M/S G-Corp Lotus Mall Pvt Ltd vs M/S Axis Bank Ltd
2023 Latest Caselaw 1897 Kant

                           1



       IN THE HIGH COURT OF KARNATAKA AT BENGALURU

           DATED THIS THE 16TH DAY OF MARCH, 2023

                          BEFORE

         THE HON'BLE MR. JUSTICE M. NAGAPRASANNA

          WRIT PETITION No. 15632 OF 2021 (GM-RES)


BETWEEN:

M/S. G-CORP LOTUS MALL PRIVATE LIMITED,
A COMPANY REGISTERED UNDER
THE COMPANIES ACT 1956,
HAVING ITS REGISTERED OFFICE AT;
#40/1A, 7TH FLOOR, BASAPPA COMPLEX,
LAVELLE ROAD, BENGALURU-560 001.
REPRESENTED BY ITS AUTHORIZED SIGNATORY
MR. SHARATH GOWDA.
                                              ... PETITIONER

(BY SRI. D.R. RAVISHANKAR, SENIOR ADVOCATE,
    SRI. NAVEEN GUDIKOTE. S., ADVOCATE)

AND:

1.   M/S. AXIS BANK LIMITED,
     CORPORATE BANKING BRANCH,
     2ND FLOOR, EXPRESS BUILDING,
     QUEEN'S ROAD,
     BANGALORE-560 001.
     REPRESENTED BY ITS
     ASSISTANT VICE PRESIDENT.

2.   M/S. LOTUS SHOPPING CENTERS PRIVATE LIMITED,
     A COMPANY REGISTEREED
     UNDER THE COMPANIES ACT 1956,
                                2



     HAVING ITS REGISTERED OFFICE AT:
     DOOR NO.15-8-441/50,
     SHOP NO.46, I FLOOR, YENEPOYA MALL,
     KADRI ROAD, MANGALORE-575 003.
     REPRESENTED BY ITS LIQUIDATOR
     MR. SANJAY KUMAR MISHRA.
                                                 ... RESPONDENTS

(BY SRI. DHYAN CHINNAPPA, SENIOR ADVOCATE FOR
    SRI. CYRIL AMARCHAND MANGALDAS., ADVOCATE FOR R-1;
    SMT. POORNIMA HATTI, ADVOCATE FOR R-2;
    SRI. K. SHASHIKIRAN SHETTY, SENIOR ADVOCATE FOR
    SMT. LATHA SHETTY, ADVOCATE FOR
    IMPLEADING APPLICANT IN I.A.No.4/2022)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
NOTICE DATED 10.08.2021 VIDE ANNEXURE-P. ISSUED BY R-1.
QUASH THE NOTICE DATED 11.06.2019 VIDE ANNEXUEW-L
ISSUED BY R-1 AND ETC.,

     THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 22.02.2023, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-


                             ORDER

The petitioner is before this Court calling in question notice

dated 10-08-2021 issued by the 1st respondent/Axis Bank Limited

('the Bank' for short) invoking the provisions of the Securitisation

and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (hereinafter referred to as the 'SARFAESI Act' for

short) read with the Rules framed thereunder.

2. Shorn of unnecessary details, the facts in brief, are as

follows:-

The petitioner claims to be a Company incorporated under the

provisions of the Companies Act, 1956 and is involved in the

business of development of real estate. The 2nd respondent is also

a company which is involved in the construction of malls and

multiplexes. The 2nd respondent owned a land measuring 6 acres 01

gunta at Kulashekara, Mangalore and was desirous of developing it

into a shopping mall. The estimated cost was `301 crores out of

which the investors had agreed to invest `126 crores. It is then the

2nd respondent approached the 1st respondent/Bank for a term loan

of `150 crores. The same was sanctioned on 04-12-2012. The term

loan was to be cleared in 118 months. It is contended that in terms

of the sanction, the 2nd respondent Company had to obtain and

furnish collateral security over 100% of coverage for the 1st

respondent/Bank's exposure under the term loan. The Bank

appears to have indicated in the term sheet that only after securing

100% of loan coverage by primary and collateral security it would

release the funds to the 2nd respondent.

