect appears a judge cannot simply fold his hand and blame the
draftsman. He must set to work on the constructive task of finding the
intention of Parliament and then he must supplement the written words
so as to give 'force and life' to the intention of the Legislature. A judge
should ask himself the question how, if the makers of the Act had
themselves come across this ruck in the texture of it, they would have
straightened it out? He must then do as they would have done. A judge
must not alter the material of which the Act is woven, but he can and
should iron out the creases". This principle finds an affirmation in
Varsha Kapoor v. UOI & Ors. 2010 SCC OnLine Del 2213 decided by
a Division Bench of this Court.
31. It does not stand to reason that when, post valuation, the reserve price
of the immovable secured asset has been fixed, and the purpose of any
tender, or auction is to invite offers with a clear declaration of the
reserve price "below which the property may not be sold", the
confirmation of sale of the property at the reserve price - if no higher
bid is received, should still require the consent of the borrower. The
whole purpose of undertaking the sale of the immovable property
through a public auction/ tender would be defeated, if the authorised
officer is obliged to first obtain the consent of the borrower - where the
highest bid/ offer received during the public auction/ tender is equal to
the reserve price, and not higher. To read the second proviso to Rule
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9(2) to mean that even for confirmation of a sale on the reserve price
(being the highest received bid price), the consent of the borrower is
must, would go against the concept of fixation of a reserve price. As is
clear from a reading of Rule 8 aforesaid, reserve price is the price
below which the property may not be sold. The second proviso to Rule
9(2) would become relevant and be attracted, only if the case is not
covered by the first proviso, namely, where the amount offered towards
sale price is equal to, or more than the reserve price specified under
sub-Rule (5) of Rule 8. It is only when the offered sale price is lower
than the reserve price, that the second proviso comes into play, and in
such a situation, without the consent of the borrower and the secured
creditor, the authorised officer cannot confirm the sale.
32. The insertion of the second proviso to Rule 9(2) is to provide greater
flexibility, so that the endeavour to sell the secured asset is not
defeated. There may be a situation where the highest bid received in the
tender/ auction process may be even below the reserve price, and the
borrower and the secured creditor - with a view to extinguish, or
reduce the outstanding liability of the borrower, may still consider it to
be financial prudent to accept such a bid, and may give their consent to
the confirmation of the sale. To deal with a situation like that, the
second proviso has been built into Rule 9(2). The second proviso to
Rule 9(2) provides flexibility to the concerned parties, namely, the
borrower and the secured creditor, to sell the secured asset, with their
consent, at a price which is even below the reserve price. No doubt, the
purpose of holding a public auction/ tender to sell an immovable asset
is to secure the highest and best price since that would inure to the
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benefit of not only the borrower but also the secured creditor. However,
the expectations of the borrower and secured creditor may not always
be met for myriad reasons, and the offers received during the public
auction/ tender may be even below the reserve price. It is to deal with
such like situations that the second proviso to Rule 9(2) seeks to lay
down a flexible procedure with the object of fructifying the endeavour
to sell the immovable asset that the authorised officer undertakes at
substantial monetary expense and expense of time.
33. The word "such price" appearing in second proviso to rule 9(2) means
the highest bid price, which is lesser than the reserve price. If the
property could be sold at the reserve price, only with the consent of the
Borrower, the said condition will make first proviso absolutely
nugatory and meaningless.
