Kerala High Court
The Authorized Officer vs M/S. Vasu Coco Resorts Pvt.Ltd on 30 July, 2025
W.As.2005 & 2124 of 2024 -:1:-
2025:KER:56663
"C.R"
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE THE CHIEF JUSTICE MR. NITIN JAMDAR
&
THE HONOURABLE MR. JUSTICE S.MANU
WEDNESDAY, THE 30TH DAY OF JULY 2025 / 8TH SRAVANA, 1947
WA NO. 2005 OF 2024
[JUDGMENT DATED 19.11.2024 ARISING FROM WP(C) NO.23464 OF
2024 OF HIGH COURT OF KERALA.]
APPELLANT/RESPONDENT NO.3:
M/S. EVERSPACE REALTY LLP.,
NO.22, RAJARAM METHA NAGAR, AMINJIKARAI,
CHENNAI TAMIL NADU - 600029, REP: BY PARTNER.
BY ADVS. SRI. P.L. NARAYAN (SENIOR),
SRI. K.I.SAGEER.
RESPONDENTS/WRIT PETITIONERS/RESPONDENT NOS.1&2:
1 M/S. VASU COCO RESORTS PVT. LTD.,
REPRESENTED BY IT'S DIRECTOR,
MR. PRASHANTH VASUDEVAN,
V P II/326BM, VAYALAR, CHERTALA,
ALAPPUZHA, KERALA, PIN - 688536.
2 MR. PRASHANTH VASUDEVAN,
S/O. DR. P. VASUDEVAN, HOUSE NO.223,
GAUTHAM BUDDHA NAGAR, NEAR 15A CLUB,
SECTOR 15A, NOIDA,
UTTAR PRADESH, PIN - 201303.
W.As.2005 & 2124 of 2024 -:2:-
2025:KER:56663
3 THE AUTHORISED OFFICER,
STATE BANK OF INDIA, STRESSED ASSETS MANAGEMENT
BRANCH, 1127, RAJA PLAZA, AVINASHI ROAD,
COIMBATORE, PIN - 641037.
4 DEPUTY GENERAL MANAGER,
STATE BANK OF INDIA, STRESSED ASSETS MANAGEMENT
BRANCH, 7TH FLOOR, VANAKARATH TOWERS,
PALARIVATTOM, PIN - 682024.
R1 & R2 BY ADVS. SMT. V. MOHANA (SENIOR)
SRI. KARTHIK SUNDAR PANDEY,
SRI. PRAVEEN K. JOY.
R3 & R4 BY ADVS. SRI. J. OM PRAKASH (SENIOR)
SRI. TOM K. THOMAS
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON
18.06.2025 ALONG WITH WA.NO.2124/2024, THE COURT ON 30.07.2025
DELIVERED THE FOLLOWING:
W.As.2005 & 2124 of 2024 -:3:-
2025:KER:56663
"C.R"
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE THE CHIEF JUSTICE MR. NITIN JAMDAR
&
THE HONOURABLE MR. JUSTICE S.MANU
WEDNESDAY, THE 30TH DAY OF JULY 2025 / 8TH SRAVANA, 1947
WA NO. 2124 OF 2024
[JUDGMENT DATED 19.11.2024 ARISING FROM WP(C) NO.23464 OF 2024
OF HIGH COURT OF KERALA]
APPELLANTS/RESPONDENTS 1 & 2:
1 THE AUTHORIZED OFFICER, STATE BANK OF INDIA,
STRESSED ASSETS MANAGEMENT BRANCH, 1127, RAJA PLAZA,
AVINAZHI ROAD, COIMBATORE, PIN - 641037.
2 THE DEPUTY GENERAL MANAGER
STATE BANK OF INDIA, STRESSED ASSETS MANAGEMENT
BRANCH, 7TH FLOOR, VANKARATH TOWERS, PALARIVATTOM,
KOCHI 682 024, NOW AT STRESSED ASSETS MANAGEMENT
BRANCH, 1127, RAJA PLAZA, AVINAZHI ROAD,
COIMBATORE, PIN - 641037.
BY ADVS. SRI. J. OM PRAKASH (SENIOR)
SRI. TOM K. THOMAS
RESPONDENTS/PETITIONERS/3RD RESPONDENT:
1 M/S. VASU COCO RESORTS PVT. LTD.,
REPRESENTED BY ITS DIRECTOR,
MR. PRASHANTH VASUDEVAN,
VP II/326BM, VAYALAR, CHERTHALA,
ALAPPUZHA, KERALA, PIN - 688516.
W.As.2005 & 2124 of 2024 -:4:-
2025:KER:56663
2 MR. PRASHANTH VASUDEVAN,
S/O. DR. P. VASUDEVAN, HOUSE NO.223,
GAUTHAM BUDDHA NAGAR, NEAR 15A CLUB, SECTOR 15A,
NOIDA, UTTAR PRADESH, PIN - 201303.
3 M/S. EVERSPACE REALTY LLP.,
REPRESENTED BY ITS PARTNER, NO.22,
RAJARAM METHA NAGAR, AMINJIKARAI,
CHENNAI, TAMIL NADU, PIN - 600029.
R1 & R2 BY ADVS. SMT. V. MOHANA (SENIOR)
SRI. KARTHIK SUNDAR PANDEY,
SRI. PRAVEEN K. JOY.
R3 BY ADVS. SRI. P.L. NARAYAN (SENIOR),
SRI. K.I.SAGEER IBRAHIM.
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 18.06.2025
ALONG WITH WA.NO.2005/2024, THE COURT ON 30.07.2025 DELIVERED
THE FOLLOWING:
W.As.2005 & 2124 of 2024 -:5:-
2025:KER:56663
"C.R"
JUDGMENT
Dated this the 30th day of July, 2025.
Nitin Jamdar, C.J.
These two appeals are filed by the Creditor Bank and the Auction
Purchaser challenging the judgment of the learned Single Judge by which
the writ petition filed by the Borrower was allowed setting aside the orders
passed by the Debt Recovery Tribunal and Debt Recovery Appellate
Tribunal, and the sale of the secured assets.
2. W.A. No. 2124 of 2024 is filed by the Creditors, the Authorised
Officer and the Deputy General Manager of the State Bank of India,
(hereinafter referred to as 'the Bank'), and W.A. No. 2005 of 2024 is filed
by the Auction Purchaser, M/s. Everspace Realty LLP., (hereinafter referred
to as 'the Auction Purchaser').
3. These Appeals are against the judgment of the learned Single Judge
dated 19 November 2024 in W.P.(C) No.23464 of 2024 filed by M/s.
Vasu Coco Resorts Pvt. Ltd., and its Managing Director (hereinafter
referred to as 'the Borrower'). The learned Single Judge set aside the
proceedings under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002)
against the Borrower, which was confirmed in S.A. No.530 of 2022 of the
Debt Recovery Tribunal, Ernakulam and affirmed in R.A.(SA) No.49 of
2023 of the Debt Recovery Appellate Tribunal, Chennai.
