Karnataka High Court

Sri H J Siwani vs The Grain Merchants Co-Operative on 10 January, 2024

                             1


IN THE HIGH COURT OF KARNATAKA AT BENGALURU

     DATED THIS THE 10TH DAY OF JANUARY, 2024

                        BEFORE

        THE HON'BLE MR. JUSTICE R.NATARAJ

     WRIT PETITION NO.5005 OF 2012 (GM-RES)

BETWEEN:

1.   SRI. H.J. SIWANI
     AGED ABOUT 52 YEARS,
     S/O LATE J.K. SIWANI

2.   SRI. M.J. SIWANI
     AGED ABOUT 50 YEARS,
     S/O LATE J.K. SIWANI,

     NO.14, CUNNINGHAM ROAD,
     BANGALORE-560052
                                          ...PETITIONERS
(BY SRI. ABHINAV R., ADVOCATE)

AND:

1.     THE GRAIN MERCHANTS CO-OPERATIVE
       BANK LIMITED,
       HAVING ITS REGD OFFICE AT NO.2,
       PAMPAMAHAKAVI ROAD,
       CHAMARAJPET,
       BANGALORE-560018,
       REPRESENTED BY ITS PRESIDENT

2.     THE AUTHORISED OFFICER
       UNDER THE SECURITISATION AND
       RECONSTRUCTION OF FINANCIAL ASSETS AND
       ENFORCEMENT OF SECURITY INTEREST ACT,
       THE GRAIN MERCHANTS CO-OPERATIVE BANK LTD.,
       NO.2, PAMPAMAHAKAVI ROAD, CHAMARAJPET,
                               2


       BANGALORE-560018

3.     SRI. M.S. PAPANNA
       SINCE DECEASED BY LRS

3(a)   SMT. SHANTHA P.
       MAJOR BY AGE,
       W/O LATE SRI M.S.PAPANNA

3(b)   SMT. A. MEERA
       MAJOR BY AGE,
       D/O LATE SRI M.S.PAPANNA

3(c)   SMT. P. MANJULA
       MAJOR BY AGE,
       D/O LATE SRI M.S.PAPANNA

3(d)   SRI M.P. SRINIVASA MURTHY
       MAJOR BY AGE,
       S/O LATE SRI M.S.PAPANNA

       RESPONDENTS 3(a) TO 3(d) ARE
       RESIDING AT NO.66/1, 7TH CROSS,
       8TH MAIN, R.M.V. EXTENSION,
       BANGALORE-560080

4.     SRI. P. KISHORE
       AGED ABOUT 57 YEARS
       S/O LATE KOKARDAS TARACHAND

5.     SRI. PRAKASH K
       AGED ABOUT 31 YEARS,
       S/O KISHORE P

       RESPONDENTS 4 AND 5
       RESIDING AT NO.3, MOTHI APARTMENTS,
       KUMARA PARK WEST,
       BANGALORE-560001.

6.     THE REGISTRAR
       THE DEBT RECOVERY TRIBUNAL
                            3


     AT BANGALORE
     HUDSON CIRCLE,
     BANGALORE-560002.

7.   UNION OF INDIA
     MINISTRY OF FINANCE.
     NORTH BLOCK,
     NEW DELHI-110001
     REPRESENTED BY ITS SECRETARY

8.   MINISTRY OF LAW AND JUSTICE,
     GOVERNMENT OF INDIA (LEGAL AFFAIRS)
     4TH FLOOR, 'A' WING, SHASTRI BHAVAN,
     NEW DELHI-110001
     REP. BY ITS SECRETARY

     AMENDMENT CARRIED OUT AS PER
     ORDER DATED 02.06.2023
                                        ...RESPONDENTS

(BY SRI. A.Y.N. GUPTA, ADVOCATE FOR RESPONDENT NOS.1
AND 2;
RESPONDENT NOS.3(a) TO 3(d), 4 ARE SERVED;
SRI. S. SYED BASHA, ADVOCATE FOR RESPONDENT NO.5;
VIDE ORDER DATED 20.03.2019 KUMAR M.N., CGC FOR
RESPONDENT NOS.6 TO 8)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH
RULE 8(5)(d) AND RULE 8 OF THE SECURITY INTEREST
(ENDORCEMENT) RULES, 2002 AS ARBITRARY AND VIOLATIVE
OF ARTICLE 14, 19 AND 21 OF THE CONSTITUTION AS WELL AS
PROVISIONS OF THE SECURITISATION AND RECONSTRUCTION
OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT, 2002 (ACT 54 OF 2002) AND ETC.

