Karnataka High Court

M/S Soumya Engineering vs The Chief Manager on 11 March, 2022

Bench: S.Sujatha, Shivashankar Amarannavar

       IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 11TH DAY OF MARCH, 2022

                           PRESENT

            THE HON'BLE MRS.JUSTICE S.SUJATHA

                                AND

THE HON'BLE MR. JUSTICE SHIVASHANKAR AMARANNAVAR

          WRIT PETITION No. 37363/2015 (GM-DRT)

  BETWEEN :

  1.     M/s. Soumya Engineering
         Rep. by its Proprietor
         Mr. M.S. Krishna Reddy

  2.     M.S. Krishna Reddy
         No. 8, 6th Cross
         Vijayanagar
         Cholourpalaya
         Bangalore - 560 023.          ... PETITIONERS

  (By Sri. C.S. Prasanna Kumar, Adv. (VC)
   Sri. Ajit Kalyan, Adv., (PH)

  AND :

  1.     The Chief Manager
         Indian Bank
         No.130, 100 Feet Road
         Rammaiah Complex
         Peenya
         Bengaluru - 560 001.
                           -2-



2.   Shri. V. Narayana Swamy
     Since dead represented by his Lr's

2(a) Smt.Yashodamma
     W/o late V Narayana Swamy
     Aged about 58 years
     Residing at K-116, T.D.Lane
     2nd Cross, Cottonpete
     Bengaluru - 560 053.

2(b) Sri Nanda Kumar
     S/o Late V Narayana Swamy
     Aged about 40 years
     Residing at K-116, T.D.Lane
     2nd Cross, Cottonpete
     Bengaluru - 560 053.

2(c) Sri Thiyagaraj
     S/o Late V Narayana Swamy
     aged about 38 years
     Residing at K-116, T.D.Lane
     2nd Cross, Cottonpete
     Bengaluru - 560 053.

2(d) Smt. Geetha
     D/o Late V Narayana Swamy
     aged about 36 years
     Residing at K-116, T.D.Lane
     2nd Cross, Cottonpete
     Bengaluru - 560 053.

2(e) Smt. Jayanthi
     D/o Late V Narayana Swamy
     aged about 34 years
     Residing at K-116, T.D.Lane
     2nd Cross, Cottonpete
     Bengaluru - 560 053.
                             -3-



2(f)   Smt.Roopa
       D/o Late V Narayana Swamy
       aged about 30 years
       Residing at K-116, T.D.Lane
       2nd Cross, Cottonpete
       Bengaluru - 560 053.               ...RESPONDENTS

(By Sri. A. Keshava Bhat, Adv., for C/R-1-(P.H)
Ashok Haranahalli, Sr. Counsel, (VC) for
Sri. G.Ravishankar Shastry, Adv., for R-2 (b to f) (PH
 Sri S N Sameer, Adv., for R2(d)
 Vide order dated 13.06.2018 R-2(b-f)
  are LR's of deceased R-2(a)

                                  ---

      This Writ Petition is filed under Articles 226 and 227
of the Constitution of India with a prayer to quash the
impugned order dated 18.08.2015 at Annexure A passed
by the Debt Recovery Tribunal in RA (SA) No.170/2012
and etc.


      This Petition having been heard and reserved for
Hearing this day, Shivashankar Amarannavar J, passed
the following;

                         ORDER

This petition is filed seeking issue of writ of

certiorari quashing the order dated 18.08.2015 passed

by the Debts Recovery Appellate Tribunal in R.A.

(S.A.) 170/2012.

2. Heard Sri. C.S. Prasanna Kumar, learned

Senior Counsel along with Sri. Ajit Kalyan, learned

counsel appearing for the petitioners, Sri. K. Keshava

Bhat, learned counsel for respondent No. 1 and Sri.

Ashok Haranahalli, learned Senior Counsel along with

learned counsel Sri. G. Ravishankar Shastry for legal

representatives of respondent No. 2.