2025:KER:56663
4. The Borrower is a private limited company. It approached the erstwhile
State Bank of Travancore for financial assistance to construct and run a five
star resort at Cherthala in Alappuzha District under the name and style
"Vasundhara Resorts". The State Bank of Travancore later merged with the
State Bank of India, the Bank. The Borrower defaulted in repayment of the
loan and the account was classified as a Non-Performing Asset (NPA). On
12 February 2018, a demand notice for a sum of ₹55,02,30,564/- was
issued under Section 13(2) of the SARFAESI Act, 2002, and it was recalled
after the Borrower submitted objections. Again, a notice was issued on 18
August 2020 demanding a sum of ₹72,13,29,826.37. The Bank withdrew
that notice also on the basis of the objection submitted by the Borrower. On
7 December 2021, another demand notice for a total sum of
₹82,76,71,281.45 was issued and the Borrower raised objection through a
representation dated 10 February 2022. The Bank initiated measures under
Section 13(4) of the SARFAESI Act, 2002 and the symbolic possession of
the secured assets was taken on 6 July 2022.
5. On 15 September 2022, sale notice was published by the Bank
proposing to conduct an e-auction of the properties described in the
demand notice. Fresh sale notice was issued on 29 October 2022 as the sale
could not be conducted pursuant to the notice dated 15 September 2022.
The Bank also approached the Chief Judicial Magistrate, Alappuzha,
seeking assistance to take over physical possession of the secured assets. Sale
was conducted on 30 November 2022 and the Auction Purchaser became
2025:KER:56663
the successful bidder. The Auction Purchaser has deposited the entire sale
consideration. The Borrower has deposited an amount of ₹50 Crores
pursuant to the order of the Hon'ble Supreme Court and statuo quo is
maintained by which the Borrower is in possession.
6. There were several proceedings between the parties, however, for the
purpose of this judgment, we will refer only to those which are directly
relevant.
7. The Borrower instituted S.A. No.530 of 2022 under Section 17 of the
SARFAESI Act, 2002 challenging the possession notice and later amended
it to challenge the sale notices dated 15 September 2022 and 29 October
2022 and confirmation of sale in favour of the Auction Purchaser. The
Borrower contended that the mandatory provisions under the SARFAESI
Act, 2002 were not followed and the possession notice was issued without
complying with the provisions of the SARFAESI Act, 2002. The DRT held
that the financial assistance was admittedly obtained by the Borrower and
even after classifying the loan as NPA long ago, the dues were remaining to
be recovered completely. The DRT also held that even after appropriating
the sale proceeds, more than ₹50 Crores was outstanding in the loan
account. The DRT dismissed the S.A. by order dated 7 July 2023 with costs
of ₹10,000/-. The Borrower then preferred R.A.(S.A.) No.49 of 2023
before the Debt Recovery Appellate Tribunal (DRAT), challenging the
dismissal of S.A. No.530 of 2022. The DRAT dismissed the R.A.(SA)
No.49 of 2023 by order dated 12 June 2024. The findings of the DRT on
2025:KER:56663
all aspects were affirmed by the DRAT.
8. Against the concurrent findings of the DRT and DRAT, the Borrower
approached this Court by filing W.P.(C) No.23464 of 2024. The Borrower
sought to set aside the orders of the DRT in S.A. No.530 of 2022, the
DRAT in R.A.(SA) No.49 of 2023, and also the possession notice dated 6
July 2022, sale notice dated 29 October 2022, notice of the Advocate
Commissioner dated 28 November 2022, and the sale certificates dated 12
July 2023 and 10 July 2023.
9. In the meanwhile, the Borrower approached the Supreme Court by
filing Petition (s) for Special Leave to Appeal (C) No.14273 of 2024,
wherein the Hon'ble Supreme Court by order dated 10 July 2024 directed
the Borrower to deposit a sum of not less than ₹30 Crores with the Bank,
without prejudice to their rights, by 25 July 2024, and till such time, the
parties should maintain status quo. The order reads as under:
"ORDER
1. Learned senior counsel for the petitioners, at the
outset and on instructions, states that the petitioners
shall deposit not less than 30 crores within two weeks
i.e., on or before 25.07.2024. She further states that
soon thereafter the petitioners will deposit another 20
crores within a reasonable time as may be fixed by the
High Court in the pending writ proceedings.
2. Though learned counsel for the Bank, who is on
caveat, vehemently opposes the indulgence sought by
the petitioners, we in the interest of justice and as a last
2025:KER:56663
opportunity permit the petitioners to show their bona
fide and deposit a sum of not less than 30 crores with
the bank, without prejudice to their rights, by
25.07.2024. Till such time, the parties shall maintain
status quo re: possession or creation of third party
rights. However, if the petitioners fail to abide by their
statement or the directions given above, the order of
status quo shall be deemed to have been vacated with
effect from 26.07.2024. Once the order of interim
protection is deemed to have been vacated, necessary
consequences will follow.
3. The special leave petition is, accordingly,
disposed of.
4. All pending applications, if any, also stand
disposed of."
***
The amount of ₹30 Crores and a further amount of ₹20 Crores were
deposited by the Borrower.
10. The learned Single Judge allowed the writ petition by the impugned
judgment dated 19 November 2024 and set aside the orders Exhibits - P5
to P9, P11 and P35, and the sale notices. It was noted that the Petitioners
had paid ₹50 Crores in pursuance of the orders passed by the Supreme
Court and the Bank was permitted to refund the amount deposited by the
Auction Purchaser, along with applicable interest, within one month. The
Petitioners were given an opportunity to negotiate with the Bank for the
discharge of their remaining liability in respect of the outstanding dues of
the Bank. Being aggrieved by the impugned judgment, the Bank and the
Auction Purchaser are before us with their respective appeals.
2025:KER:56663
11. We have heard Mr. P.L. Narayan, the learned Senior Advocate along
with Adv. Mr. K.I. Sageer Ibrahim for the Auction Purchaser/Appellant in
W.A. No.2005 of 2024, Mr. J. Om Prakash, the learned Senior Advocate,
along with Adv. Tom K. Thomas for the Bank - Appellants in W.A.
No.2124 of 2024, and Ms. V. Mohana, the learned Senior Advocate, along
with Adv. Mr. Karthik Sundar Pandey and Adv. Mr. Praveen K. Joy for the
Borrower in both the appeals.
12. The Bank and the Auction Purchaser submitted that the scope of
interference under Articles 226 and 227 of the Constitution of India is
extremely limited, and that the learned Single Judge was not competent to
re-appreciate the evidence on record for the purpose of deciding whether
any errors of fact were committed by the DRT or DRAT and to correct such
errors of fact. The learned counsel relied upon the decisions of the Supreme
Court in the cases of Bathutmal Raichand Oswal v. Laxmibai R. Tarta and
Another1 and South Indian Bank Ltd. & Others v. Naveen Mathew Philip
& Another2 to contend that while re-iterating the settled position of law on
the interference of the High Court invoking Article 226 of the Constitution
of India in commercial matters where an effective and efficacious alternative
forum has been constituted through a statute, the Hon'ble Supreme Court
was constrained to take judicial notice of the fact that certain High Courts
continue to interfere in such matters. It was submitted that in commercial
matters, such as the present one, interference in writ jurisdiction is
1 (1975) 1 SCC 858
2 (2023) SCC Online SC 435
2025:KER:56663
extremely limited. The learned Senior Advocate for the Borrower, on the
other hand, submitted that if there is a clear infringement of legal provisions
while conducting the auction sale, the sale would become illegal and
contrary to law, and therefore, the writ court would be right in setting aside
such a sale, and that there is no merit in the contention that the order passed
by the learned Single Judge is contrary to the settled principles of law.
