Kerala High Court
Sree Gokulam Chit And Finance Co. ... vs Emil And Eric Hospitality ... on 20 October, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
WEDNESDAY, THE 20TH DAY OF OCTOBER 2021 / 28TH ASWINA, 1943
OP (DRT) NO. 9 OF 2021
AGAINST SA 139/2019 OF DEBT RECOVERY TRIBUNAL, ERNAKULAM,
PETITIONER:
SREE GOKULAM CHIT AND FINANCE CO. PVT. LTD.
SREE GOKULAM TOWER, OLD NO.356,
NEW NO.66,ARCOT ROAD, KODAMBAKKAM,
CHENNAI,
REP.BY AUTHORISED REPRESENTATIVE
PRASANTH A.K.,
AGED 57, S/O. PRABHASHANKAR
BY ADVS.
SHRI.S.RENJITH
SHRI.ALJO K. JOSEPH
RESPONDENTS/APPLICANTS & DEFENDANTS IN SA:
1 EMIL AND ERIC HOSPITALITY SERVICES
A PARTNERSHIP FIRM,
HAVING ITS PLACE OF BUSINESS AT
BUILDING NOS.3/34,35 AND 36,
EAST FORT P.O., PARAVATTANI,
THRISSUR DISTRICT,
KERALA,
REP BY ITS MANAGING PARTNER,
MARTIN SEBASTIAN
2 MARTIN SEBASTIAN
S/O.LATE SEBASTIAN, AGED 56 YEARS
O.P.(DRT) No.9/21 -:2:-
CITADEL HOUSE,
C.NAGAR, NADATHARA P.O.,
THRISSUR,KERALA
3 J.M.FINANCIALLY ASSET RECONSTRUCTION
COMPANY LIMITED,
3RD FLOOR, B WING, SUASHISH IT PARK,
PLOT NO.68E, OFF.DATTAPADA ROAD,
OPP.TATA STEEL, BORIVALI EAST,
MUMBAI-400066,
MAHARASHTRA
4 THE AUTHORIZED OFFICER,
J.M.FINANCIAL ASSET RECONSTRUCTION COMPANY
LIMITED,3RD FLOOR, B WING,
SUASHISH IT PARK, PLOT NO.68E,
OFF.DATTAPADA ROAD, OPP.TATA STEEL,
BORIVALI EAST,
MUMBAI-400066,
MAHARASHTRA
BY ADVS.
SRI.VARGHESE C.KURIAKOSE
SRI.V.V.ASOKAN (SR.)
SRI.SUNIL SHANKAR
THIS OP (DEBT RECOVERY TRIBUNAL) HAVING COME UP FOR
ADMISSION ON 12.10.2021, THE COURT ON 20.10.2021 DELIVERED
THE FOLLOWING:
O.P.(DRT) No.9/21 -:3:-
"C.R."
BECHU KURIAN THOMAS, J.
------------------------------------
O.P. (DRT) No.9 of 2021
--------------------------------------
Dated this the 20th day of October, 2021
JUDGMENT
The attempt of a lone bidder in an auction, to implead in a
securitisation application before the Debts Recovery Tribunal ended
in a failure. The said lone bidder, is challenging in this original
petition, two separate orders issued by the Tribunal, including the
order rejecting his application for impleading. Original petitioner
claims to be the auction purchaser and is challenging Ext.P2 order
dated 15-01-2021 and Ext.P5 order dated 08-02-2021 passed by
the Tribunal. This challenge is preferred under Article 227 of the
Constitution of India.
2. There are three parties to this litigation, (i) original petitioner,
(ii) respondents 1 and 2, and (iii) respondents 3 and 4. Petitioner
claims to be the auction purchaser while respondents 1 and 2 are the
borrowers, the 3rd and 4th respondents are the asset reconstruction
company and its authorized officer, respectively. For easier
comprehension, the three parties are referred to as Petitioner,
Borrowers and ARC in this judgment.
3. In the first amongst the two impugned orders, the Tribunal
had observed that the Borrowers had arranged a proposed
purchaser who was ready to purchase the security interest for
Rs.7.60 Crores. It is observed in Ext.P2 that the Borrowers will
accordingly pay an amount of Rs.2 Crores through the proposed
purchaser within eight days and the balance on or before
07-02-2021. In the latter of the two orders, i.e. Ext.P5, the Tribunal
rejected the impleading application of the Petitioner herein.
4. Challenge in this original petition is built upon the auction
notice published on 03-12-2020 and the consequent participation of
the Petitioner at the auction held on 29-12-2020 for Rs.7.51 Crores.