3. Brief facts of the case are that the petitioner

No. 1 is a proprietary firm and petitioner No. 2 is the

proprietor of petitioner No. 1 firm. Petitioner No. 2

was the absolute owner in possession of the schedule

property. Respondent No. 1 is the Bank and

respondent No. 2 is the purchaser of the schedule

property under the auction sale held on 14.02.2011.

The petitioners have availed Over-Draft (O.D.) of

Rs.25.01 lakhs, Term Loan-1 (TL) of Rs. 22.61 lakhs

and TL-2 of Rs.20.91 lakhs by mortgaging the secured

asset. Due to recession in the business the petitioners

have incurred heavy loss. Hence, they did not repay

as agreed and as a result the loans in question came

to be declared as NPA since 24.06.2009. Thereafter

demand notice dated 18.08.2009 came to be issued

and served on the petitioners. Respondent No. 1 -

Bank issued a letter dated 11.03.2009 informing the

petitioners to regularize the loan account and if not

they will proceed under the SARFAESI Act. Later on

respondent No.1 - Bank vide letter dated 25.06.2009

informed the petitioners that the Bank has

restructured the loans as per the policy of the Bank

and asked the petitioners to get regularize the loan

account by paying Rs.3,68,000/- by 27.06.2009.

However, in the said letter it is stated that if said

amount is not paid within the stipulated period it will

slip into NPA. Respondent No. 1 - Bank has also sent

an e-mail in this regard on 30.06.2009. Respondent

No. 1 - Bank issued possession notices dated

24.10.2009 and 27.10.2009. Thereafter respondent

No. 1 - Bank issued sale notice dated 30.10.2009

fixing the auction sale on 08.12.2009. The said

auction sale was challenged before the Debt Recovery

Tribunal (for short `the DRT') in S.A. No. 660/2009

and the same came to be dismissed on 11.06.2010

and the review petition was filed before the DRT and

the same was also dismissed on 14.09.2010.

Subsequently, respondent No. 1 - Bank issued fresh

notice dated 03.10.2010 by fixing sale on 03.11.2010

but the same was challenged by the petitioners before

this Court in W.P. No. 33006/2010, same was

dismissed and writ appeal was preferred and same

was also dismissed on 15.12.2010. The said sale has

also not taken place. Respondent No. 1 - Bank issued

another sale notice dated 12.10.2010 and the same

was published in `The Hindu' newspaper informing to

conduct auction on 15.12.2010. S.A. No. 19/2011

came to be filed by the petitioners challenging the sale

notice dated 12.11.2010 but meanwhile petitioners

opted to challenge the said sale notice before this

Court and on account of stay granted by this Court

sale has not taken place. Pending disposal of S.A. No.

19/2011 sale notice dated 13.01.2011 was issued

fixing the sale of secured asset on 14.02.2011.

Petitioners moved the DRT on 11.02.2011 by filing

I.A. No. 243/2011. The DRT passed an order as

under:

"... ... The respondent bank submits that the sale is schedule on 14.02.2011. As the matter is posted for final hearing on 21.02.2011, I am of the view that there can be no stay for opening of tenders. The respondent Bank is permitted to open the tenders and withhold the confirmation until 21.02.2011."

4. On 21.02.2011 case came to be called

before the Registrar of DRT, Bengaluru, and there was

no sitting of the Presiding Officer and the case was

adjourned on 28.03.2011. On 14.03.2011 the

petitioners filed I.A. No. 506/2011 before the

Registrar seeking to extend the above referred interim

order and served copy on the respondent No. 1 -

Bank and on the same day objection also came to be

filed by respondent No. 1 - Bank to the said I.A. No.

506/2011. On 08.12.2011 respondent No. 1 - Bank

has filed a memo before the DRT stating that

respondent No. 1 - Bank has confirmed the sale on

19.03.2011 in favour of respondent No. 2. Auction

sale was held on 14.02.2011 and respondent No. 2

was declared as successful bidder and respondent No.