13. This is not a case where the Petitioners sought to invoke the writ
jurisdiction by bypassing the efficacious statutory remedy. The writ petition
arose from the substantive proceedings instituted under the statute. It is
correct that the jurisdiction under Articles 226 and 227 of the Constitution
of India in interfering with the concurrent findings of the DRT and DRAT
is not akin to an appellate power, and that the writ court will not re-
appreciate the evidence and set aside the findings of fact merely on the
ground that on re-appreciation of facts another view is possible. However,
none of the decisions cited by the learned counsel for the Appellants lay
down an absolute proposition of law that even the writ court finds a
fundamental error in law in conducting the sale resulting in prejudice,
interference in writ jurisdiction to set aside the order of the DRAT is not
possible. Therefore, we find no merit in the contention that the learned
Single Judge was precluded from examining the challenge.
14. The learned Senior Advocates appearing for the Appellants - the Bank
and the Auction Purchaser, then made a serious grievance regarding the lack
of reasoning in the impugned judgment. They submitted that the impugned
2025:KER:56663
judgment, without any reasoning, has directly reached the conclusions and,
without a proper analysis of the facts and submissions, the concurrent
findings rendered by the DRT and DRAT are set aside. The Appellants
submitted that even the questions framed in the impugned judgment are
incorrectly framed and are couched in such a manner that the answer is
implicit in the question itself. The learned Senior Advocate appearing for
the Borrower invited our attention to the reasoning contained in the
impugned judgment, and submitted that since the conclusion arrived at by
the learned Single Judge is correct, both in law and on facts, this Court
ought not to interfere in appeal.
15. Having gone through the impugned judgment, it cannot be said that
the grievance of the Bank and the Auction Purchaser is unjustified. Once
the DRT and DRAT had rendered judgments and the concurrent decisions
were to be overruled, there ought to have been an analysis of the rival
contentions, which is missing in the impugned judgment. However, the
question remains as to whether the impugned judgment needs to be set
aside on that ground alone. The Appellants have advanced submissions in
detail both on jurisdiction and on merits. The Borrower has also argued the
matter in detail before us. Therefore, even though the impugned judgment
does not contain reasoning as expected, we proceeded to consider the rival
contentions advanced at length to decide whether the conclusion of the
learned Single Judge is correct, and whether the matter needs to be
remanded to the DRAT for a factual finding on an issue as indicated later.
2025:KER:56663
16. The learned Single Judge has framed the issues as follows:
(i) Whether there has been a violation of Rules 5, 6, 7, 8(5)
and 9 of the Security Interest (Enforcement) Rules 2002 in
conducting the auction sale of the secured asset by the Bank
on 30.11.2022 in favour of the 3rd respondent?
(ii) Whether the auction sale, in favour of the 3 rd
respondent, is liable to be set aside, as the auction sale has
been confirmed below the reserve price?
(iii) Whether the 3rd respondent is a bona fide purchaser as
he himself has written to the petitioners to purchase the
resort for ₹45.30 crores and he was a joint proposer of a
One-time Settlement proposal submitted to the Bank?
(iv) Whether Section 13(8) of the SARFAESI Act would
stare at the face of the petitioner to challenge the auction
proceedings on any ground?
***
The issues were answered and the learned Single Judge set aside the auction
sale on three main grounds. Firstly, there is violation of the mandatory
provisions of Rules 6 and 8 of the Security Interest (Enforcement) Rules,
2002 (Rules of 2002), which mandate two separate procedures for movable
and immovable assets and, in the present case, no separate procedure was
followed for movable and immovable secured assets. Secondly, the sale
notice was issued for ₹43.20 Crores, whereas the sale certificate for the
immovable property was issued for ₹39.31 Crores and, therefore, the sale
price of the immovable property is less than the reserve price mentioned in
the sale notice, which renders the sale in violation of Rule 9(2) of the Rules
of 2002. Thirdly, there was collusion between the Auction Purchaser and
2025:KER:56663
the Bank, thereby vitiating the sale due to fraud and collusion, which is
coupled with the fact that the sale notice and the possession notice
included a third-party property, namely, the property belonging to the
Gram Panchayat.
17. On the last two issues, we find that the interference by the learned
Single Judge was not justified. On the first issue, the learned Single Judge
has erred in treating it as a pure question of law and it would require
scrutiny of the facts, and therefore, we are of the opinion that for this issue,
the matters need to be remanded to the DRAT. Our reasoning and factual
back drop for reaching these conclusions are as follows.
18. Taking the last issue first for consideration, namely, the inclusion of a
third-party property, it is an admitted position that the property belonging
to the Vayalar Grama Panchayat was sought to be sold to the Auction
Purchaser. The Borrower contended that if a third-party property is
included in the notice, then the Bank has not properly affixed the same on
the conspicuous part of the property as per the provisions of the Rules of
2002. The entire procedure under Section 13(4) of the SARFAESI Act,
2002 has not been followed and, therefore, the notice issued under Section
13(4) has to be declared illegal and arbitrary, which is ignored by both the
authorities below. According to the Borrower, this conduct shows the
pattern on the part of the Bank and, therefore, the inclusion of 2.02 Ares of
the property belonging to the Gram Panchayat in the sale certificate should
be treated as a ground to set aside the auction sale. The Bank stated that the
2025:KER:56663
inclusion of the property of the Panchayat was an error, and that upon the
Panchayat pointing out the error, it was immediately rectified. The Auction
Purchaser stated it is the Auction Purchaser who ought to have been
aggrieved by the inclusion of the third-party property in the sale certificate
which meant that the Auction Purchaser had suffered loss, however, since
the property was a small strip of land, the Auction Purchaser did not pursue
the matter further.
19. Having noticed that its property was included in the sale, the Vayalar
Grama Panchayat filed W.P.(C) No.36310 of 2023 seeking a direction to
the Sub Registrar, Cherthala, not to register the property of the petitioner -
Panchayat. The Bank entered appearance and admitted that, upon
verification, 2.02 Ares of land belonging to the Panchayat was wrongly
included, and thereafter, the revised sale certificate has been drafted and the
Bank does not claim any right over the said 2.02 Ares of land. Based on this
statement, the writ petition was disposed of by judgment dated 15 March
2024. The Panchayat has filed an appeal which was also disposed of by
judgment dated 11 April 2024 holding that the issue has been resolved
under the directions of the learned Single Judge. It is an admitted position
that the said property belonged to the Panchayat and not to the Borrower.
The Bank had admitted that the inclusion of the property was a mistake and
the Auction Purchaser also submitted that the said inclusion was
inadvertent. Since the property belongs to the Panchayat, the Borrower
cannot be permitted to take undue advantage of such mistake involving a
2025:KER:56663
third-party property. Prejudice was caused to the Auction Purchaser due to
the inclusion and subsequent exclusion of the property. Therefore, this
inclusion cannot be used by the Borrower to advance a case of collusion and
fraud. Case of fraud has to be clearly established. Unless a case of fraud and
misrepresentation is substantially demonstrated, the mere inclusion of a
third-party property in the sale certificate cannot, by itself, be a basis to
establish fraud. Therefore, this contention of the Borrower could not have
been taken as a ground for setting aside the auction sale.