      THIS PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDER ON 12.10.2023 AND COMING ON FOR
PRONOUNCEMENT OF ORDER THROUGH VIDEO CONFERENCE
THIS DAY, THE COURT MADE THE FOLLOWING:-
                                  4


                            ORDER

The petitioners have sought for a writ to quash Rule

8(5)(d) and Rule 8(8) of the Security Interest

(Enforcement) Rules, 2002 (henceforth referred to as

'Rules of 2002') as arbitrary and violative of Articles 14,

19 and 21 of the Constitution of India as well as the

provisions of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act,

2002 (henceforth referred to as 'SARFAESI Act, 2002').

They also sought for a consequential reliefs to quash the

sale certificate dated 16.12.2011 issued by respondent

No.2 to respondent Nos.4 and 5 in respect of the "C"

schedule property and to direct the sale of the "C"

schedule property by public auction so that the general

public can participate.

2. The petitioners claim that respondent No.3

(since deceased) being the owner of the property bearing

Municipal No.5 and 5/1, S.C. Road, Bengaluru, had

mortgaged the said property by depositing the title deeds

with the respondent No.1 and had availed various financial

facilities from respondent No.1. He had also availed

additional financial assistance during March, 1999 for

which an additional memorandum of deposit of title deeds

was executed. The respondent No.3 did not repay the

arrears as on 31.01.2006 by which time, the SARFAESI

Act, 2002 and the rules framed thereunder had come into

force. The respondent No.2 thus issued a notice under

Section 13(2) of the SARFAESI Act, 2002 and called upon

the respondent No.3 to clear the entire liability within sixty

days from the date of the notice, failing which, steps under

Section 13(4) of the SARFAESI Act, 2002 would be

initiated. The respondent No.3 was directed not to deal

with the secured assets in any manner whatsoever. The

petitioners claimed that respondent No.3 without disclosing

the above, offered to sell a portion of the secured asset to

the petitioners. The petitioners unaware of the prior

encumbrance, purchased it in terms of a sale deed dated

02.04.2007. They claimed that they came to know about

the encumbrance in favour of respondent No.1 only after

they purchased a portion of the secured asset. They

contend that respondent No.2 issued a notice dated

06.07.2009 under Section 13(4) of the SARFAESI Act,

2002 to take over possession of the secured asset.

Therefore, they were constrained to approach the Civil

Court for appropriate reliefs. However, the Civil Court

dismissed it on the ground that it had no jurisdiction to

deal with the matters that were covered under the

SARFAESI Act, 2002. They claimed that the tenant

inducted by them had challenged the said order before this

Court in a writ petition, which was dismissed and that a

writ appeal filed thereagainst was also rejected following

which, he has approached the Debt Recovery Tribunal

challenging the action of respondent Nos.1 and 2.

3. The petitioners contend that they were

shocked to know that respondent No.2 had stealthily sold a

portion of the secured asset in favour of the respondent

Nos.4 and 5 and also issued a sale certificate for a paltry

sum of Rs.1,05,00,000/- though the value of the said

property was between Rs.1.80 to Rs.2 crores. The

petitioners therefore, contend that respondent Nos.1 to 5

had therefore, connived and palmed off the said property

to respondent Nos.4 and 5 by flouting all rules and

regulations and procedure relating to the auction and sale

of secured asset. The petitioners contend that the said

property was not sold at a public auction but was a private

sale involving respondent Nos.1 to 5. They contend that

such private sale must be in the interest of the bank and

various other occupants of the building. They contend that

respondent No.1 is performing a public duty and is dealing

with public funds and therefore, its actions are bound to be

fair and reasonable to protect the interest of the

shareholders as well as the general public. They therefore,

contend that the provisions contained in Rule 8(5)(d) and

Rule 8(8) of the Rules of 2002 permitting the respondent

No.1 to enter into a private agreement to sell the secured

asset is arbitrary. Elaborating further, the petitioners

contend that Rule 8 of the Rules of 2002 provides that the

sale of secured assets shall take place as nearly as

possible as per appendix (iv) to the Rules and shall be

published in two leading newspapers and thereafter, the

authorised officer after getting the property value must fix

a reserve price, invite tenders from the public and hold

public auction, which should be widely publicised in atleast

two leading newspapers. They contend that this procedure

was not adopted depriving the public of participation in the

auction sale process. They contend that Rule 8(5)(d) of

the Rules of 2002 provide for sale of secured asset by

private treaty on terms settled privately between the

parties. They claimed that the net effect of Rule 8(5)(d)

and Rule 8(8) of the Rules of 2002 is that, a secured asset

could be sold privately and there are no checks and

balances for a disposal of the property. They claimed that

this mode of disposal breeds corruption and weeds out

transparency. Hence, they contend that granting such

unfettered power to the banking institution is arbitrary and

violative of the provisions of the SARFAESI Act, 2002 and

the Constitution of India. They also contend that a private

treaty does not allow eligible persons to participate in

purchasing the secured asset by offering a better price.