3. It is then the 2nd respondent approaches the petitioner and

after appraising of the project being developed by it, a request

appears to have been made to the petitioner to offer collateral

security and corporate guarantee to the 1st respondent/Bank to

enable the 2nd respondent satisfy the conditions of sanction of loan

and obtain disbursal of loan amount to complete the project of

construction of mall at its property within two years. It is contended

that the Bank modified the terms in terms of its letter dated 27-12-

2012 and imposed a condition that it would disburse the term loan

on ensuring 125% of collateral coverage. The petitioner then

enters into a memorandum of understanding with the 2nd

respondent on 20-02-2013 to extend corporate guarantee as well

as collateral security for a period of 2 years and restricted the

exposure of collateral security to `95,91,36,750/- based on

valuation of the property of the petitioner.

4. In furtherance of all the aforesaid transactions, the 2nd

respondent created a mortgage of its project property in favour of

the Bank as primary security and the petitioner's property viz., land

in Sy.No.15/2 and Sy.No.16 totally measuring 6.775 acres at

Kenchanahalli Village, Kengeri Hobli, Bangalore as collateral

security to secure the loan by executing a deed of mortgage. The

deed of mortgage was executed on 20-02-2013 in favour of the

Bank. Therefore, the loan was secured by way of mortgage of

properties belonging to the petitioner. On 11-06-2019 it is the

claim of the petitioner that to its shock and surprise two notices

come to be issued to it by the Bank under sub-section (2) of

Section 13 of the SARFAESI Act seeking to initiate proceedings

under the Act and also invoking the Bank guarantee that the

petitioner had offered. In terms of the notice, the Bank had made a

reference of term loan facility extended to the 2nd respondent for a

sum of `150 crores and a further additional term loan of `55 crores

sanctioned on 25-04-2017. The notice demanded that the petitioner

would become liable to pay `190,30,58,067/-.

5. The petitioner claims to have been completely kept in dark

with regard to the further transaction between the 2nd respondent

and the 1st respondent/Bank. The allegation in the petition is that

the 2nd respondent is responsible for the complete financial fiasco in

the case at hand. The property that was mortgaged to the Bank

was sought to be put up to sale by the Bank in order to redeem the

amount that was in due. The effort of the Bank to sell the property

of the petitioner drove the petitioner to this Court in the subject

petition. What is called in question is a notice issued on

10.08.2021. The notice dated 10.08.2021 is issued enclosing a sale

notice under sub-rule (6) of Rule 8 of the Security Interest

(Enforcement) Rules, 2002. This Court, on 12-09-2022,

entertaining the petition passed an order directing the petitioner to

deposit `10/- crores before this Court in two installments of `5/-

crores each. The said order has been complied with. On

28.09.2022 this Court passed the following:

"ORDER ON IA NO.2/2022

This Court vide order dated 12.09.2022 has said as under:

"Issue emergent notice.

ORDER ON IA NO.1/2022

The respondent - Bank is restrained from entering into any private negotiation in respect of one of the properties concerned subject to petitioner depositing with it a sum of Rs.10,00,00.000/- (Ten Crore) only as under:

i) a sum of Rs.5,00,00,000/- (Rs. Five Crore) only within two weeks;

ii) remainder, i.e., another sum of Rs.5,00,00,000/- (Rs. Five Crore) only within next two weeks following;

failing which, this order stands rescinded.

Ordered accordingly and IA No.1/2022 is disposed off."