20. The second contention is regarding collusion between the Bank and
the Auction Purchaser based on the earlier dealings by the Auction
Purchaser with the Borrower. The only reasoning of the learned Single
Judge in the impugned judgment is at paragraph 21 which is as under:
"21. The 3rd respondent had written to the petitioner to
purchase the resort for Rs.45.30 Crores and he was a joint
proposer of the One-time Settlement proposal submitted
by the petitioner to the Bank. After submitting the
proposal for a One-time Settlement, the 3rd respondent,
the auction purchaser himself participated in the auction
proceedings behind the back of the petitioners and was
the successful bidder for the price of Rs.41.71 Crores,
which is below the price of Rs.45.30 Crores offered by
him and below the reserve price itself. In the aforesaid
facts, when the 3rd respondent himself was negotiating
and offered the higher price for purchasing the property
through a private sale, and he knew about all the facts, he
cannot be said to be a bona fide purchaser."
***
2025:KER:56663
The basis of the conclusion is that the Auction Purchaser was himself
negotiating with both the Bank and the Borrower, as is evident from
the letter dated 10 October 2022, and the sale in favour of the
Auction Purchaser by itself shows that the Auction Purchaser was not a
bona fide purchaser.
21. The Auction Purchaser pointed out that the letter dated 10 October
2022 addressed to the Borrower was a non-binding letter of intent and the
reason why the Auction Purchaser could not proceed with the offer was that
the Borrower had manipulated the projected income of the resort. There
was no approval from the State and Central Government authorities,
including pending issues related to the Coastal Regulation Zone (CRZ), and
the offer itself was subject to legal and statutory clearances. It was submitted
that the Borrower had suppressed the letter dated 22 November 2022,
containing an OTS offer for the entire resort at ₹40.50 Crores - an offer
made just nine days before the auction sale of the property. This letter
shows the Borrower's own admitted value of the property and that is the
reason why the Borrower had suppressed the letter. It was contended that
there is no evidence of collusion between the Bank and the Auction
Purchaser. The participation of the Auction Purchaser in the sale conducted
on 30 November 2022 was a participation in an open public auction. It was
submitted that merely because the Auction Purchaser had earlier made a
non-binding offer, it cannot be inferred that the Appellant and the Bank
acted in collusion.
2025:KER:56663
22. The Borrower contended that the Auction Purchaser was hand-in-
glove with the Bank even prior to the e-auction. It was submitted that the
letter was not issued by an individual Director, but on behalf of "M/s.
Everspace Realty LLP." It was submitted that a joint proposal along with
the promoter of the Borrower for ₹45.3 Crores was made vide letter dated
10 October 2022, which was subsequently rejected by the Bank by letter
dated 25 October 2022. The joint proposal made by the promoter of the
Auction Purchaser, though stated to be non-binding and conditional, gave
him access to internal aspects of the Borrower's business, which was misused
for the purpose of collusion. It was also contended that the Borrower has
not suppressed the letter dated 22 November 2022 as it is on record along
with the Borrower's application under Section 17 before the DRT as
Annexure-30 to S.A. No. 530 of 2022, and the same had also been
considered in the judgment dated 7 July 2023. The promoter of the
Auction Purchaser withdrew the offer made to the promoters of the
Borrower without assigning any reasons whatsoever and the CRZ related
issues are an afterthought. Despite this position, the Auction Purchaser
participated in the e-auction five days after its withdrawal letter dated 25
November 2022, wherein he was the sole bidder in the e-auction and being
the sole bidder, it was automatically declared as the highest and successful
bid. The Borrower contended that this conclusion of the learned Single
Judge regarding collusion was fully justified.
23. We have considered the rival contentions on this issue and perused
2025:KER:56663
the material on record. What we discern from the cryptic reasoning in the
impugned judgment is that the conduct of the Auction Purchaser in
business dealings with the Borrower was unfair. The question is, assuming
the facts as contended by the Borrower are correct, whether this would
constitute a legal ground to set aside the auction sale. There is a difference
between general notion of fairness in dealings between two parties and a
legal ground for setting aside a sale conducted through public auction.
Apart from the issue of suppression of the letter by the Borrower, as alleged
by the Appellants, the question is whether the allegations of collusion and
fraud, sought to be urged by the Borrower based on the communication
dated 10 October 2022, are proved as required by law. While collusion and
fraud are easy to allege, they require a certain degree of proof. Fraud and
collusion cannot said to be established by mere inferences. The mere piecing
together of some instances and documents to raise suspicion is not sufficient
to establish fraud and collusion as a ground for setting aside an auction sale.
This auction sale was a public auction in which the Auction Purchaser
participated, and therefore, there was no clandestine transfer of property.
Based on the letter of 10 October 2022, what is sought to be projected is
that the Auction Purchaser has acted unfairly and, having been a partner
with the Borrower, independently approached the Bank. The letter dated 10
October 2022 itself states that it is a non-binding letter, which is addressed
by one individual to another. The letter makes an offer of ₹45 Crores,
which has to be paid directly to the State Bank of India, however, it is made
clear that it is a non-binding letter and subject to legal and statutory
2025:KER:56663
clearances of legal terms. Secondly, is the case of the Appellant - Auction
Purchaser that the position that the property did not have clear title was
admitted by the Borrower, in its letter dated 22 November 2022 addressed
to the Bank, which is alleged to be suppressed. The contention of the
Borrower is that this letter is not suppressed; however, the existence of this
communication has not been debated. However, this communication itself
indicates that the Borrower is facing problems on the part of the State
Government, Land Department, local authority, Coastal Regulation Zone,
particularly with respect to the regulation and grant of permits. The case of
the Auction Purchaser that it is because of this admitted legal issue, the
offer which was made is a conditional offer. This is a possible interpretation
of the document.
24. Therefore, we find that a case of fraud and collusion, as required by
law, was not established so as to constitute a ground for setting aside the
auction sale. Mere insinuations of unfairness do not meet the legal threshold
necessary to establish fraud and collusion. Both the Borrower and the
Auction Purchaser are commercial entities and were fully aware of the
nature and implications of their offers and correspondence. Therefore, the
conclusion reached in the impugned judgment, without any discussion on
the aspects of fraud and collusion, cannot be sustained.
25. The second question is whether the sale has been confirmed below
the reserve price. On this, there is only one sentence in the impugned
judgment "as the auction sale has been confirmed below the reserve price".
2025:KER:56663
The Bank and the Auction Purchaser contended that this finding on the
face of it is factually incorrect. The sale certificates in favour of the Auction
Purchaser were issued for ₹39.91 Crores and ₹2.40 Crores, totalling to ₹
42.31 Crores, and the sale certificates are on record as Exhibits-P8 and P9.
Therefore, the finding that the sale was for ₹41.71 Crores is incorrect. In
the writ petition, Exhibit-P8 and P9 are part of the record which we have
perused. Exhibit-P8 is the certificate of sale in favour of the Auction
Purchaser for ₹39.91 Crores for the immovable property. Thereafter,
certificate of sale in respect of movable property is for ₹2.40 Crores. It is,
therefore, clear that this finding without any reasoning and without
reference to any record cannot be sustained.
26. The Bank and the Auction Purchaser have relied upon the decision of
the Hon'ble Supreme Court in the case of Celir LLP v. Bafna Motors
(Mumbai) Pvt. Ltd.3 to contend that once the sale had taken place in respect
of the secured assets, the Borrower's right of redemption in respect of the
mortgaged property gets extinguished. The Borrower has relied upon the
decision of the Hon'ble Supreme Court in the case of Celir LLP v.
