Bank Of India vs Bhaskar Prabhudas Parekh
2024 Latest Caselaw 880 Guj

Gujarat High Court

Bank Of India vs Bhaskar Prabhudas Parekh on 1 February, 2024

Author: Sunita Agarwal

Bench: Sunita Agarwal

                                                                                 NEUTRAL CITATION




       C/LPA/501/2023                            ORDER DATED: 01/02/2024

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             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                 R/LETTERS PATENT APPEAL NO. 501 of 2023

             In R/SPECIAL CIVIL APPLICATION NO. 6762 of 2022

                                   With
                CIVIL APPLICATION (FOR STAY) NO. 2 of 2023
                In R/LETTERS PATENT APPEAL NO. 501 of 2023
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                              BANK OF INDIA
                                  Versus
                        BHASKAR PRABHUDAS PAREKH
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Appearance:
KULDEEP K ADESARA(9222) for the Appellant(s) No. 1
MR KM PARIKH(575) for the Appellant(s) No. 1
for the Respondent(s) No. 1
MR VIRAL V DAVE, ADVOCATE WITH MR. RAJESH K PAREKH,
ADVOCATE (3846) for the Respondent(s) No. 1
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 CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
       SUNITA AGARWAL
       and
       HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE

                             Date : 01/02/2024

                        ORAL ORDER

(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL)

1. Mr. Rajsh K. Parekh, learned advocate would submit

that he has filed vakalatnama to appear on behalf of

respondent No. 1. His name is not shown in the cause-list.

He, is, however, ready with the matter.

2. Heard Mr. K.M. Parikh, learned advocate for the

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appellant, Mr. Rajesh K. Parekh and Mr. Viral Dave, learned

advocates for the respondent.

3. This intra-court appeal is directed against the

judgment and order dated 07.12.2022, whereby the learned

Single Judge has allowed the writ petition with the cost of Rs.

5 lacs with the direction that an amount of Rs. 25 lacs

deposited by the petitioner with the appellant - Bank shall be

refunded with interest as per the directions issued by the

Debt Recovery Tribunal (hereinafter referred to as 'the DRT'

for short).

4. Learned advocate for the appellant - Bank would

submit that deposit of Rs. 25 lacs made by the writ petitioner

in favour of the Bank was on behalf of borrower namely M/s.

Seema Jewellers Pvt. Ltd., as advance for purchase of the

secured assets. The borrower had negotiated for purchase of

the secured assets and the deposits made by the petitioner,

the proposed purchaser, was adjusted in the outstanding loan

against the borrower. In no eventuality, the appellant can be

asked to refund the money which has already been adjusted

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against the outstanding towards the borrower. In any case,

the petitioner has no claim against the appellant Bank and for

any grievances of the petitioner, he should bring the action

against the borrower.

5. Placing the OTS proposal dated 18.04.2012 at page

'117' of the paper-book, it is submitted by the learned counsel

for the appellant - Bank that on the said proposal, submitted

by the borrower, permission was granted by the Bank to sell

the secured assets, the properties belonging to the borrower

which were charged to the Bank as security for various credit

facilities availed by him. The permission letter dated

26.05.2012 at page '122' of the paper-book, has been placed

before us to submit that the conditions for sale of the

properties (secured assets) had been mentioned therein,

which clearly stated that two properties, details of which had

been mentioned therein, were to be sold for the sale

consideration of not less than Rs. 26 lakhs and 220 lakhs;

respectively, making the total amount of Rs. 246 lakhs, which

was outstanding against the borrower. It was also a

condition therein that the secured assets, which were

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proposed to be sold, shall be released only after deposit of

the full amount of Rs. 246 lakhs, or actual sale consideration,

whichever is higher.

6. A default clause has been added therein to secure

the interest of the Bank that the permission granted to the

borrower to sell the secured assets was without prejudice to

the interest of the Bank or in particular action for recovery of

its dues under the Securitisation and Reconstructions of

Financial Assets and Enforcement of Security Interest Act,

2002 (for short 'the SARFAESI Act, 2002'). It was further

clarified that the permission so granted, would not constitute

acceptance of a compromise settlement of any nature,

whatsoever including under any OTS scheme or otherwise.