By Ext.P1 letter issued by the ARC to the Petitioner on 31-12-2020, it
was conveyed that Petitioner's bid was accepted and the balance
amount of auction money is liable to be deposited. It is claimed that,
after the publication of the auction sale notice and the consequent
sale, Borrowers could not have brought in any person to purchase
the property. On 15-01-2021, the Tribunal, by Ext.P2 order permitted
the Borrowers to deposit an amount of Rs.2 Crores through an
intending purchaser, that too, for a sum which was merely Rs.9 lakhs
more than what the Petitioner had bid for, at the auction. Petitioner
alleges that the direction of the Tribunal to the ARC to accept the
amount of Rs.2 Crores, behind the back of the auction purchaser and
contrary to section 13(8) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (for
short the Act), is without authority and in excess of its jurisdiction.
5. Petitioner further contends that, on coming to know about
the order of the Tribunal dated 15-01-2021, it sought to implead itself
in the securitisation proceedings by filing I.A No.158 of 2021 (Ext.P3),
apart from I.A No.159 of 2021, seeking directions to confirm the sale
and issue the consequent sale certificate favouring the Petitioner. It
is pleaded that the Tribunal by Ext.P5 order dismissed the application
for impleading. According to the Petitioner, after the Borrowers lost
their right to redeem the property, the Tribunal could not have
permitted the Borrowers to bring in some other person to purchase
the property by offering to pay an amount which is marginally higher
than what was bid at, by the Petitioner. The findings of the Tribunal
are attacked as being contrary to the statute and the settled
propositions of law.
6. A counter affidavit has been filed on behalf of the Borrowers.
Apart from questioning the maintainability of the original petition on
the ground of alternative remedy under section 18 of the Act, it is
stated that Ext.P2, though styled as an order, is only a proceeding
recording an arrangement entered into between the Borrowers and
the ARC and hence, the same cannot be subject to any supervisory
jurisdiction of this Court under Article 227 of the Constitution of India.
7. The Borrowers further pleaded that the 1st respondent had
availed two term loans on 12-10-2009 from the Federal Bank, after
mortgaging two properties and even after repaying a portion of the
loan, default occurred. It was also stated that though proceedings
were initiated in 2012 and later when a sale notice was published on
14-03-2019, the Borrowers preferred S.A No.139 of 2019 before the
Debts Recovery Tribunal-I, Ernakulam. In the meantime, the bank
had filed O.A. No.42 of 2013 before the Tribunal and pursuant to final
orders, issued a recovery certificate as DRC No.77/2018. In the said
DRC proceedings, the Borrowers had filed three applications (i) to
grant eight months' time to arrange a private sale, (ii) leave to
arrange a private sale, and (iii) to remove the boards erected by the
ARC to enable the arrangement of a private sale. It was pleaded in
the counter affidavit that all those applications were rejected by
Ext.R1(h) order dated 03-12-2020 by the Recovery Officer. It was
thereafter that the sale notice Ext.R1(j) was published, fixing the
reserve price at Rs.7.5 Crores.
8. The Borrowers further averred that after the sale notice of
03-12-2020 was published, an amendment application was preferred
in the securitisation application to include the challenge against the
said sale notice, which was allowed on 21-12-2020. Later when the
case was taken up on 28-12-2020, the counsel for the ARC reported
that one bid had been obtained for the sale and hence the Tribunal
ordered stay of confirmation of sale, but contrary to the terms of the
interim order, the fourth respondent issued Ext.P1 letter accepting
the bid offered by the Petitioner. Borrowers alleged that, since
Petitioner had not complied with the terms of Ext.P1, respondents
entered into an arrangement between themselves. On the basis of
the consensus with the ARC, Borrowers entered into a private
arrangement which alone is recorded by the Tribunal in the
proceedings of 15-01-2021. The Borrowers further asserted that the
payment of the balance amount of Rs.5.51 Crores, as per the terms
of Ext.P1, was not complied with by the Petitioner and a conditional
acceptance of Ext.P1 alone was carried out by the Petitioner, which
itself shows the invalidity of the sale alleged to have been carried out.
9. In the counter affidavit filed by ARC, apart from the
contentions relating to the background of the proceedings prior to the
auction notice dated 03-12-2020, it was stated that the amendment
application filed by the Borrowers in S.A. No.139 of 2019 was
allowed on 21-12-2020 and the matter was posted for hearing on
28-12-2020 on which date, after hearing the matter at length, the
Debts Recovery Tribunal refused to stay the auction and permitted
the auction to be conducted, and bids be invited, but stayed the
confirmation of sale.