Mr. Sumati Prasad Bafna and Others.4 where the earlier decision in the case
of Bafna Motors (Mumbai) Pvt. Ltd. has been explained. The Hon'ble
Supreme Court has clarified that the facts of the case were such that the
borrower therein has not canvassed any submission on the illegality or
invalidity of the auction sale and it was not taken as an issue in the
3 (2024) 2 SCC 1
4 (2024) SCC Online SC 3727
2025:KER:56663
proceedings before the High Court, therefore, the borrower had clearly
waived the right to challenge the auction proceedings, unlike the present
case, where the Borrower has raised specific grounds of infirmity and
illegality in the auction process. Therefore, it cannot be held that the
Borrower has waived their right to challenge the legality of the auction.
27. This brings us to the third contention of the Borrower, which has
been accepted by the learned Single Judge, namely, the alleged non-
adherence to Rules 5, 6, 7, 8(5) and 9 of the Rules of 2002 concerning
separate valuation of movable and immovable properties.
28. The learned Single Judge on this issue has recorded the contention of
the parties while dealing with the submissions. Then, reference is made to
the decision relied upon by the Appellants in the case of Bafna Motors
(Mumbai) Pvt. Ltd. Then, the learned Single Judge has referred to the
statutory provisions and has made an observation that the Rules of 2002
contemplate a separate procedure for movable and immovable secured
assets. Then, in paragraph 15, the learned Single Judge concludes that no
separate valuation for movable and immovable properties was obtained by
the authorised officer and no reserve price was separately fixed for the
movable and immovable properties. Then, the decision of the High Court
of Telangana in the case of Alphine Pharmaceuticals Pvt. Ltd. and Others.
v. Andhra Bank and Others5 was referred to stating that the Division Bench
has set aside the sale of movable and immovable items based on the
5 (2020) SCC Online TS 81
2025:KER:56663
valuation report for obtaining valuation of both the items together which is
contrary to the Rules of 2002 and the secured assets have to be sold to fetch
maximum benefit to the Borrower. It was also stated that if the Bank
proceeds in contravention of the mandatory provisions, then the sale would
be illegal. Then, reference was made to the decisions of the Supreme Court
in the cases of Ram Kishun and Others v. State of Uttar Pradesh and
Others6 and J. Rajiv Subramaniyan v. Pandiyas7 to emphasise that the Bank
has to act fairly. The learned Single Judge noted that the appeal filed
against the decision rendered in the case of Alphine Pharmaceuticals Pvt.
Ltd. was allowed by the Supreme Court in the case of Arce Polymers Private
Limited v. Alphine Pharmaceuticals Private Limited8. However, it was in
the facts of the case that movable and immovable properties have been
separately valued. The learned Single Judge also distinguished the decision
of the Supreme Court in the case of Bafna Motors (Mumbai) Pvt. Ltd. that
the Borrower's right of redemption under Section 13(8) of the SARFAESI
Act, 2002 stands extinguished after the sale of the secured assets, but the
same was on the facts of the case. The Bank and the Auction Purchaser
assailed this conclusion of the learned Single Judge.
29. On this aspect, the Bank argued briefly as follows. The loan account
of the Borrower became a Non-Performing Asset (NPA) in 2013, and
multiple demand notices under Section 13(2) of the SARFAESI Act, 2002
6 (2012) 11 SCC 511
7 (2014) 5 SCC 651
8 (2022) 2 SCC 221
2025:KER:56663
were issued with dues escalating to over ₹88 Crores. Despite being offered
two One Time Settlement (OTS) schemes, the Petitioners failed to make
timely or complete payments causing both offers to lapse. Though partial
payments were made and time extensions sought, the Petitioners did not
submit a firm proposal. The Bank eventually proceeded with auctioning the
secured assets, in which the Auction Purchaser emerged as the successful
bidder offering ₹42.31 Crores - an amount higher than what the Petitioners
had arranged through a third party. The resort property, along with fixtures,
furniture, and plant and machinery, forms one composite whole. When
movables are inseparable or integral to the functioning and utility of the
immovable property, a single reserve price is sufficient. This position is
supported by Rules 8(5) and 9 of the Rules of 2002, which require fixation
of a reserve price for the secured asset, and not necessarily for each
component where movables are part and parcel of the land and
superstructure. Hence, no violation can be alleged on this ground. Whether
selling the building and its movables separately would yield a better value or
whether selling them together would fetch a higher value is a matter of
commercial decision and the DRAT rendered a factual finding that the
movable and immovable properties could not have been sold separately and
that a separate sale might have fetched a lower value. This aspect is not
addressed in the impugned judgment. The learned Single Judge has
proceeded on the basis that no separate valuation was done and, therefore,
the whole process is bad in law, however, without properly ascertaining the
facts or examining whether the procedure followed was duly complied with,
2025:KER:56663
including whether public notice was given, inspection of the property was
permitted, and relevant details were placed on record. Rules 8(5) and 9 of
the Rules of 2002 require fixation of reserve price for the secured asset, and
not necessarily for each component where movables are part and parcel of
the land and superstructure. No material has been placed by the Borrower
to show that the sale was vitiated by undervaluation. In support of the
contention, reliance was placed upon the decision of the Supreme Court in
the case of Bafna Motors (Mumbai) Pvt. Ltd.
30. The Auction Purchaser, in addition, submitted, in short, as follows.
Sale certificates were issued after full payment by the Auction Purchaser.
The DRT and DRAT upheld the action of the Bank and no illegality was
found in the valuation or auction process. The Petitioners are barred from
claiming relief under Section 13(8) of the SARFAESI Act, 2002 as they
failed to deposit the entire dues after the auction notice was published. The
Auction Purchaser legally participated in the auction and purchased the
property for a total amount of ₹41.71 Crores (₹39.31 Crores for
immovables and ₹2.40 Crores for movables). Therefore, the Auction
Purchaser is entitled not only to the possession of the property but also to
the income earned from the date of sale certificate to the date of possession
of the resort property. The Auction Purchaser has relied upon the decision
of the Supreme Court in the case of S. Karthik v. N. Subhash Chand Jain9.
31. The Borrower advanced contentions on this issue, in short, as follows.
9 (2022) 10 SCC 641
2025:KER:56663
Neither the Bank nor the Auction Purchaser has placed the valuation report
before this Court to properly address the objections of the Borrower
regarding the combined sale notice for movable and immovable properties.
The Bank issued a single composite sale notice for both categories of assets
but later issued separate sale certificates. No explanation for this
inconsistency was provided, even before the learned Single Judge. The sale
notice dated 29 October 2022 mentioned a reserve price of ₹42.30 Crores
only for the immovable properties, with no reference to the movable assets.
However, separate sale certificates were subsequently issued on 10 July
2023 for the movables and on 12 July 2023 for the immovables. The
movable assets, including items such as houseboats and other boats which
had independent registration certificates, could not have formed part of the
immovable assets. Doing so was in violation of Rules 6 and 8 of the Rules of
2002, which require the sale notice to specify the reserve price fixed after
obtaining a valuation from an approved valuer, as contemplated under Rule
9. Further, Rules 5 to 9 require separate procedures for the sale of movable
and immovable assets. Rule 6 clearly mandates that the Bank has to provide
a full description of the movable assets, including identification marks, and
fix a separate reserve price. In the present case, no such reserve price was
fixed for the movables, and they were not mentioned in the sale notice
dated 29 October 2022. Reliance is placed on the decision of the Telangana
High Court in the case of Alpine Pharmaceuticals Pvt. Ltd., wherein the
Division Bench held that violation of Rules 6 and 8 render the sale invalid.