34. With the utmost respect, we find ourselves unable to agree with the
decision of the Madras High Court in K. Raamaselvam (supra). The
Madras High Court in this decision has held as follows:-
―9. A bare reading of Rule 9(2) makes it clear that three
contingencies can arise when an auction takes place. Those are,
(i) the bidder offers an amount, which is more than the upset
price, (ii) the bidder offers an amount, which is less than the
reserve price, and (iii) the bidder offers an amount, which is
neither less nor more than the upset price. If the amount offered
by the highest bidder is more than the upset price fixed under
Rule 8(5) the sale shall be confirmed in favour of such higher
bidder. This however, is subject to confirmation by the Secured
Creditor. If the bid amount is less than the upset price, no sale
shall be confirmed as contemplated under the first Proviso to
Rule 9(2). The Second Proviso makes it clear that if the
Authorised Officer fails to obtain a price higher than the reserve
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price, the sale can be confirmed only with the consent of the
borrower and the Secured Creditor. It is thus obvious that if the
price offered is same as the reserve price, it cannot be said that
the Authorised Officer has obtained a price higher than the
reserve price. A combined reading of all the provisions contained
in Rule 9(2) makes it clear that if the price offered is higher than
the reserve price, it shall be confirmed by the Authorised Officer,
but such confirmation is subject to the further confirmation by
the Secured Creditor. If however, price offered is not higher than
the reserve price, which means it may be on par with the reserve
price or less than the reserve price, the auction can be confirmed
only with the consent of the borrower and the Secured Creditor
and not otherwise. Learned counsel for the Bank by relying upon
the decision of the Supreme Court, has submitted that in normal
circumstances, reserve price is fixed to indicate the minimum
price at which property can be sold. We do not think that such a
contention can be accepted in view of Second Proviso to Rule
9(2) is to the effect that if the Authorised Officer fails to obtain a
price higher than the reserve price it can be confirmed only with
the consent of the Secured Creditor as well as the borrower and
not bereft of such consent. But the learned counsel for the Bank
as well as purchaser had submitted that since the proceeding
under Section 17 is pending, the question now raised in the Writ
Petition as well raised in the proceedings and in view of such
existence of such alternative remedy, the Writ Petition should not
be entertained.
12. In the present case, the bid offered was the same as the
reserve price and therefore, the Authorised Officer could confirm
such sale only with the consent of the borrower and the Secured
Creditor. It is crystal clear from the present stand taken by the
borrower indicates that there is no consent for confirmation of
such sale. As a matter of fact, the Authorised Officer has never
bothered to find out from the borrower whether he was willing
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that the sale should be confirmed, despite the fact that the
Authorised Officer had failed to obtain a price higher than the
reserve price.‖
35. The interpretation adopted by the Court in K. Raamaselvam (supra)
renders first proviso to Rule 9(2) nugatory. In fact, the language of the
first proviso to Rule 9(2) has been overlooked by the Court. Also, the
whole purpose of fixing the reserve price, and the purpose of recovery
by selling the secured immovable assets by the secured creditor would
be rendered nugatory, if that interpretation is accepted.
36. This judgment does not advert to the clear language employed in
Clause (c) of the proviso to Rule 8(6), which requires that the public
notice should disclose the "reserve price, below which the property
may not be sold‖. If the intention of the rule makers would have been
to require the consent of the Borrower even for confirmation of Sale at
the reserve price, the public notice would have required declaration of
the "reserve price, only above which the property may be sold."
Similarly, the first proviso of Rule 9(2) would have read "provided -
that no sale under this Rule shall be confirmed, unless the amount
offered by sale price is more than the reserve price......"
37. The judgment in A. Varalakshmi (supra) does not deal with issue in
controversy. The judgments relied upon by the petitioner are, therefore,
of no avail.
38. The Counsel for the respondent Bank sought to place reliance on Anil
Kumar Srivastava (supra). This judgment deals with question of
reserve price. However, it may not be relevant for the purpose of our
adjudication. Another judgement in K. Sunder Babu (supra) cited by
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the respondent Bank has been set aside by the Division Bench on
05.07.2018, and hence need not to be adverted to.
39. We are supported in our view by the judgment Varghese Ukken
(supra), the relevant extract of which reads as follows:
―29. On analysing the position in above background, it cannot
but be held that the Scheme of the Statute, particularly the
stipulation under the ‗second proviso' to Rule 9(2) pointing out
the necessity to obtain the consent of the borrower - when the
sale does not fetch a price higher than the reserve price enabling
the authorized officer to sell the property at ―such price‖ only
means ―such lesser price".
40. The said view, according to us, is the correct view. In this view of the
matter, we find no merit in the present petition and the same is
dismissed.
VIPIN SANGHI, J JASMEET SINGH, J
JANUARY 24, 2022/ „ms‟
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