10. According to the ARC, since the Petitioner was the only
bidder and since they bid for an amount of Rs.7.51 Crores, it was
declared as the highest bidder on 29-12-2020, which was
communicated to the Petitioner by Ext.P1. It is further pointed out
that this was the first time an interested person came forward to
purchase the property after the failure of multiple auctions conducted
earlier, that too, after more than seven years of the loan falling
outstanding. On receiving 25% of the total consideration, a letter
dated 31-12-2020 was issued, acknowledging the receipt of the said
sum on 30-12-2020 and informing the Petitioner about making the
balance payment on or before 30-01-2021.
11. It is also pleaded by the ARC that in deference to the order
of the Tribunal on 28-12-2020, the sale was not confirmed in favour
of the auction purchaser. The alleged arrangement between the
Borrowers and ARC, relating to the proposed private arrangement
was stoutly denied. It was also stated that after this original petition
was filed and this Court granted a stay, Petitioner paid the entire
balance consideration on 03-03-2021 itself, and in compliance with
the provisions of the Act, the ARC issued sale certificate dated
08-03-2021 in favour of the Petitioner and the possession was
handed over on 19-03-2021. It was also pointed out that an SLP was
filed by the Borrowers knowing fully well about the facts that
transpired after the filing of this original petition and when the
Supreme Court passed an order of status quo on 22-03-2021, that
too, with regard to possession alone, since the possession had
already been handed over on 19-03-2021 to the Petitioner, the
Borrowers cannot plead the benefit of the said order of the Supreme
Court in its favour. It was also pleaded that since the Supreme Court
did not interdict the issuance of sale certificate or other further steps
in pursuance thereto, except preserving the status quo as regards
possession, the registration of the sale certificate on 17-04-2021
does not violate any of the orders of the Court. It was also averred
that, pursuant to this Court staying the proceedings, the third and
fourth respondents had returned the amount of Rs.2 Crores and
offered the same to the counsel for the Borrowers, though the same
was refused on 19-03-2021.
12. Adv. Aljo K. Joseph, the learned counsel for the Petitioner,
apart from reiterating the contentions raised in the original petition
further pointed out that, the Borrowers had lost their right to redeem
the property after publication of notice for sale and as per section
13(8) of the Act, the only option of the Borrowers was to pay the
entire amount due on the property. It was further argued that the
total liability of the Borrowers was more than Rs. 20 Crores and the
property was declared as a non-performing asset more than a
decade ago and in spite of several attempts at auction of the
property, no bidders came forward and it was only after the sale
notice of 03-12-2020 that Petitioner came in with a willingness to
purchase the property. The decisions of the Supreme Court in Valji
Khimji and Company v. Official Liquidator of Hindustan Nitro
Product (Gujarat) Limited and Others [(2008) 9 SCC 299],
Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd.
and Another [(2016) 4 SCC 47], and Shakeena v. Bank of India
[JT-2019-8-344] were relied upon in support of the contentions raised
by the Petitioner.
13. Adv. Varghese C. Kuriakose, the learned counsel for the
Borrowers, contended that Ext.P1 can never be regarded as a
confirmation of sale and that the Petitioner had never replied
pursuant to Ext.P1 as directed therein, thereby leaving the auction
incomplete. It was also argued that in the absence of a confirmed
sale, no right as such accrued to the auction purchaser, so that
Ext.P5 order does not warrant any interference and further, the order
in Ext.P2 was issued since the Petitioner had not replied pursuant to
Ext.P1 and therefore, the ARC proceeded to accept the offer made
by the Borrowers on consent and accepted the amount of Rs.2
Crores offered through the Borrowers with open eyes. It was also
contended that, since Ext.P2 order was issued based upon a
consensus, the ARC cannot thereafter back out and confirm the sale
in favour of the Petitioner. The learned counsel also questioned the
steps initiated by the ARC, consequent to obtaining the interim order
from this Court in the present case. It was submitted that all those
proceedings including the execution of the sale certificate and the
alleged handing over of possession were not only contempt of court
but also carried out behind the back of the Borrowers as well as an
abuse of the process of court intended to override the orders of the
Supreme Court in the special leave petition.