The Hon'ble Supreme Court has explained the importance of proper
2025:KER:56663
valuation and fixation of reserve price in a fair manner in its judgment in
Ram Kishun. The Borrower further contended that the decision of the
Supreme Court in the case of Bafna Motors (Mumbai) Pvt. Ltd. is not
applicable to the present case as it was based on the borrower's express
abandonment of rights under Section 17 of the SARFAESI Act, 2002
which is not the situation here. The subsequent decision in the case of Mr.
Sumati Prasad Bafna clarifies that the earlier ruling was fact-specific and
does not bar a borrower from challenging an auction sale where statutory
rights have not been waived. It is contended that the procedure for auction
sale prescribed by the Rules of 2002 is mandatory, and any violation of the
Rules would be a ground for challenging the auction sale. Reliance is placed
upon the decisions of the Supreme Court in the cases of Vasu P. Shetty v.
Hotel Vandana Palace and Others10, J. Rajiv Subramaniyan, and Mathew
Varghese v. Amritha Kumar11. The Borrower had raised a specific pleading
that the manner in which the Bank has carried out the valuation is incorrect.
The Borrower had also specifically challenged the valuation reports
submitted by the Bank and had even produced its own valuation reports to
show the Bank's undervaluation and throughout the litigation, the Borrower
has contended that the secured assets have been undervalued. The actions of
the Bank in not acting fairly to secure the maximum value are not only
illegal but have also caused great prejudice to the Borrower. Thus, the
Borrower submitted that, therefore, the learned Single Judge has correctly
10 (2014) 5 SCC 660
11 (2014) 5 SCC 610
2025:KER:56663
appreciated the law and rightly held that the sale has been held in violation
of the Rules of 2002.
32. On the question whether the Borrower was entitled to raise the
contention regarding separate valuation for movable and immovable
properties in the writ petition, it is significant to note that this was raised
before the DRAT, and the DRAT negatived the said contention. The Bank
has contended that in the present case, the immovables are part of the resort
and cannot be separated because they are only accessories for running the
resort, and that no buyer will come forward to purchase them separately.
The DRAT distinguished the decision of the Telangana High Court in the
case of Alphine Pharmaceuticals Pvt. Ltd., holding that the immovable
assets referred to by the Appellant are part and parcel of the resort, and
therefore, the clubbing of movable and immovable properties in a single sale
cannot be objected to. The DRAT held that this ground was not earlier
pleaded. The contention of the Borrower that issuing two sale certificates for
movable and immovable properties without conducting separate sales is not
contemplated was not accepted by the DRAT on the ground that no such
objection had been raised in the securitisation application and it was urged
for the first time during the course of arguments at the appellate stage. The
DRAT thus held that the sale notice covered both movable and immovable
properties and that the reserve price was fixed for a whole, because it was a
running resort and even a separate valuation had been obtained for the
movables. The correctness of this reasoning is discussed later and it is
2025:KER:56663
referred here to emphasis that the DRAT has considered the contention
regarding selling the movable and immovable properties together on merits.
Therefore, the Bank and the Auction Purchaser cannot argue that the
Borrower is precluded from raising this contention before the learned Single
Judge and in appeal. Even otherwise, the Borrower submitted that there are
pleadings regarding the conduct of the Auction Purchaser that are not
correct, as evidenced by the pleadings in the rejoinder and the appeal
memo, and that it is the duty of the DRT/DRAT to examine whether the
conduct of the Bank was transparent and fair.
33. The question is whether the sale of movable and immovable assets
was in contravention of the statutory rules. The relevant Statutory Rules are,
the Security Interest (Enforcement) Rules, 2002 framed under the
SARFAESI Act, 2002. Rules 5 to 7 of the Rules of 2002 provide for the
procedure for movable secured assets and Rules 8 and 9 provide for the
procedure for immovable properties. Rules 5, 6, 7, 8 and 9, which are
relevant to the context, read as under:
"5. Valuation of movable secured assets.- After taking
possession under sub-rule (1) of rule 4 and in any case
before sale, the authorised officer shall obtain the
estimated value of the movable secured assets and
thereafter, if considered necessary, fix in consultation with
the secured creditor, the reserve price of the assets to he
sold in realisation of the dues of the secured creditor."
***
2025:KER:56663
"6. Sale of movable secured assets.- (1) The authorised
officer may sell the movable secured assets taken
possession under sub-rule (1) of rule 4 in one or more lots
by adopting any of the following methods to secure the
maximum sale price for the assets, to be so sold -
(a) obtaining quotations from parties dealing in the
secured assets or otherwise interested in buying such
assets; or
(b) inviting tenders from the public; or
(c) holding public auction including through e-auction
mode; or
(d) by private treaty.
(2) The authorised officer shall serve to the
borrower a notice of thirty days for sale of the movable
secured assets, under sub-rule (1):
Provided that if the sale of such secured assets 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 II-A
to be published in two leading newspapers, including one
in vernacular language having wide circulation in the
locality.
Provided further that if the sale of movable property
by any one of the methods specified under sub-rule (1)
fails and the 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.
(3) Sale by any methods other than public auction
or public tender, shall be on such terms as may be settled
2025:KER:56663
between the secured creditors and the proposed
purchaser.
(4) The authorised officer shall upload the detailed
terms and conditions of the sale of the movable secured
assets on the website of the secured creditor, which shall
include,
(a) details about the borrower and the secured creditor;
(b) a complete description of movable secured assets to
be sold with identification marks or numbers, if any,
on them;
(c) reserve price of the movable secured assets, if any, and
the time and manner of payment;
(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 or conditions which the authorised
officer considers it necessary for a purchaser to know the
nature and value of movable secured assets."
***
"7. Issue of certificate of sale.- (1) Where movable secured
assets is sold, sale price of each lot shall be paid as per the
terms of the public notice or on the terms as may be
settled between the parties, as the case may be, and in the
event of default of payment, the movable secured assets
shall be liable to be offered for sale again.
(2) On payment of sale price, the authorised officer
shall issue a certificate of sale in the prescribe form
Appendix III to these rules specifying the movable
secured assets sold, price paid and the name of the
purchaser and thereafter the sale shall become absolute.
2025:KER:56663
The certificate of sale so issued shall be prima facie
evidence of title of the purchaser.
(3) Where the movable secured assets are those
referred in sub-clauses (iii) to (v) of clause (1) of sub-
section (1) of section 2 of the Act, the provisions
contained in these rules and rule 7 dealing with the sale of
movable secured assets shall, mutatis mutandis, apply to
such assets."
***
"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 newspaper 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 an owner of
ordinary prudence would, under the similar
2025:KER:56663
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
provision 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 the 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
2025:KER:56663
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 methods 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."
***
"9. Time of sale, Issue of sale certificate and delivery of
possession, etc.- (1) No sale of immovable property under
2025:KER:56663
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
authorized officer shall serve, affix and publish notice of
sale of not less than fifteen days to the borrower, for any
subsequent sale.
(2) The sale shall be confirmed in favour of the
purchaser who has offered the highest sale price in his bid
or tender or quotation or offer to the authorised officer
and shall be subject to confirmation by the secured
creditor:
Provided that no sale under this rule shall be
confirmed, if the amount offered by sale price is less than
the reserve price, specified under subrule (5) of rule 8:
Provided further that if the authorised officer fails to
obtain a price higher than the reserve price, he may, with
the consent of the borrower and the secured creditor
effect the sale at such price.