2 deposited 25% of the sale amount on 15.02.2011.

Sale was confirmed on 28.02.2011 and respondent

No. 2 deposited remaining 75% of sale price on

19.03.2011. Petitioners filed I.A. No. 1493/2011

seeking to set aside the sale. The Tribunal had taken

up I.A. No. 1493/2011 along with the main matter.

The DRT dismissed S.A. No. 19/2011 and I.A. No.

1493/2011 by order dated 22.08.2012. The

petitioners challenged the said order before the Debts

Recovery Appellate Tribunal (for short `the DRAT')

Chennai in R.A. (SA) No. 170/2012. The said R.A.

(SA) No. 170/2012 came to be dismissed by order

dated 18.08.2015. The petitioners have sought for

quashing of the said order passed by DRAT passed in

R.A. (SA) No. 170/2012 in this petition.

5. Respondent No.1 has filed its statement of

objections and so also respondent No. 2 has filed their

statement of objections.

- 10 -

6. The learned senior counsel for petitioners

would contend that respondent No. 1 ought to have

obtained fresh valuation report of the property prior to

issue of sale notice dated 13.01.2011 as provided

under sub-rule (5) of Rule 8 of the Securitisation

Interest (Enforcement) Rules, 2002 (for short `the

Rules'). The description of the property is not properly

shown in the sale notice and it violates sub-rule (7) of

Rule 8 of the Rules. He would further contend that the

sale of the property took place on 14.02.2011 and

25% of the amount of sale price was deposited on

15.02.2011 and it violates sub-rule (3) of Rule 9 of

the Rules as it stood prior to 04.11.2016. He would

further contend that the purchaser has not deposited

the balance amount of 75% within 15 days of

confirmation of sale and it violates sub-rule (4) of Rule

9 of the Rules. On the above points, placed reliance on

the following decisions:

- 11 -

i. Rao Mahmood Ahmed Khan Vs. Sh. Ranbir Singh

and others, AIR 1995 SC 2195

ii. Mathew Varghese Vs. N, Amritha Kumar and

others, AIR 2015 SC 50

iii. Vasu P. Shetty Vs. M/s. Hotel Vandana Palace

and others AIR 2014 SC 1947

7. The learned Senior counsel appearing for

the legal representatives of respondent No. 2 would

contend that the purchaser was ready with 25% of the

bid amount on the date of sale and the Authorized

Officer has not accepted as he was in dilemma to

accept or not as there was stay order issued by the

DRT and in that regard he intended to get clarification

and therefore the purchaser has deposited 25% of the

amount on the next date, i.e., on 15.02.2011 and

therefore, it does not violate sub-rule (3) of Rule 9 of

the Rules. He further contends that the Authorized

- 12 -

Officer has power to extend the period beyond 15

days under sub-rule (4) of Rule 9 of the Rules for

receipt of balance sale price from the date of

confirmation of sale. The confirmation of sale came to

be issued on 28.02.2011 and the balance sale amount

has been deposited on 19.03.2011 and it is within the

extended period by the Authorized Officer. It is his

further contention that petitioners sold the property to

Shabin Taj and Chand Pasha under sale agreement

dated 23.01.2014 for sale consideration of

Rs.95,00,000/- and has received advance sale

consideration of Rs.93,00,000/-. On considering the

sale consideration under the said sale agreement the

sale price in the auction dated 14.02.2011 at

Rs.65,00,100/- is proper. On looking to the petitions

filed by the petitioners and their conduct it can be said

without hesitation that it is nothing but dilatory tactics

adopted by them to defeat the claim of the bank.

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would contend that immediate deposit of 25% of the

sale price on the date of sale is in the beneficial

interest of the Bank and merely depositing the same

on the next date of the sale does not give any right to

the borrower. He further contends that the auction

purchaser's interest is to be protected unless fraud is

alleged. In support of his contentions, reliance was

placed on the following decisions:

i. Sadashiv Prasad Singh Vs. Harendar Singh and

others (2015) 5 SCC 574

ii. Janatha Textiles and others Vs. Tax Recovery

Officer and another (2008) 12 SCC 582

9. We have carefully considered the

arguments advanced by the learned counsel appearing

for the parties and perused the material on record.