12. The learned Senior Counsel Sri. V.V Ashokan, duly
instructed by Adv. Sunil Shankar, on behalf of the ARC, submitted
that two term loans were granted to the Borrowers and the accounts
were declared as a non-performing asset on 31-03-2011 and
pursuant to an application filed before the DRT as O.A. No.42 of
2013, a decree was obtained and a recovery certificate was issued
for an amount of Rs.19,64,73,829/-. After denying the alleged
consensus between the Borrowers and the ARC to accept the offer of
a proposed purchaser brought by the Borrowers, the learned Senior
Counsel referring to the additional statement filed by the ARC,
submitted that the order on 15-01-2021 came to be passed only
because of Ext.R3(a) rejoinder filed by the Borrowers. The learned
Senior Counsel reiterated that there was never any arrangement with
the Borrowers nor any consensus for a private sale for Rs.7.6
Crores. It was further pointed out that the difference between the
purchase price of the Petitioner and that of the alleged purchaser
brought by the Borrowers is only Rs.9 lakhs, which is marginal and
not a substantial sum, sufficient to wipe away the liability of the
Borrowers. It was also submitted that after 07-01-2021 the stay of
confirmation was never extended and further, after the order of stay
issued by this Court in this original petition, there was nothing that
prevented the authorised officer from confirming the sale in favour of
the Petitioner or from registering the sale deed. The learned Senior
Counsel thus supported the Petitioner in the original petition.
13. On an appreciation of the contentions raised by the parties
to this lis, the following questions are required to be adjudicated:
(i) Is the original petition maintainable?
(ii) Whether the direction of the Tribunal on 15-01-2021 in Ext.P2
directing the ARC to accept Rs.2 crores from an intending purchaser
proposed to be brought in by the borrowers is valid, especially after
the bid of the Petitioner at the auction held on 29-12-2020 was
accepted by the ARC?
(iii) Is the order Ext.P5 rejecting the impleading application of the
Petitioner justified?
Q.No. (i) Is the original petition maintainable?
14. Even though the first respondent had taken a specific
contention regarding the maintainability of the original petition in the
counter affidavit filed, such a plea was not canvassed during the
hearing. Still, I propose to consider the question of maintainability.
15. The original petition was filed under Article 227 of the
Constitution of India. On 01-03-2021, when the matter came up
before a learned single Judge of this Court as a defect, the Court
directed the Registry to number the original petition. It is noticed that
certified copies of the impugned orders had not been obtained or
produced. Later, on 03-03-2021, after notice was accepted by the
counsel for the respondents, the learned single Judge observed that
prima facie the original petition deserves consideration. An interim
order was also passed, an abstract of which is as follows: "In the
meanwhile, if the petitioner deposits with R3 and R4, balance
consideration within a period of two days from today, impugned
orders are stayed." Pursuant to the aforesaid order, the balance of
the auction purchase money was deposited. The case came up for
consideration on several days and all parties to the dispute have filed
their respective counter-affidavits.
16. Since, at the time, Petitioner had not obtained the certified
copy of the orders impugned, it could not have preferred an appeal
before the Appellate Tribunal. Further, though all parties proceeded
to place their written pleadings and argued the case on merits,
without raising the question of maintainability of the original petition, I
proceed to consider the original petition on merits. In the
circumstances mentioned above, I hold the original petition to be
maintainable before this Court.
Q. No. (ii) Whether the direction of the Tribunal on 15-01-2021 in Ext.P2
directing the ARC to accept Rs.2 Crores from an intending purchaser proposed to be
brought in by the borrower is valid, especially after the bid of the Petitioner at the
auction held on 28-12-2020 was accepted by the ARC?
17. Ext.P2 is one of the two orders challenged in this original
petition. Ext.P2 is an order of the Tribunal dated 15-01-2021 wherein
it is recorded that the applicants before the Tribunal (Borrowers) have
arranged a proposed buyer for the property, who is ready to
purchase the property, at a price of Rs.7.60 Crores. It further
mentions that the applicants before the Tribunal will pay an amount
of Rs.2 Crores, through the proposed purchaser within eight days,
and the balance amount will be paid on or before 07-02-2021.
18. Ext.P6 is a typed copy of the 'A' diary of the
DRT(Ernakulam) and is not disputed. A perusal of the proceedings
of 21-12-2020 shows that an amendment application filed by the
Borrowers as I.A. No.1307 of 2020 in S.A. No.139 of 2019,
challenging the auction sale notice dated 03-12-2020 scheduling the
sale to be held on 29-12-2020, was allowed. Thus, it came to the
notice of the Tribunal at least on the said posting date, that the sale is
scheduled to be held on 29-12-2020.
19. Thereafter, from the proceedings of 28-12-2020, it is seen
recorded that the learned counsel for the ARC brought to the notice
of the Tribunal that pursuant to the auction sale notice, they had
received one bid. Despite the said submission, Tribunal refused to
stay the auction and instead recorded as follows: "....However it will
not be appropriate to stay the auction sale scheduled on 29-12-2020.