(3) On every sale of immovable property, the
purchaser shall immediately, i.e. on the same day or not
later than next working day, as the case may be, pay a
deposit of twenty five per cent. of the amount of the sale
price, which is inclusive of earnest money deposited, if
any, to the authorized officer conducting the sale and in
default of such deposit, the property shall be sold again;
2025:KER:56663
(4) The balance amount of purchase price payable
shall be paid by the purchaser to the authorised officer on
or before the fifteenth day of confirmation of sale of the
immovable property or such extended period as may be
agreed upon in writing between the purchaser and the
secured creditor, in any case not exceeding three months.
(5) In default of payment within the period
mentioned in sub-rule (4), the deposit shall be forfeited to
the secured creditor and the property shall be resold and
the defaulting purchaser shall forfeit all claim to the
property or to any part of the sum for which it may be
subsequently sold.
(6) On confirmation of sale by the secured creditor
and if the terms of payment have been complied with, the
authorised officer exercising the power of sale shall issue a
certificate of sale of the immovable property in favour of
the purchaser in the Form given in Appendix V to these
rules.
(7) Where the immovable property sold is subject to
any encumbrances, the authorised officer may, if he thinks
fit, allow the purchaser to deposit with him the money
required to discharge the encumbrances and any interest
due thereon together with such additional amount that
may be sufficient to meet the contingencies or further
cost, expenses and interest as may be determined by him.
Provided that if after meeting the cost of removing
encumbrances and contingencies there is any surplus
available out of money deposited by the purchaser such
surplus shall be paid to the purchaser within fifteen day,
from date of finalisation of the sale.
(8) On such deposit of money for discharge of the
encumbrances, the authorised officer shall issue or cause
2025:KER:56663
the purchaser to issue notices to the persons interested in
or entitled to the money deposited with him and take
steps to make the payment accordingly.
(9) The authorised officer shall deliver the property
to the purchaser free from encumbrances known to the
secured creditor on deposit of money as specified in sub-
rule (7) above.
(10) The certificate of sale issued under sub-rule (6)
shall specifically mention whether the purchaser has
purchased the immovable secured asset free from any
encumbrances known to the secured creditor or not."
***
The Rules reproduced above would show different procedures for the sale
of movable and immovable secured assets. For movable property, the
authorised officer of the Bank has to first take possession and obtain its
valuation. If needed, a reserve price is fixed in consultation with the secured
creditor. The sale may be conducted through quotations, tenders, public
auction (including e-auction), or private treaty. A notice of 30 days has to be
served on the borrower before sale. If the sale fails, a fresh notice of at least
15 days has to be given before any subsequent attempt. The details of the
sale has to be published on the secured creditor's website, and on full
payment, a certificate of sale is issued to the purchaser, which acts as proof
of title. For immovable property, the authorised officer has to serve and
publish a possession notice and affix it on the property. After taking
possession, the officer has to arrange for valuation and fix a reserve price.
The sale can then be conducted through the same available methods as for
2025:KER:56663
movables. However, no sale can take place before 30 days from publication
of the sale notice or service of the notice on the borrower. A 25% deposit
has to be paid immediately on sale, with the balance payable within 15 days
or an extended period not exceeding three months. A certificate of sale is
issued after full payment and confirmation of sale by the secured creditor. If
the property is encumbered, the purchaser may be required to deposit
money to clear the encumbrances. Thus, the Rules of 2002 make a
distinction between movable and immovable assets to be sold.
34. As to the mandatory nature of the Rules of 2002 and the legal
implications of selling the movables and immovables together, the Borrower
has relied upon the decision the Division Bench of Telangana High Court
in the case of Alphine Pharmaceuticals Pvt. Ltd. In this case, the creditor
bank therein had issued a notice under Rule 8(6) of the Rules of 2002
informing the borrowers therein that the subject property was fixed at a
reserve price stated therein and it proposed to sell the property by inviting
tenders. One of the contentions of the borrowers was that the bank had no
right to sell both movable and immovable properties under Rule 9 by fixing
a single reserve price, and that it did not follow Rules 4 to 7 in doing so.
The Division Bench framed points for consideration and one of the point
was whether it was proper for the bank not to separately value the
machinery in the subject property when it obtained the valuation before it
sold the property to the 2nd respondent therein. On this point, the
discussion of the Division Bench of the Telangana High Court is as under:
2025:KER:56663
"99. It was the duty of the Debts Recovery Tribunal to
deal with this issue at length, by asking the parties to lead
evidence, and then come to a conclusion whether a
particular item of machinery can be treated as immovable
property or movable property as the case may be. It
however did not go into this aspect at all.
100. There are several articles listed in part-G of the
Valuation report dealing with machinery which are not
attached to the earth such as Air Conditioner, Fire Fighting
Equipment, Electronic Balances etc. and which would
prima facie be movables. It was the duty of the 1st
respondent Bank to segregate the items which are purely
movable ones from those which can be termed as
immovable property, and sell them separately. Why this
exercise has not been done by the 1st respondent is not
explained.
101. Therefore, we hold that the action of the 1st
respondent Bank in selling the movable items and the
immovable items after obtaining the valuation report
dt.19-02-2018 valuing both of them together goes
contrary to Rules 5, 6 and 8 of the Rules and the said
action cannot be sustained. Point (C) is answered
accordingly."
***
The Hon'ble Supreme Court, in the case of Arce Polymers Private Limited,
considered the correctness of the decision rendered in Alphine
Pharmaceuticals Pvt. Ltd. The Hon'ble Supreme Court noted that there
were dilatory tactics on the part of this borrower. The borrower did not co-
operate, and while displaying forbearance, the Bank had granted indulgence
by deferring the auctions. It was observed that the borrower had challenged
the auction by the bank only after the property had changed hands and third
2025:KER:56663
party rights had been created. Considering the entirety of the facts, the
ingenious conduct on the part of the borrower having been established, the
Hon'ble Supreme Court held that, in view of this position, the borrower had
waived its right and was estopped from challenging the violation of Section
13(3A) of the SARFAESI Act, 2002. As regards the issue of the valuation of
the machinery, the observations of the Hon'ble Supreme Court are as under:
"28. With regard to the third issue of the valuation of the
machinery and the adverse finding of the High Court on
the question of valuation before the machinery was sold
in auction, it is to be noticed that the valuation report
which has been placed on record is dated 19-02-2018,
values the land, the building and the machinery
separately. The machinery has been valued with specific
reference to as many as 55 separate items under the
Heading "Description of Machinery". The valuation
report itself has not been disputed or challenged.
29. We do not agree with the High Court that the
machinery should have been separately auctioned or sold.
This would be putting fetters and restrictions on the Bank
by baring the Bank from selling the machinery along with
the building and the land. Prejudice and loss caused to
the Borrower is not shown and established. Auction sale
as confirmed was at a price higher than the fair market
valuation of the land, the building and the machinery.
Whether or not the price of the machinery should be
accounted for the purpose of payment of stamp duty on a
composite sale wherein the land, the building and the
machinery located in the building are sold, would not be
of any relevance and importance as the issue in question
does not concern payment of stamp duty and the
principles applicable. On the other hand, the law
recognises that the lender knows its interests and how to
2025:KER:56663
secure best value of the property given the fact that the
mortgaged property had to be sold for recovery of the
debts due and payable to the Bank."