Therefore, the petitioners have sought for the reliefs

mentioned above.

4. The respondent Nos.1 and 2 have opposed the

writ petition by filing their statement of objections where

they contend that the sale deed executed by respondent

No.3 in favour of the petitioners does not bind them as

they had purchased the property which was mortgaged to

respondent No.1. They claimed that pursuant to the notice

under Section 13(2) of the SARFAESI Act, 2002, the

respondent No.3 failed to comply and therefore,

respondent Nos.1 and 2 were compelled to take symbolic

possession of the secured assets. The respondent No.3

challenged the same before this Court in

W.P.No.21106/2009 which was dismissed for default on

11.08.2010 as the respondent No.3 failed to comply with

an interim order granted on 27.07.2009 requiring him to

deposit 50% of the amount mentioned in the notice. They

claimed that the petitioners were then set up to file

O.S.No.25629/2011 for perpetual injunction against

respondent Nos.1 and 2, where an application for an

interim order of temporary injunction was rejected on

30.05.2011 which was not challenged. Later, a person

claiming to be a tenant under the petitioners filed

W.P.No.21602/2011 seeking an order for restoration of

possession which was dismissed by this Court in terms of

the order dated 20.06.2011 and was unsuccessfully

challenged before the Division Bench of this Court in

W.A.No.4752/2011. Later, he filed S.A.No.124/2012

before the Debt Recovery Tribunal at Bengaluru. The

respondent Nos.1 and 2 contend that having failed in all

attempts, the petitioners have now chanced upon to

challenge a private sale of the property by respondent

No.2 in favour of respondent Nos.4 and 5. They further

contend that the petitioners are neither aggrieved nor any

of their rights violated by the action of the respondent

No.2 in selling the property to the respondent Nos.4 and 5.

Therefore, the petitioners have no locus standi to file this

writ petition. They contend that if the petitioners are

aggrieved in any way, they have an alternate remedy to

challenge the sale of the portion of the secured asset to

the respondent Nos.4 and 5 by filing an appropriate

application under Section 17 of the SARFAESI Act, 2002.

They contend that the property sold to respondent Nos.4

and 5 is not under-priced but is as a result of a private

treaty between the respondent Nos.1 and 2 and the

respondent No.3. They contend that respondent No.3 in

S.A.No.301/2011 had offered to settle his dues by selling

portion of the secured asset by private treaty which was

accepted and recommended by the Debt Recovery

Tribunal, Bengaluru, subject to approval by the respondent

No.2. Thus, pursuant to the aforesaid, the sale of secured

asset was effected by respondent No.2 in favour of

respondent Nos.4 and 5 which was accepted by the

respondent No.3. They contend that as per the valuation

report prepared by an approved valuer, the total value of

the property that was sold to respondent Nos.4 and 5 was

Rs.79,39,200/-, while it was sold to respondent Nos.4 and

5 at a sum of Rs.1,05,00,000/- and hence, they claimed

that there is no under-pricing of the property sold in favour

of respondent Nos.4 and 5.

5. Replying to the challenge to Rule 8(5)(d) and

Rule 8(8) of the Rules of 2002, they contend that under

Rule 8, there are four modes of sale of a secured asset:-

(i) by obtaining quotations from persons dealing with similar secured assets or otherwise interested in buying such assets;

(ii) by inviting tenders from the public;

(iii) by holding public auction;

(iv) by private treaty.

6. They contend that Rule 8(8) of the Rules of

2002 provides for sale by private treaty on terms settled

between the parties. They contend that the petitioners

have selectively not challenged the legality of the three

modes but have selectively challenged the mode of sale by

private treaty. They contend that there are adequate

safeguards provided in Rule 9 of the Rules of 2002 and

therefore, the challenge to Rule 8(5)(d) and Rule 8(8) of

the Rules of 2002 is baseless. They also contend that the

Rules of 2002 are designed to aid Section 13 of the

SARFAESI Act, 2002. They contend that if there was any

illegality in the mode of the sale by private treaty, it is only

for the respondent No.3 to challenge it and the petitioners

neither have any contractual nor statutory right to

therefore, prayed that the petition be dismissed.