Accordingly, defendant bank is permitted to receive further bid, if any,
in pursuance of auction sale notice Annexure A/09 and to conduct
auction sale on 29-12-2020. However the confirmation of the sale is
stayed till next date of hearing. Matter is adjourned for filing of written
statement and counter to interim application as well as hearing on
07-01-2021".
20. On 07-01-2021, the case was merely reposted to
12-01-2021, on which date, it was again adjourned to 15-01-2021 for
final hearing. The interim stay of confirmation of sale was not
extended after 07-01-2021. Thus, the Tribunal refused to interfere
with the scheduled sale despite being informed that there was one
bidder and instead, only stayed the confirmation of sale, that too, till
the next date of hearing, which was not thereafter extended.
21. Petitioner being the lone bidder in the auction held on
29-12-2021, was issued with Ext.P1 letter, confirming the acceptance
of the bid offered by the Petitioner and the receipt of 25% of the bid
amount. No other bidders had participated at the auction nor had the
ARC received any other bids. The only restriction that remained
against confirming the sale in favour of the bidder was the order of
the Tribunal staying the confirmation of sale till 07-01-2021 and the
payment of balance consideration. Since the stay was not extended
beyond 07-01-2021, there was no prohibition in confirming the sale in
favour of the Petitioner.
22. In this context, it is relevant to appreciate whether the
Borrowers have a right to bring in a new auction purchaser after the
sale took place and that too for an amount far below the actual dues
from the Borrowers, but marginally above the bid offered by the
Petitioner.
23. Section 13 of the Act deals with enforcement of security
interest and provides in sub-clause (1) and (8) (after amendment in
2016) as follows:
S.13 Enforcement of security interest.-
(1) Notwithstanding anything contained in section 69 or
section 69-A of the Transfer of Property Act, 1882 (4 of
1882), any security interest created in favour of any
secured creditor may be enforced, without the intervention
of the Court or tribunal, by such creditor in accordance with
the provisions of this Act.
xxxxx xxxx xxxx xxxx xxxx
xxxxx xxxx xxxx xxxx xxxx
(8) Where the amount of dues of the secured creditor
together with all costs, charges and expenses incurred by
him is tendered to the secured creditor at any time before
the date of publication of notice for public auction or inviting
quotations or tender from public or private treaty for transfer
by way of lease, assignment or sale of the secured assets,-
(i) the secured assets shall shall not be transferred by
way of lease assignment or sale by the secured
creditor; and
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment or
sale of the assets before tendering of such amount
under this sub-section, no further step shall be taken
by such secured creditor for transfer by way of lease
or assignment or sale of such secured assets.
24. Prior to the amendment, section 13(8) provided that the
tendering of the amounts due to the secured creditor can be at any
time before the date fixed for sale or transfer, as the case may be.
There is a significant change to the provision after the amendment of
2016. The change is evident from the words "...is tendered to the
creditor at any time before the date of publication of notice for public
auction.....". The restriction in section 13(8) of the Act, after the
amendment is that if the amount of dues of the secured creditor
along with the charges are tendered prior to the date of publication of
notice, then the secured creditor is interdicted from transferring the
secured interest and if any step has been taken for transfer of the
secured asset, no further steps shall be taken. The corollary of
section 13(8) of the Act is unambiguous. If the amount due to the
secured creditor is offered after the date of publication of the notice
for public auction, the secured creditor is not bound by such offer or
tendering and instead shall be entitled to proceed with the sale or
with such mode of transfer intended by the second creditor.
25. Section 13(8) of the Act incorporates the principle of the
right of redemption of a mortgagor. Earlier, until 2016, the right of
redemption was available till the date of sale. However, after the
amendment, by virtue of the provisions of the Act, the right of
redemption of a mortgagor comes to an end on the date of
publication of notice for public auction. Thereafter the mortgagor
loses the right to redeem the secured asset. While appreciating the
scheme behind section 13(8) of the Act, the Court cannot lose sight
of sub-clause (1) of section 13 of the Act. The statute has given a
free hand to a secured creditor to enforce any security interest
without the intervention of the Court or Tribunal. If the enforcement is
by the methods and manner provided under the Act, the Court or
Tribunal cannot interfere with the measures adopted.
26. The decision in Shakeena v. Bank of India [JT-2019-8-
344], relied on by the Petitioner, has no application to the facts of the
case as the Court was considering a sale that took place in 2005,
which was prior to the amendment of Section 13(8) of the Act.