The contention is that the Bank had permitted the borrower

to enter into the negotiation for sale of the secured assets

with the sole idea to recover its outstanding loan. The

petitioner herein had entered into negotiation with the

borrower and deposited Rs. 25 lakhs as advance. However,

when the sale did not materialize for a long time, by a

communication dated 25.08.2012, it was intimated to the

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borrower that they have failed to keep the commitment

despite extension of time for sale of two secured assets and

did not make the deposit of the balance amount. It was

intimated that no further extension in time shall be

considered in the matter, and in case, the deposits of the

secured required balance amount was not made within two

days, the permission for disposal of the secured assets by

private sale shall lapse and suitable action in the matter shall

be initiated, which included taking possession of the

properties under the SARFAESI Act and sale thereof.

7. In November, 2012, the principal borrower namely

M/s. Seems Jewellers Pvt. Ltd. had filed a Securitisation

Application No. 81/2012 for quashing of the demand notice

dated 02.07.2011 issued under Section 13(2) of the

SARFAESI Act, 2002 and the further prayer to permit the

principal borrower to deposit amount of Rs. 195 lakhs

towards the property No. 2 and execute sale deed in favour of

the purchaser, and further to quash the action of the Bank in

adjusting Rs. 51 lakhs received qua both the properties. It

was submitted by the learned counsel for the appellant Bank

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that the original petitioner, who was a third party in the

proceedings before the DRT, had filed an application dated

05.03.2013 therein with the prayer to refund the amount of

Rs. 25 lakhs deposited by him for the purchase of one of the

property namely Bungalow No. 21-B, River Colony, River Co-

op. Housing Society Ltd. Opp. St. Xaviers College,

Navrangpura, Ahmedabad, the private sale with respect to

which did not materialize. By order dated 18.04.2013, the

DRT had allowed the application directing the Bank to refund

the amount of Rs. 25 lakhs within 15 days. However, the said

order was stayed for one month. The appellant Bank had

approached the Appellate Tribunal by filing Appeal No. 7 of

2014 under the SARFAESI Act, 2002 on 22.05.2013. In the

meantime, on 28.09.2015, the original petitioner filed an

application seeking compliance of the order dated 18.04.2013

to make payment of Rs. 25 lakhs with interest. By order dated

03.11.2015, the DRT had allowed the Misc. Application No.

66 of 2015 filed by the original Petitioner with the further

direction to refund the money with interest. The said order

dated 03.11.2015 was challenged by the appellant - Bank

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before the Debt Recovery Appellate Tribunal (for short

'DRAT') in the pending appeal No. 7 of 2014 and the original

petitioner was added as third party therein. The Appeal was

allowed and the order dated passed by DRT dated 18.04.2013

directing for refund of Rs. 25 lakhs to the original petitioner

herein, had been set aside.

8. The Special Civil Application No. 6762 of 2022 was

filed by the original petitioner namely third party, which was

allowed by the learned Single Judge vide judgment and order

dated 07.12.2022, which is subject-matter of the challenge

herein.

9. It is vehemently argued by the learned counsel for

the appellant Bank that no exception can be taken to the

arrangement made by the Bank for disposal of the secured

assets and further that the borrower had failed to honour its

proposal submitted on 18.04.2012, and the conditions of

letter for permission dated 26.05.2012 had not been fulfilled.

The original petitioner being third party to the proceedings

initiated by the Bank against the borrower cannot have the

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legitimate claim against the appellant.