Learned counsel for the petitioner points out that his client has already deposited Rs. Five Crore being the first installment thereunder and he would deposit second installment in an equal sum in time and therefore, the respondent-Bank should be restrained from confirming the auction sale. This is vehemently opposed by the learned counsel appearing for the Bank stating that the dues are more than Rs.Hundred Crores and that petitioner has played fraud on the Court by obtaining interim order. This aspect requires a better consideration and the Dasara festival being around the corner such an examination can be undertaken by this Court on ease prima facie bona fide having been shown by the petitioner.

In view of the above, the subject application is favoured; the respondent - Bank is restrained from confirming the auction sale till next date of hearing.

Call this matter in the last week of October, 2022."

It is here this Court on an application filed by the petitioner

restrained the Bank from confirming the auction sale till the next

date of hearing. By then, the auction sale had taken place and one

M/s Anushka Construction Private Limited is the auction purchaser.

The interim order so granted is subsisting even as on date.

6. Heard the learned senior counsel Sri D.R. Ravishankar

appearing for the petitioner, learned senior counsel Shri Dhyan

Chinnappa appearing for respondent No.1/Bank, learned counsel

Smt. Poornima Hatti appearing for respondent No.2 and learned

senior counsel Sri K. Shashikiran Shetty appearing for the

impleading applicant in I.A.No.4/2022. The impleading application

was filed on 17.10.2022, when the proceedings were in progress.

Though the impleading application was not allowed, the learned

senior counsel representing the impleading applicant was permitted

to make his submissions and was completely heard in the matter.

There was no objections from the petitioner or from the other

respondents for hearing the impleading applicant, as he was the

auction purchaser who sought to implead into these proceedings.

7. The learned senior counsel for the petitioner would urge

the following contentions:

(i) The notice issued invoking sub-section (2) of Section 13 of the SARFAESI Act on 11-06-2019 is defective as the account itself could not be declared as NPA;

(ii) Before taking steps under sub-section (4) of Section 13 of the SARFAESI Act and sub-rule (6) of Rule 8, the Bank ought to have given credit to the amounts paid by one of the guarantor and the principal borrower;

(iii) Inter-play between sub-rule (1) of Rule 9, sub-rule (5) of Rule 8 and sub-rule (7) of Rule 8 and their non- compliance vitiates the entire sale.

Elaborating these submissions, the learned senior counsel would

submit that debt fiasco comes about on account of the borrower,

2nd respondent defaulting in payment. The question of liability was

itself in dispute since payments were made and realized even after

issuance of notice under Section 13(2). He would contend that the

purpose of giving this notice is not only to sell the property in

auction but also to give an opportunity to the borrower to know the

actual outstanding amount. It is his claim that on 30-08-2019 an

amount of `25/- crores was paid by the guarantor and on

15-02-2020 an amount of `18.37 crores was paid. In all it is his

claim that `43.37 crores were paid against the property offered by

the guarantor. It is his emphatic submission that the property is

said to be sold for grossly inadequate price as the reserve price

from 15-02-2021 which was at `123.975 crores has gone on

reducing and the latest reserve price is at `82/- crores on

19-08-2022. It is this proceeding that was stalled by this Court on

12-09-2022. He would seek to place reliance upon the judgment of

the Apex Court in the case of MATHEW VARGHESE v. AMRITHA

KUMAR AND OTHERS1 to buttress his submission that the

property cannot be undervalued and sold and a further judgment in

the case of POCHIRAJU INDUSTRIES LIMITED v. PUNJAB

NATIONAL BANK2.

8. The learned senior counsel for the 1st respondent/Bank

would vehemently refute all the submissions of the petitioner and

would urge the following contentions:

(i) The writ petition is not maintainable as the petitioner has already approached the Debts Recovery Tribunal on the same cause of action;

(ii) Fraud is played on the Court by the sheer conduct of the petitioner;

(iii) The allegation of undervaluation of collateral security is imaginary.

(2014) 5 SCC 610.

2018 SCC OnLine Hyderabad 121

He would submit that it is quite natural that the reserve price will

have to be brought down if there are no bidders to buy the

property. It is in that effort the reserve price has been brought

down from sale to sale.