However, there is an observation in paragraph 29 as follows:
".........Further, the amended Section 13(8) of the 2002 Act which has
come into force w.e.f. 1st September, 2016, will now stare at the face of
the appellants. As per the amended provision, stringent condition has
been stipulated that the tender of dues to the secured creditor together
with all costs, charges and expenses incurred by him shall be at any time
before the "date of publication of notice" for public auction or inviting
quotations or tender from public or private deed for transfer by way of
lease assessment or sale of the secured assets.". Though this is only an
obiter dictum, it is settled, even an obiter dictum of the Supreme
Court is binding on the High Courts.
27. In this context, this Court deems it apposite to observe that,
in the absence of specific cases of violation of provisions of law, the
Tribunals would do well not to interfere with auction sales, unless of
course the secured creditor consent. It is vital to the scheme and
intent of the Act that the sanctity of auction sales are maintained, lest
the intending bidders would think twice before coming forward with
bids. If the intending bidders are ensured the required confidence of
auction sales under the Act, the price fetched at such auctions will be
higher. Such higher prices at the auctions auger better in the
interests of all and at the same time achieves the purpose of the Act
also.
28. In the instant case, the Recovery Officer had rejected the
application of the Borrowers to carry out a private sale of the
property, and it was after that the sale was notified by notice dated
03-12-2020. The Borrowers have no case that they had offered,
either through themselves or through any prospective purchaser, the
amounts due to the secured creditor before the date of notice. the
offer of the Borrowers as reflected in Ext.P2 was made only after the
auction. In such circumstances, the Tribunal acted in excess of
jurisdiction in passing an order in the nature of Ext.P2 directing the
Borrowers to pay an amount of Rs.2 Crores through a proposed
purchaser to the ARC, ignoring the bid of the Petitioner made at the
auction held on 29-12-2020 and even accepted by the ARC through
Ext.P1. Such a direction, issued on 15-01-2021 is thus without
authority and issued in irregular exercise of jurisdiction.
Q.No.(iii) Is the order Ext.P5 rejecting the impleading application of the
Petitioner justified?
29. By Ext.P5, the Tribunal rejected the application of the
Petitioner for impleading as a party in the securitisation application.
In coming to the said conclusion, the Tribunal proceeded to assume
that the sale can be cancelled until confirmation is carried out and
also that the authorised officer is entitled to sell the property through
other modes also, to obtain the real value for the property. The
Tribunal seems to have been swayed by the offer of Rs.7.60 Crores
by the Borrowers through an alleged intending purchaser, in
contradistinction to Rs.7.51 Crores offered by the Petitioner as the
auction purchaser in the sale notified.
30. While rejecting the application for impleading filed by the
Petitioner, the Tribunal committed four fundamental flaws. The four
flaws are as follows: (i) After 03-12-2020, the Borrowers lost their
right to redeem the property under section 13(8) and ARC was
entitled to accept a suitable bid of its choice, (ii) it ignored the right,
though inchoate, of the Petitioner as on 29-12-2020, by virtue of his
bid having been accepted by the ARC and 25% of the bid amount
deposited by the Petitioner, (iii) no orders could have been rendered
in the nature of Ext.P2, behind the back of the Petitioner after 29-12-
2020, and (iv) the sanctity of an auction sale contemplated under the
provisions of the Act cannot be defeated by bringing another
intending purchaser, that too for a meagre sum of Rs.9 lakhs above
what was offered at the auction sale.
31. The claim of the Borrowers that Ext.P2 order was passed
as a consensus, is stoutly denied by the ARC. Though the claim of
consensus falls in the realm of a disputed fact, for the present, there
is an indication in the pleadings itself as to how that offer came to the
notice of the Tribunal. Ext.R3(a) is a rejoinder filed by the Borrowers
on 14-01-2021. In the said pleading, the Borrowers referred to an
intending purchaser available, to purchase the property for Rs.7.60
Crores, whom the borrower can bring in. Coupled with the above, the
rejection of the application seeking permission to have a private sale
by order dated 03-12-2020 indicates that the claim of consensus for
passing the order in Ext.P2 is bereft of any basis. Thus, the
contention now raised about the consensus with the ARC cannot be
digested without a pinch of salt.
32. In this context, it is relevant to bear in mind the decision in
Valji Khimji and Company v. Official Liquidator of Hindustan
Nitro Product (Gujarat) Limited and Others [(2008) 9 SCC 299].