7. The respondent No.3 (since deceased) also

contested the writ petition by filing a statement of

objections. He claimed that the petitioners are in no way

related with the transaction between the respondent No.3

and the respondent No.1 and therefore, the petitioners

have no locus standi to maintain the writ petition. He also

claimed that the property that was sold to respondent

Nos.4 and 5 fell to his share as well as the share of his

mother and daughter, who had mortgaged their respective

portions to respondent No.1 to avail financial assistance.

Therefore, the writ petition without impleading the

daughter of respondent No.3 was not maintainable. He

denied the allegation that the property sold in favour of

the respondent Nos.4 and 5 was under-priced and

contended that due to various circumstances, the property

had to be sold at a sum of Rs.1,05,00,000/- which was the

highest price. He contended that the petitioners have no

right to challenge the sale made in favour of respondent

Nos.4 an 5 in a writ petition but have to approach the Debt

Recovery Tribunal by filing an appropriate proceeding.

8. The respondent No.7 has filed its statement of

objections contending that the petitioners have no locus

standi to challenge the Rule 8(5)(d) and Rule 8(8) of the

Rules of 2002 as the Rules of 2002 prescribe the procedure

to be adopted by the secured creditor while putting the

mortgage property for sale. If any person has any

grievance against the procedure which is adopted, it is

only the owner of the secured asset and not any other

person who can challenge it. It contended that the

procedure prescribed in Rules 8 and 9 of the Rules of 2002

came up for consideration before the Hon'ble Supreme

Court of India in Mathew Varghese vs. M. Amritha

Kumar and others [2014 (2) SCALE 331], J. Rajiv

Subramanian and another vs. M/s. Pandiyas and

others [(2015) 5 SCC 651, Vasu P. Shetty vs. M/s.

Hotel Vandana Palace and others [(2014) 5 SCC 660.

It contends that the constitutional validity of the SARFAESI

Act, 2002 was upheld by the Hon'ble Supreme Court of

India, in Mardia Chemicals Ltd., and others vs. Union

of India and others [(2004) 4 SCC 311], where the

Hon'ble Supreme Court of India held

"Consequently, possession is obtained from the borrower by a possessory notice delivered to him. The secured asset is sold by one of the four modes specified under Rule 8(5) and the borrower has to be only served the notice of sale but not the permission for sale by private treaty. Under Rule 8(6), the conduct of the proceedings by the non-adjudicatory mode is fully under the control of and in the hands of the bank. The only fetter upon the banks is the legal fetter of obtaining atleast the reserve

price. This is so as to obviate any collusion, nepotism or corruption. The objective yardstick for the sale would beget the best price and nothing lower than that."

9. It is contended that the vires of delegated

legislation must be confined to the grounds on which the

plenary legislation may be challenged as held by the

Hon'ble Supreme Court of India in State of Andhra

Pradesh and other vs. McDowell and Co. and others

(1996) 3 SCC 709. It further claimed that only if any of

the provisions of legislation violates the fundamental rights

or any other provisions of the constitution, it could

certainly be a ground to invoke the power of the Court to

judicially review such legislation. It is contended that the

legislation cannot be challenged simply on the ground of

unreasonableness as that by itself does not constitute a

ground. It is contended that the petitioners neither the

owners of the secured asset nor the purchasers of the

secured asset have any locus standi to challenge the sale

of private treaty as well as the sale certificate issued in

favour of respondent Nos.4 and 5.