10. The findings returned by the learned Single Judge

that the appellant Bank had misrepresented before the DRAT

and had misled it, which has resulted in allowing the appeal

in favour of the Bank, is without any basis. In any case, the

third party had no right to intervene in the proceedings

before the DRT, and the Appellate Tribunal has rightly set

aside the order of DRT directing for refund holding that it

was beyond the jurisdiction of the Tribunal under Section 17

of the SARFAESI Act, 2002. There was no privity of contract

between the Bank and the original petitioner. The appellant

Bank had not entered into any negotiation with the original

petitioner. The learned Single Judge has erred in setting

aside the order passed by the DRAT and directing for refund

that too with the cost of Rs. 5 lacs which is running against

the public interest. The contention is that the cost would

have to be paid from the funds of the Bank which is public

money and would cause prejudice to the interest of the Bank.

11. On the contentions of the learned counsel for the

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appellant, a query was raised as to how and under what

provision of law, the Bank could permit the borrower to enter

into a private sale of the mortgaged assets. It was noticed by

the Court during the course of the arguments that the

procedure of attachment of sale of mortgaged assets has

been prescribed in Rule 8 of the Security Interest

(Enforcement) Rules, 2002 (hereinafter referred to as 'the

Rules, 2002') framed under the SARFAESI Act, 2002. Section

13 of the SARFAESI Act, 2002 contains the provisions of

enforcement of security interest and provides that in case of

failure of the borrower to discharge his liability in full, within

the period specified in the notice issued under sub-section (2)

of Section 13, it would be open for the secured creditor

namely the Bank to take recourse of any of the measures

provided in sub-section (4) of Section 13 to recover his

security debt. One of the measures to take possession of the

secured assets of the borrower with the right to transfer by

way of lease, assignment or sale for realization of the secured

assets, the manner in which the sale of immovable secured

assets would be made, is guided by the Rule 8 and 9 of the

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Rules, 2002, which provides that the authorized officer of the

Bank would take possession of the immovable property by

delivering the possession notice prepared as per the Rules to

the borrower and by affixing the possession notice on the

outer door or conspicuous place of the property. The

possession notice is also to be published in the newspaper.

Sub-rule (5) of Rule 8 provides that the authorized officer

shall obtain the valuation of the property from an approved

valuer before effecting the sale of the immovable property as

referred to in sub-rule (1) of Rule 9, and in consultation with

the secured creditor, fix reserve price of the property. The

sale of whole or any part of the immovable secured assets can

be made by the methods provided in sub-rule (5) of Rule 8,

provided therein as under : -

"(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 including through e-auction mode; or

(d) by private treaty."

12. In the instant case, it was submitted by the learned

counsel for the appellant that one of the methods of sale of

immovable secured assets has been adopted by the Bank, i.e.

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private treaty as per Rule 8(5)(d) and permission was granted

to the borrower to sell the secured assets and pay the

outstanding loan amount. The condition was placed while

granting permission that the secured assets would be

released subject to the payment of the entire amount.

13. Taking note of the manner in which the Bank has

proceeded for disposal of the secured assets at the instance

of the borrower, it is evident that the Bank did not follow the

procedure provided in the SARFAESI Act, 2002 read with the

Security Interest (Enforcement) Rules, 2002.

The borrower, whose account has been declared as

NPA on account of the default committed by him, could not

have been permitted to enter into any negotiation with

respect to the sale of the secured assets, which was the only

security with the Bank to release its dues. The dues of the

bank are public money and the security with the Bank of the

public money was to be protected by it. The bank officials

had committed illegality in permitting the borrower to enter

into a private negotiation for sale of the secured assets. The

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secured assets could have been sold only by adopting the

measures provided in Section 13(4), after taking possession

of the immovable secured assets by delivering notice to the

borrower. The sale by private treaty , even if was to be made,

could have been made by adopting the procedure prescribed

in sub-rule (5) of Rule 8, by first getting the valuation of the

property and fixing the reserve price in consultation with the

borrower / secured creditor. Indisputably, the Bank was not a

party to the negotiation made by the borrower with the

proposed purchaser, the original petitioner.