In the aforesaid decision, the Supreme Court observed that "If it is
held that every confirmed sale can be set aside the result would be that no
auction-sale will ever be complete because always somebody can come
after the auction or its confirmation offering a higher amount ". It was
further observed by the Court that "............When an auction-sale is
advertised in well-known newspapers having wide circulation, all eligible
persons can come and bid for the same, and they are themselves to be
blamed if they do not come forward to bid at the time of the auction. They
cannot ordinarily later on be allowed after the bidding (or confirmation) is
over to offer a higher price. Of course, the situation may be different if an
auction-sale is finalised, say for Rs 1 crore, and subsequently somebody
turns up offering Rs.10 crores. In this situation it is possible to infer that
there was some fraud because if somebody subsequently offers Rs 10
crores, then an inference can be drawn that an attempt had been made to
acquire that property/asset at a grossly inadequate price. This situation
itself may indicate fraud or some collusion. However, if the price offered
after the auction is over which is only a little over the auction price, that
cannot by itself suggest that any fraud has been done".
33. The situation projected by the Supreme Court has
happened in the instant case. The loan account of the Borrowers
was declared as NPA on 31-03-2011 and the decree was obtained
for Rs.19 Crores. Possession of the property was taken on
29-01-2019. On two earlier occasions of sale, there were no bidders.
On the third occasion, when the auction notice was published on
03-12-2020 scheduling the sale to 29-12-2020, Petitioner submitted
its bid for Rs.7.51 Crores. 16 days after the sale, Borrowers
suggested that there is another purchaser for Rs.7.60 Crores, the
quantum of which is only a meagre sum of Rs.9 lakhs in excess of
what was bid at the auction sale. If the said bid is accepted behind
the back of the Petitioner, certainly prejudice will be caused to the
Petitioner and the scheme of the Act will be contravened. Petitioner,
therefore, was entitled to be a participant in the securitisation
proceedings challenging the sale notice of 03-12-2020.
34. In view of the above discussion, it is evident that the
Petitioner is also entitled to implead himself in the securitisation
application. The rejection of the impleading application by Ext.P5
order is therefore perverse, and the jurisdiction was exercised
irregularly warranting interference under Article 227 of the
Constitution of India.
35. Though the Tribunal has observed, in Ext.P5, that after
issuing Ext.P1, the petitioner had not paid the balance amount and
the Petitioner had only made a conditional acceptance since
Petitioner had replied that the original documents should be brought
for verification to Calicut and balance can be paid only after
verification of the original documents. This Court is at a loss to
understand as to how the said reply of the Petitioner would amount to
a conditional acceptance, since, it is an obligation of the purchaser to
be cautious and be satisfied with the original documents of title. The
ARC cannot be faulted for issuing a letter in the nature of Ext.P1, as
it was not a confirmation letter but only a letter accepting the bid of
the Petitioner. Of course, it would have been ideal, had it been stated
in the letter that the sale was subject to the order of stay of
confirmation issued by the Tribunal. However, the absence of a
mention in Ext.P1, of the stay order issued by the Tribunal, does not
in any way, detract the sanctity of the auction sale or the fact of
acceptance of the bid by the ARC
36. The validity or otherwise of the proceedings that transpired
after the order of status quo on possession by the Supreme Court is
not considered in this Judgment as it is submitted across the Bar that
the Borrowers have already filed a contempt petition, which is
pending consideration before the Supreme Court.
37. Hence Ext.P2 and Ext.P5 orders are set aside. The
petitioner will stand impleaded as an additional respondent in S.A.
No.139 of 2019 on the files of the Debts Recovery Tribunal,
Ernakulam.
The original petition is allowed as above.
Sd/-
BECHU KURIAN THOMAS
JUDGE
vps
APPENDIX OF OP (DRT) 9/2021
PETITIONER'S/S' EXHIBITS
EXHIBIT P1 TRUE COPY OF THE LETTER ISSUED BY THE 4TH
RESPONDENT DATED 31.12.2020
EXHIBIT P2 TRUE COPY OF THE ORDER DATED 15.01.2021 IN
SA NO.139 OF 2019 BEFORE THE DRT-I,
ERNAKULAM
EXHIBIT P3 TRUE COPY OF THE IMPLEADING PETITION IA
NO.158 OF 2021 IN SA NO.139 OF 2019 FILED
BY THE PETITIONER BEFORE DRT
EXHIBIT P4 TRUE COPY OF THE IA NO.159 OF 2021 IN SA
NO.139 OF 2019
EXHIBIT P5 TRUE COPY OF THE ORDER DATED 08.02.2021 IN
IA NO.158 OF 2021 IN SA NO.139 OF 2019 OF
DRT-I , ERNAKULAM
EXHIBIT P6 TRUE TYPE WRITTEN COPY OF THE RELEVANT
PORTION OF A DIARY PROCEEDINGS IN SA
NO.139 OF 2019 OF DRT-I, ERNKAULAM
EXHIBIT P7 TRUE COPY OF THE JUDGMENT IN SRI SAI
ANNADHATAH POLUMERS AND OTHERS VS THE
CANARA BANK REPORTED IN 2018 (5) ALT 207
BY THE HONB'LE HIGHT COURT OF ANDHRA
PRADESH
EXHIBIT P8 TRUE COPY OF THE JUDGMENT IN SHAKEENA &
ANR V/S BANK OF INDIA & ORS REPORTED IN
2019 (11) SCALE 59 BY THE HON'BLE SUPREME
COURT.