10. The learned counsel for the petitioners

elaborating on the contentions urged submitted that it is

incumbent upon the bank to secure the best price of a

secured asset and therefore, unless there is any

predicament in bringing about a sale by public auction,

financial institution should not be allowed to resort to

private treaty. He submits that this would deprive larger

participation to secure a better price. He thus, contended

that the unfettered discretion granted to a financial

institution to enter into private treaty would breed

corruption and thus contends that vesting such unbridled

and unrestrained power in favour of financial institutions is

undesirable. In this regard, he relied upon the judgment

of the High Court of Bombay in the case of Mr. Prateek

Pradeep Agarwal vs. Union of India [Writ Petition

(L) No.5858/2020], where it was held that the secured

creditor as the trustee of the secured asset cannot deal

with the same in any manner it likes and such an asset

must be disposed of only in the manner prescribed under

the SARFAESI Act, 2002. It also fell-back on the judgment

of the Hon'ble Supreme Court of India in Mathew

Varghese, supra, and held that any sale in violation of

Rules 8 and 9 would be unconstitutional and therefore, null

and void. It also held that the possibility of misuse of a

provision of law cannot be a ground to strike it down. It

could be valid and constitutional but the action taken

under it may not be valid. Thus, possibility in a given case

of not fetching value cannot be considered as a ground to

challenge the constitutional validity of Rule 8(8) of the

Rules of 2002. The High Court of Bombay also held that,

"18.32. In view of above discussion as we have read down or read into Rule 8(8) that the sale by private treaty can be conducted only after sale by inviting tenders from the public or by holding public auction fails, it cannot be said that unfettered and arbitrary powers are given to the Secured Creditor/Authorised Officer by the amended Rule 8(8)."

11. The learned counsel for the petitioners

therefore, submitted that unless respondent Nos.1 and 2

resorted to public auction, they could not encumber a

secured asset by private treaty.

12. The learned counsel for respondent Nos.1, 2, 5

and the learned Central Government Standing Counsel for

respondent Nos.6 to 8 reiterated the contentions urged in

their statements of objections. They all claimed that the

petitioners have no locus standi to challenge the validity of

Rule 8(5)(d) and Rule 8(8) of the Rules of 2002 and also

to challenge the sale certificate issued in favour of

respondent Nos.4 and 5. They all contended that if the

petitioners are aggrieved by the sale by private treaty,

they have to approach the competent Tribunal. At any

rate, they contend that respondent No.3 being the

principal borrower and owner of the secured asset has not

felt that there was any under-pricing of the property sold

by private treaty. They further contend that Rule 8(5)(d)

of the Rules of 2002 does not breed any corruption as

alleged, as sufficient safeguard is provided in Rule 8(8) of

the Rules of 2002 as a terms of private arrangement have

to be settled between the secured creditor and the

purchaser in writing.

13. I have considered the submissions made by

the learned counsel for the petitioners and the learned

counsel for the respondent Nos.1, 2 and 5 as well as

learned Central Government Standing Counsel for

respondent Nos.6 to 8.

14. Before we go into the merits of the case, it is

appropriate to notice that the provisions of the

SARFAESI Act, 2002 particularly, under Sections 13, 17

of the SARFAESI Act, 2002 came up for consideration

before the Hon'ble Supreme Court of India in Mardia

Chemicals Ltd., referred supra. The Hon'ble Supreme

Court of India after considering the purport and intent of

the SARFAESI Act, 2002 held that the Act provides for

sufficient safeguards before a secured asset is

classified as a non-performing asset. If there is any

difficulty or any objection pointed out by the borrower by

means of some appropriate internal mechanism, the

creditor is bound to expeditiously resolve it. The Court

held that the purpose of serving a notice upon the

borrower under Section 13(2) of the SARFAESI Act, 2002,

is that a reply may be solicited from him explaining the

reasons as to why measures may or may not be taken

under Section 13(4). The creditor must apply its mind to

the objections raised in reply to such notice and an internal

mechanism must be particularly evolved to consider such

objections raised in the reply to the notice.

15. The Security Interest (Enforcement) Rules,

2002 are framed by the Central Government in exercise of

the powers conferred under sub-section (1) and clause (b)

of sub-section (2) of Section 38 read with sub-sections (4),

(10) and (12) of Section 13 of the SARFAESI Act, 2002.

There is an elaborate procedure contemplated under the

Rules of 2002 before bringing a property for sale under

Rule 8.

16. For the sake of immediate reference and

convenience, Rule 8 of the Rules of 2002 is extracted

below:-

"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.

(2A) 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 other wise 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 authorised 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 method other than public

auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing."

17. It is relevant to note that in Rule 8(8) of the

Rules of 2002, the words "between the parties in writing"

was substituted by the words "between the secured

creditors and the proposed purchaser in writing" with

effect from 04.11.2016. The Hon'ble Supreme Court of

India in the case of Mathew Varghese, supra, held that

any sale effected without complying with Rules 8 and 9 of

the Rules of 2002 would be unconstitutional and therefore,

null and void. The Hon'ble Supreme Court of India in the

case of Mathew Varghese, supra, referred to the word

"parties" in the unamended Rule 8(8) and held that it

included only the secured creditor and the borrower. The

purpose of substitution of the words "parties" by the words

"principal creditor and purchaser" is obvious and writ large

so as to enable the financial institutions to proceed against

the secured asset in accordance with the Rules of 2002,

without involving the borrower, as involving him or it may

hamper the process of the sale of the secured asset.