9. The learned senior counsel representing the auction

purchaser would toe the lines of the learned senior counsel

representing the Bank. It is his contention that on the date of

auction i.e., 19-08-2022 the auction purchaser deposited 25% of

the amount and was ready and willing to deposit the entire amount

as is required in law. In the interregnum the interim order was

granted on 12.09.2022 and, therefore, the amount could not be

deposited. He would submit that if this court would permit, he

would clear the entire amount within seven days.

10. The learned senior counsel for the petitioner would also

submit that if reasonable time is granted, the petitioner would

make good the entire amount but would contend that the entire

amount according to the petitioner is only 10% of what the Bank

has claimed.

11. I have given my anxious consideration to the submissions

made by the respective learned senior counsel and have perused

the material on record.

12. The afore-narrated facts are not in dispute as they are all

borne on record. Since maintainability of the petition is raised and

it would form a threshold bar, I deem it appropriate to consider the

said contention at the outset. In favour of the petition being

maintainable, the learned senior counsel for the petitioner places

reliance upon certain statutory provisions of the SARFAESI Act to

contend that if there is violation of the statute, the writ petition

would be maintainable. According to the learned senior counsel

there is gross violation of Rules 8(5), 8(7) and 9(1) of the Security

Interest (Enforcement) Rules, 2002 ('the Rules' for short). Rule 8

reads as follows:

"8. Sale of immovable secured assets.--(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.

(2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two

leading newspapers], one in vernacular language having sufficient circulation in that locality, by the authorised officer.

(2-A) All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub- rule (2) of Rule 8.

(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.

(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.

(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 including through e-

auction mode; or

(d) by private treaty.

Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provisions of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State.

(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 the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.

(7) every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorized officer shall upload the detailed terms and conditions of the sale, on the website of the secured creditor, 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 of the immovable secured assets 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;

(e) deposit of earnest money as may be stipulated by the secured creditor;

(f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.

(8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditor and the proposed purchaser in writing."

(Emphasis supplied)

Sub-rule (5) mandates that before effecting sale of immovable

property referred to in sub-rule (1) of Rule 9 the authorized officer

shall obtain valuation of the property from an approved valuer in

consultation with the secured creditor, fix the reserve price of the

property and may sell the whole or any part of the immovable

property. Sub-rule (6) mandates that the authorised officer shall

serve to the borrower a notice of 30 days for sale of immovable

secured assets, under sub-rule (5). Sub-rule (1) of Rule 9 reads as

follows:

"9. Time of sale, Issue of Sale Certificate and delivery of possession, etc.--(1) No sale of immovable property under these rules, in first instance 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) of Rule 8 or notice of sale has been served to the borrower:

Provided further that if sale of immovable property by any one of the methods specified by sub-rule (5) of Rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale."

No sale of immovable property under these rules, in the first

instance, shall take place before expiry of thirty days from the date

on which public notice of sale is published in the newspaper. The

proviso mandates that if sale of immovable property by any one of

the methods is required to be conducted again, the authorized

officer shall serve, affix and publish notice of not less than fifteen

days to the borrower. In terms of the aforesaid Rules, the sale of

immovable property can be made after obtaining the valuation of

the property from an approved valuer and for effecting sale 30 days

notice in the first instance and 15 days notice in the second

instance of sale is mandatory.

13. The allegation is that the property is being sold on

inadequately low price and the reserve price has gone on

decreasing from sale to sale. The reserve prices as reduced are as

follows:

"(i) Reserve price as on 15-02-2021 -`123.975 Cr.

(ii) Reserve price as on 26-03-2021 -`112.50 Cr.

(iii) Reserve price as on 30-08-2021 -`101.25 Cr.

(iv) Reserve price as on 15-11-2021 -`101.25 Cr.

(v) Reserve price as on 23-12-2021 -`91.13 Cr.