EXHIBIT P9 TRUE COPY OF THE JUDGMENT IN MATHEW
VARGHESE V/S.M.AMRITHA KUMAR REPORTED IN
2014 (5) SCC 610
EXHIBIT P10 TRUE COPOY OF THE JUDGMENT IN VALJI KHIMJI
AND COMPANY VS OFFICIAL LIQUIDATOR OF
HINDUSTAN NITRO PRODUCT (GUJARAT) LTD &
ORS REPORTED IN 2008 (9) SCC 299
EXHIBIT P11 TRUE COPY OF THE JUDGMENT IN PEGASUS
ASSETS RECONSTRUCTION P LTD V/S HARYANA
CONCAST LMITED & ANR REORTED IN 2016 (4)
SCC 47
RESPONDENT'S/S' EXHIBITS
EXHIBIT R(1)(a) TRUE COPY OF THE NOTICE DATED 24.7.2020
ISSUED BY THE RECOVERY OFFICER
EXHIBIT R(1)(b) TRUE COPY OF THE APPLICATION AS IA
NO.981/2020
EXHIBIT R(1)(c) TRUE COPY OF THE APPLICATION AS IA
NO.982/2020
EXHIBIT R(1)(d) TRUE COPY OF THE APPLICATION AS IA
NO.983/2020
EXHIBIT R(1)(e) TRUE COPY OF THE STATEMENT OF OBJECTION
SUBMITTED TO IA NO.981/2020
EXHIBIT R(1)(f) TRUE COPY OF THE STATEMENT OF OBJECTION
SUBMITTED TO IA NO.982/2020
EXHIBIT R(1)(g) TRUE COPY OF THE STATEMENT OF OBJECTION
SUBMITTED TO IA NO.983/2020
EXHIBIT R(1)(h) TRUE COPY OF THE ORDER PASSED BY THE
RECOVERY OFFICER DATED 3.12.2020
EXHIBIT R(1)(i) TRUE COPY OF THE PLAINT IN OS
NO.1238/2020 ON THE FILES OF MUNSIFF'S
COURT, ERNAKULAM
EXHIBIT R(1)(j) TRUE COPY OF THE SALE NOTICE DATED
3.12.2020
EXHIBIT R(1)(k) TRUE COPY OF THE AMENDED SECURITISATION
APPLICATION AS SA NO.139/2019 ON THE
FILES OF DRT, ERNAKULAM
EXHIBIT R(1)(l) TRUE COPY OF THE ORDER PASSED BY THE
TRIBUNAL STAYING CONFIRMATION OF SALE
EXHIBIT R(1)(m) TRUE COPY OF THE ADDITIONAL WRITTEN
STATEMENT FILED WITHOUT ANNEXURES
EXHIBIT R(1)(n) TRUE COPY OF THE VALUATION REPORT FILED
BY BKC ADVISORS PVT. LTD.
EXHIBIT R(1)(o) TRUE COPY OF THE MEMO ENCLOSING
PHOTOCOPY OF THE DEMAND DRAFT NO.474282
DRAWN ON PUNJAB NATIONAL BANK
EXHIBIT R(1)(p) TRUE COPY OF THE OBJECTION FILED BY THE
RESPONDENTS
ANN.R3(a) TRUE COPY OF THE REJOINDER (WITHOUT
ANNEXURES) FILED BY THE PETITIONER
HEREIN IN SA NO.139/2019, DEBT RECOVERY
TRIBUNAL-I
ANN.R3(b) TRUE COPY OF THE IA NO.145/2021 FILED BY
THE PETITIONER HEREIN IN SA NO.139/2019,
DEBT RECOVERY TRIBUNAL-I