However, there are in-built safeguards against the abuse

of the power vested in a financial institution to sell the

secured asset. First of all, the secured asset cannot be

brought for sale unless the objections of the borrower are

considered. Secondly, the secured asset cannot be sold

without determining the reserve price as provided under

Rule 8(5) of the Rules of 2002. Thirdly, the sale of the

secured asset by any of the modes mentioned in Rule 8(5)

cannot be less than the reserve price unless agreed upon

by the borrower. Fourthly, in the event of sale of secured

asset by private treaty, the terms of sale should be

reduced into writing between the principal creditor and the

purchaser. Fifthly, it has been read into Rule 8(5) of the

Rules of 2002 by the Courts from time to time that when a

secured asset is sold by private treaty, notice of such sale

should be issued to the borrower so as to enable him to

secure a better price. Sixthly, the sale of the secured asset

by private sale shall be confirmed in favour of purchaser

only after confirmation by the secured creditor.

18. The challenge in this writ petition is to the

alleged unfettered discretion upon the principal creditor to

sell the secured asset by private treaty under Rule 8(5)(d)

of the Rules of 2002. In this regard, it is apposite to refer

to the judgment of the Hon'ble Supreme Court of India in

A. Thangal Kunju Musaliar vs. M. Venkatachalam

Potti and another [1955 (2) SCR 1196], where it was

held as follows:-

"68. It was, however, urged that it would be open to the Government within the terms of Section 5(1) of the Act itself to discriminate between persons and persons who fell within the very group or category; the Government might refer the case of A to the Commission leaving the case of B to be dealt with by the ordinary procedure laid down in the Travancore Act 23 of 1121. The possibility of such discriminatory treatment of persons falling within the same group or category, however, cannot necessarily invalidate this piece of legislation.

It is to be presumed, unless the contrary were shown, that the administration of a particular law would be done "not with an evil eye and unequal hand" and the selection made by the Government of the cases of persons to be referred for investigation by the Commission would not be discriminatory."

19. It is relevant to note that there is a pervasive

difference between a statute or subordinate legislation and

the action taken by the officers under the statute or the

subordinate legislation. The statute or the subordinate

legislation may be valid and constitutional but the action

taken under them may not be valid and can be subject to

judicial review. However, the statute or such subordinate

legislation cannot be quashed on the mere ground that

there is a possibility of misuse by the officers. Every

officer under a statute or subordinate legislation is bound

to exercise his functions in accordance with the letter and

spirit of the legislation and any deviation can be subject to

judicial review on a case to case basis.

20. In the present case, the borrower agreed to

sell the secured asset by a private treaty and

consequently, it was sold in favour of the respondent

Nos.4 and 5. The borrower being the respondent No.3,

stated that the price procured by private treaty

represented the true value of the secured asset sold and

was not under-priced. Therefore, the petitioners who were

neither the borrowers nor the purchasers have any right to

challenge the sale of the secured asset by private treaty.

Therefore, the sale certificate issued in favour of

respondent Nos.4 and 5 cannot be annulled or cancelled at

the behest of the petitioners as they have no locus standi

to question it.

21. In so far as the contention of the petitioners

that under Rule 8(5)(d) of the Rules of 2002, an unbridled,

unchecked power is vested in the sale officer to dispose off

the secured asset by private treaty, thereby allowing

corrupt means, undoubtedly, the High Court of Bombay in

the case of Mr. Prateek Pradeep Agarwal, supra, held,

"The possibility of misuse of provision of law cannot be a ground to strike it down. It could be valid and constitutional but the action taken under it may not be valid. Thus, possibility in a given case of not fetching a maximum value cannot be considered as a ground to challenge the constitutional validity of Rule 8(8) of the Rule of 2002."

22. It also read into Rule 8(8) of the Rules of 2002

that the sale by private treaty can be conducted only after

sale by inviting tenders on the public or holding public

auction sale and held that, that iron out the creases.

However, it held that mere allowing a sale officer to sell

the secured asset by private treaty cannot be said to

confer unfettered or arbitrary powers for the secured

creditor or the sale officer.

23. The petitioners cannot piggy ride on the

judgment of the High Court of Bombay, referred above and

contend that the sale of the secured asset by private

treaty without resorting to public auction as the petitioners