- 14 -

10. As per sub-rule (5) of Rule 8 of the Rules,

the Authorized Officer has to obtain valuation of the

property from an approved valuer and in consultation

with the secured creditor, fix the price of the property

and may sell the whole or any part of such immovable

secured property by the methods mentioned in the

sub-rule. The sale notice has been issued for the first

time on 30.10.2009. Prior to that, on 28.10.2009

valuation report has been obtained and on that basis

reserve price has been fixed. Thereafter two sale

notices were issued on 03.10.2010 and 12.11.2010

but the sale did not fructify due to the proceedings

initiated by the petitioners. Thereafter, the sale notice

dated 30.01.2011 has been issued wherein the

reserve price of the property is fixed at

Rs.65,00,000/-. 1 year 3 months prior to the said sale

notice the valuation of the property has been obtained

from the approved valuer. Sub-rule (5) of Rule 8 of

- 15 -

the Rules does not contemplate to get a fresh

valuation report for each and every sale notice. As a

valuation report has been obtained 1 year 3 months

prior to sale notice, therefore there is no question of

obtaining fresh valuation report as contended by the

petitioners.

11. The description of the secured asset in the

sale notice dated 13.01.2009 and earlier sale notice is

the same which was mentioned in the mortgage deed

and also the sale agreement executed by the

petitioners in favour of Shabin Taj and Chand Pasha.

On perusal of the said description of the property one

can easily identify the same. Therefore, the contention

of the petitioners that no proper description is stated

in the sale notice does not merit consideration.

- 16 -

12. The Apex Court in the case of Rao

Mahmood Ahmed Khan Vs. Sh. Ranbir Singh and

others, supra, by considering Rules 285-D and 285-E

of the Land Reform Rules being similar to the

provisions of Order XXI Rules 84, 85 and 86 of CPC

has held that deposit of 25% of the purchase money

immediately on the person being declared as a

purchaser and the payment of balance within 15 days

of the sale are mandatory and upon non-compliance

with these provisions there is no sale at all. In the

said case Rule 285-D contem plates deposit by cash

and not by cheque and it is held that deposit of

cheque is not a valid tender.

13. The Apex Court in the case of Mathew

Varghese Vs. N. Amritha Kumar and others supra

held that:

- 17 -

"40. The above principles laid down by this Court also makes it clear that though the recovery of the public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that it should not frustrate the Constitutional Right, as well as the Human Right of a person to hold a property and that in the event of a fundamental procedural error occurred in a sale, the same can be set aside."

14. The Apex Court in the case of Vasu P.

Shetty Vs. M/s. Hotel Vandana Palace and others

supra, is held as under:

"14. As noted above this Court also examined Rule 8 and 9 of the Rules 2002. On a detailed analysis of Rules 8 and 9(1), it has been held that any sale effected without complying with the same would be unconstitutional and therefore null and void."

- 18 -

15. Learned counsel for the petitioners relying

on the Apex Court decisions referred to supra

contends that the sale is in violation of sub-rules (3)

and (4) of Rule 9 of the Rules and therefore it is void

and therefore on that ground sale in favour of

respondent No. 2 requires to be set aside.

16. Sub Rules (3) and (4) of Rule 9 of the

Rules as they stood in the year 2011 (prior to 2016)

reads thus:

"3. On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty five per cent of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again.

- 19 -

4. The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties."

17. The sale notice is dated 13.01.2011 and sale

was held on 14.02.2011. Respondent No. 2 was

declared as successful bidder for Rs.65,00,100/-.