14. It is admitted fact of the matter that the original

petitioner had deposited Rs. 25 lakhs in favour of the

appellant Bank by cheque dated 18.04.2012 as advance and

the cheque was drawn in the account of the Bank. The DRT

in the order dated 18.04.2013 while dealing with the

application filed by original petitioner has recorded that the

Bank did not file any reply to the said application. It was

categorically stated therein that the deposits of Rs. 25 lakhs

were made by the original petitioner with the Bank as an

advance showing interest to purchase the residential

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property, the secured assets, wherein it was categorically

stipulated that if he failed to deposit the remaining amount of

Rs. 220 lakhs, the Bank shall return the deposited amount of

Rs. 25 lakhs.

15. In absence of the reply of the Bank, the DRT had

believed the statement of the original petitioner in the

application filed before it. It was further noted that the

original petitioner was neither borrower nor guarantor and

he had only offered to purchase the property without any

agreement between him and the Bank.

16. The learned Single Judge has further noted from the

order passed by the DRAT dated 24.09.2019 that the Bank

which was the appellant therein, had misrepresented to the

effect that even it was not known as to whether the cheque

deposited by the applicant (original petitioner herein) was

encashed or not.

17. We may note that the Appellate Tribunal while

allowing the application filed by the Bank vide order dated

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24.09.2019, had observed that even if the measures taken by

the Bank were found to be illegal and incorrect, the DRT

could only pass an order for setting aside such measures and

directing the Bank to restore back possession, except that no

other power was vested with the Tribunal and it could not

have invoked the jurisdiction under Section 17 of the

SARFAESI Act to issue direction for refund on the application

of a third party.

18. Noticing the above, we may further record that it is

evident in the instant case that the Bank did not take any of

the measures for enforcement of security interest as per

Section 13 of the SARFAESI Act, 2002. There was no sale of

the secured assets by the Bank in accordance with the

provisions of the Rule 8 and 9 of the Rules, 2002. In the

private negotiation between the borrower and the original

petitioner, the Bank was not a party. The Bank being a public

institution, could not have acted in the manner as has been

done in the instant case. It is admitted that the deposit of Rs.

25 lakhs was made by the original petitioner directly to the

respondent Bank without any agreement in writing. The

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Bank has also encashed the cheque though it has not entered

into any written agreement with the original petitioner. The

application moved by the original petitioner before DRT in

the proceedings drawn by the borrower seeking for refund of

the amount deposited by him was not responded by the Bank.

19. As noted hereinabove, the Bank had committed

glaring illegality in entering into the arrangement for sale of

the secured assets directly by the borrower. The permission

granted by the Bank officials to the borrower to enter into

negotiation for the sale of the secured assets cannot be said

to be covered by the Security Interest (Enforcement) Rules,

2002. In absence of any arrangement between the original

petitioner and the Bank in writing, the deposits made by the

original petitioner cannot be appropriated by the Bank

towards the dues against the borrower or forfeited by any

provision of law. No third party rights could have been

created by the Bank for disposal of the secured assets

without adopting due process of law.

20. The deposits made by the original petitioner directly

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to the Bank through cheque, which was encashed by the

Bank, in a private arrangement made by the Bank officials

are to be refunded to him, as it was a private deal and cannot

be approved by any of the provisions of law.

21. We, therefore, do not find any infirmity in the order

passed by the learned Single Judge in directing for refund of

the amount deposited by the original petitioner with simple

interest at the bank rate. However, the cost imposed by the

learned Single Judge is made easy. We further deem it fit in

the interest of justice that an inquiry be conducted into the

manner in which the bank officials had dealt with the secured

assets by entering into negotiation with the borrower for

private sale of the secured assets, which was the only

security with the Bank for realization of outstanding loan

which was the public money.

22. In the said enquiry, the responsibility be fixed on the

erring officials and Rs. 25 lacs which is to refunded by the

Bank to the original petitioner, shall be realized from the

personal pocket(s) of the erring officials.

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23. The appeal stands dismissed. Civil Application for

stay as well as any other pending application/s, if any, shall

also stands disposed of.

24. Further the request for stay of the order to approach

the Apex Court is, hereby, rejected.

(SUNITA AGARWAL, CJ )

(ANIRUDDHA P. MAYEE, J.) AMAR SINGH