(vi) Reserve price as on 21-02-2022 -`82.02 Cr.

(vii) Reserve price as on 26-04-2022 -`82.02 Cr.

(viii) Reserve price as on 05-07-2022 -`82.02 Cr.

(ix) Reserve price as on 19-08-2022 -`82.02 Cr."

The contention is that the valuation report was taken only once

which was on 31-12-2012 and prior to auction notice there was no

valuation report taken of the property. It is this that the learned

senior counsel would submit that it would become the foundation

for maintainability of the petition at the hands of this Court. The

objection to the said contention is that the sale has taken place on

19-08-2022 and the buyer is one M/s Anushka Constructions

Private Limited. The 1st respondent/Bank made several attempts

prior to the aforesaid sale to auction the property. The auction sales

were conducted on 29th January, 2021; 9th March, 2021; 10th

August, 2021; 6th September, 2021; 13th October, 2021; 3rd

December, 2021; 28th January, 2022; 8th April, 2022; 15th June,

2022 and 26th July, 2022. In all these attempts of sale, there were

no bidders. It is only in the sale that was conducted on 19-08-2022

the Bank has been successful in finding a bidder and the auction

became successful after multiple failed attempts. It is trite that the

standard practice is reduction of 10% in the reserve price if there is

no bidder comes forward for particular reserve price. Prima facie, I

find no statutory aberration committed by the Bank in reduction of

the reserve prices. The Bank having not found a buyer on several

attempts finds one in the last attempt who has also deposited the

amount that is required and a submission is made that he is ready

and willing to deposit the entire amount.

14. Be those submissions as they may, what requires to be

noticed is the conduct of the petitioner. The petitioner has

presented the subject writ petition on 23-08-2021. The matter was

not moved for its listing. For almost one year, the matter was at the

stage of clearing of office objections. At the same time, the

petitioner has knocked the doors of the Debts Recovery Tribunal

('DRT' for short) by filing several petitions challenging several sale

notices in relation to collateral security in S.A. No.199 of 2021;

S.A.No.226 of 2021; S.A.No.280 of 2021; and S.A.No.332 of 2021.

None of these facts have been divulged in the petition. When those

proceedings were pending consideration before DRT, an application

is moved in I.A.No.I of 2022 seeking stay of auction proceedings

that was held on 19-08-2022. The petitioner has not disclosed

several proceedings filed before the DRT. Even on the present sale

notice, the petitioner has preferred an application before the DRT

and the learned senior counsel appearing for the Bank would submit

that a copy of the petition has also been served on the Bank for it

having been filed before the DRT. None of these facts are placed on

record by the petitioner. On this solitary ground that the petitioner

has not divulged several proceedings filed before the DRT calling in

question several sale notices and those proceedings being pending

before the DRT would alone become enough circumstance to deny

entertainment of the present writ petition. The intention of the

petitioner appears to be to dodge the issue as long as possible and

as far as possible. Therefore, on this solitary ground of non-

divulgence of aforesaid facts, I decline to entertain the petition. The

petitioner is anyway before the DRT in several proceedings. The

grounds that are urged in this petition can always be urged before

the DRT and the DRT is well within its jurisdiction to consider all

those grounds in support of the grievance of the petitioner.

15. In the light of the aforesaid conduct of the petitioner, the

petition stands disposed holding it to be unentertainable, reserving

liberty to the petitioner to urge any of the grounds before the DRT.

The Bank is at liberty to take the sale to its logical conclusion

bearing in mind the observations made in the course of the order.

In view of disposal of the petition, I.A.No.3/2022, seeking

vacation of the interim stay, I.A.No.1/2023 is filed by the learned

counsel for petitioner on record seeking amendment are disposed.

I.A.No.4/2022 is also disposed as having become unnecessary in

the light of the observations made in the course of the order.

Sd/-

JUDGE

bkp CT:MJ