Respondent No. 2 was ready to deposit 25% of the

amount of sale price but the Authorized Officer did not

accept the same as he was in dilemma to accept the

said deposit or not in view of the stay order issued by

the DRT which is noted supra. On the next day i.e. on

15.02.2011 after the Authorized Officer got the

clarification, he accepted 25% of the amount of sale

price from respondent No. 2. Therefore, respondent

No. 2 purchaser is not a defaulter in depositing 25%

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of the sale price to set aside the sale which is

otherwise valid.

18. This is the fourth time auction sale held on

14.01.2011 and respondent No. 2 purchaser deposited

25% of the auction money on 15.02.2011 and the

Authorized Officer confirmed the sale of the property

in favour of respondent No. 2 on 28.02.2011.

Respondent No. 2 deposited the remaining 75% of the

sale price on 19.03.2011. Respondent No. 2 was

directed to deposit balance 75% of the sale price

within 15 days from 28.02.2011. Respondent No. 2

deposited 75% of balance sale price on 19.03.2011

beyond the period of 15 days as per sub-rule (4) of

Rule 9 of the Rules. The learned counsel for

respondent No. 2 submitted that the Authorized

Officer extended the period and accepted the sale

price beyond 15 days i.e., on 19.03.2011 (19th day)

- 21 -

and he had authority to extend the period. Sub-rule

(4) of Rule 9 of the Rules provides for extension of the

period. Therefore, there is no violation of sub-rule (3)

of Rule 9 of the Rules. The Apex Court in the case of

Sadashiv Prasad Singh Vs. Harendar Singh and

others supra, has held as under:

"18. On the same subject, and to the same end, the learned counsel placed reliance on another judgment rendered by this Court in Janatha Textiles V. Tax Recovery Officer, (2008) 12 SCC 582 wherein the conclusions drawn in Ashwin S. Mehta case came to be reiterated. In the above judgment, this Court relied upon the decision of the Privy Council and of this Court in Nawab Zain-ul-Abdin Khan V. Mohd. Asghat Ali Khan (1887-88) 15 IA 12, Janak Rag V. Gurial Singh AIR 1967 SC 608, Gurjoginder Singh V. Jaswant Kaur (1994) 2 SCC 368, Padanathil Rugmini Amma V. P.K. Abdulla (1996) 7 SCC 668, as also, on Ashwin S. Mehta (2006) 2 SCC 385 in order to

- 22 -

conclde, that:) Janatha Textiles case, SCC P.586, para 18), "18. It is an established principle of law that in a third party auction- purchaser's interest in the auctioned property continues to be protected notwithstanding that the underlying decree is subsequently set aside or otherwise."

It is, therefore, that this Court in its ultimate analysis observed s under:

(Janatha Textiles case (2008) 12 SCC 582, SCC pp. 588-89 para 20) "20. Law makes a clear distinction between a stranger who is a bona fide purchaser of the property at an auction- sale and a decree-holder purchaser at a court auction. The strangers to the decree are afforded protection by the court because they are not connected with the decree. Unless the protection is extended to them the Court sales would not fetch market value or fair

- 23 -

price of the property. " (emphasis supplied)

On the issue as has been dealt with in the foregoing paragraph, this Court has carved out one exception. The aforesaid exception came to be recorded in Valji Khimji and Co. Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., (2008) 9 SCC 299, wherein it was held as under: (SCC p. 305, paras 30-31)

"30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a stature or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by

- 24 -

that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.

31. In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by anyone in this case " (emphasis supplied)

19. It is, therefore, apparent that the rights of an auction-purchaser in the property purchased by him cannot be extinguished except in cases where the said purchase can be assailed of fraud or collusion."

19. In the present case no fraud or collusion

between the creditor and purchaser has been alleged

and therefore the interest of the purchaser of the

property at an auction sale requires to be protected.

- 25 -

Considering all these aspects the DRT and DRAT have

rightly rejected the petition and appeal filed by the

petitioners. The power of judicial review conferred on

the High Court under Article 227 of the Constitution is

confined only to see whether the Court below or

Tribunal has proceeded within its parameters or not to

correct errors of all kinds in the decision. This does