*** (emphasis supplied)
Therefore, the Hon'ble Supreme Court held that the valuation report which
was placed on record showed that the building and machinery had been
separately valued. Then, the Supreme Court observed that the High Court
was not correct in holding that the machinery should be separately
auctioned and sold because that would put fetters and restrictions on the
bank by barring the bank from selling the machinery along with the
building and the land. Further, prejudice and loss were neither shown nor
established, and it is for the lender to know its interests and determine how
to secure the best price, given the fact that the property had to be sold for
recovery of debts.
35. Thus, the Hon'ble Supreme Court in the case of Alphine
Pharmaceuticals Pvt. Ltd. found that the facts were such that the borrower
had waived its rights and that there was, in fact, separate valuation of the
movables and immovables. Also, a position of law was also laid down that
the bank could not have been compelled to sell the machinery along with
the immovable assets as it would put fetters on the bank's rights to realise
the maximum value. Therefore, the learned Single Judge was not right in
holding that the decision of the Telangana High Court was interfered with
only on facts and no other position of law was laid down. The wider
2025:KER:56663
principle of the lender's choice to know its own interests and determine how
to secure the best value of the property, was recognised. This aspect has not
been considered in the impugned judgment.
36. However, proceeding on the basis that it was for the Bank to decide
whether to sell the movable assets along with the immovables and that the
Bank had the discretion to make such a choice in selling the movables and
immovables together, another principle would require that the Bank's choice
could not be arbitrary causing prejudice to the Borrower. The Borrower has
relied upon the decisions in the cases of Ram Kishun and J. Rajiv
Subramaniyan, which have been referred to in the impugned judgment. In
the case of Ram Kishun, the Hon'ble Supreme Court held that it is essential
that the public money should be recovered and recovery should be made
expeditiously, however, it does not mean that financial institutions should
be concerned only with the recovery of their loan and cannot be permitted
to behave like property dealers. Neither can they be permitted to dispose of
the secured assets in any unreasonable or arbitrary manner in flagrant
violation of the statutory provisions. It has been further observed in the said
decision that the relevant provisions of the Statute and the Rules require a
proper valuation report, its acceptance by the authority concerned by
application of mind, and then fixing the reserve price accordingly.
Paragraphs 13, 14, 22, 24 and 28, which are relevant, read as under:
"13. Undoubtedly, public money should be recovered
and recovery should be made expeditiously. But it
does not mean that the financial institutions which are
2025:KER:56663
concerned only with the recovery of their loans, may
be permitted to behave like property dealers and be
permitted further to dispose of the secured assets in
any unreasonable or arbitrary manner in flagrant
violation of the statutory provisions.
14. A right to hold property is a constitutional right as
well as a human right. A person cannot be deprived of
his property except in accordance with the provisions
of a statute. (Vide Lachhman Dass v. Jagat Ram and
State of M.P. v. Narmada Bachao Andolan). Thus, the
condition precedent for taking away someone's
property or disposing of the secured assets, is that the
authority must ensure compliance with the statutory
provisions.
***
22. In view of the above, it is evident that there must
be an application of mind by the authority concerned
while approving/accepting the report of the approved
valuer and fixing the reserve price, as the failure to do
so may cause substantial injury to the
borrower/guarantor and that would amount to
material irregularity and ultimately vitiate the
subsequent proceedings.
***
24. Thus, in view of the above, it is evident that law
requires a proper valuation report, its acceptance by
the authority concerned by application of mind and
then fixing the reserve price accordingly and
acceptance of the auction bid taking into
consideration that there was no possibility of collusion
of the bidders. The authority is duty-bound to decide
as to whether sale of part of the property would meet
the outstanding demand. Valuation is a question of
fact and valuation of the property is required to be
2025:KER:56663
determined fairly and reasonably."
***
In the case of J. Rajiv Subramaniyan, which has been referred to the
impugned order, a similar view has been taken by the Hon'ble Supreme
Court, which reads as under:
"18. It must be emphasised that generally proceedings
under the SARFAESI Act, 2002 against the borrowers are
initiated only when the borrower is in dire straits. The
provisions of the SARFAESI Act, 2002 and the 2002
Rules have been enacted to ensure that the secured asset
is not sold for a song. It is expected that all the banks and
financial institutions which resort to the extreme
measures under the SARFAESI Act, 2002 for sale of the
secured assets to ensure that such sale of the asset provides
maximum benefit to the borrower by the sale of such
asset. Therefore, the secured creditors are expected to take
bona fide measures to ensure that there is maximum yield
from such secured assets for the borrowers. In the present
case, Mr. Dhruv Mehta has pointed out that sale
consideration is only Rs.10,000/- over the reserve price
whereas the property was worth much more. It is not
necessary for us to go into this question as, in our
opinion, the sale is null and void being in violation of the
provision of Section 13 of the SARFAESI Act, 2002 and
Rules 8 and 9 of the 2002 Rules."
***
Therefore, the Bank is expected to take bona fide measures to ensure that
there is maximum yield from the assets of the Borrower.
37. The question, therefore, arises as to whether selling the movable items
separately would have fetched a better value than selling them together.
2025:KER:56663
This is not a purely legal question. Once raised, the DRAT is not divested of
its powers to examine this aspect. The Hon'ble Supreme Court in the case of
Duncans Industries Ltd. v. State of U.P.12 has held that the question as to
whether movable and immovable properties are separate or linked is a
question of fact. It was observed as follows:
"8.......The question whether a machinery which is embedded in
the earth is movable property or an immovable property,
depends upon the facts and circumstances of each case.
Primarily, the court will have to take into consideration the
intention of the parties (sic party) when it decided to embed the
machinery, whether such embedment was intended to be
temporary or permanent. A careful perusal of the agreement of
sale and the conveyance deed along with the attendant
circumstances and taking into consideration the nature of
machineries involved clearly shows that the machineries which
have been embedded in the earth to constitute a fertilizer plant
in the instant case, are definitely embedded permanently with a
view to utilise the same as a fertilizer plant. The description of
the machines as seen in the schedule attached to the deed of
conveyance also shows without any doubt that they were set up
permanently in the land in question with a view to operate a
fertilizer plant and the same was not embedded to dismantle and
remove the same for the purpose of sale as machinery at any
point of time. The facts as could be found also show that the
purpose for which these machines were embedded was to use the
plant as a factory for the manufacture of fertilizer at various
stages of its production. Hence, the contention that these
machines should be treated as movables cannot be accepted. Nor
can it be said that the plant and machinery could have been
transferred by delivery of possession on any date prior to the date
of conveyance of the title to the land. Mr. Verma, in support of
his contention that the machineries in question are not
immovable properties, relied on a judgment of this Court in
12 (2000) 1 SCC 633
2025:KER:56663
Sirpur Paper Mills Ltd. v. CCE [(1998) 1 SCC 400]. In the said
case, this Court while considering the leviability of excise duty
on paper-making machines, based on the facts of that case, came
to the conclusion that the machineries involved In that case did
not constitute immovable property. As stated above, whether a
machinery embedded in the earth can be treated as movable or
immovable property depends upon the facts and circumstances
of each case. The Court considering the said question will have
to take into consideration the intention of the parties which
embedded the machinery and also the intention of the parties
who intend alienating that machinery."
*** (emphasis supplied)
Therefore, it is clear that whether the Resort would have fetched a better
price along with the movables or if both were sold separately is a matter
requiring scrutiny of various factual factors and not a pure question of law.
But, as will be indicated, various questions arise which will require factual
enquiry. Now, we proceed to examine the sale notices and certificate of sale
of movable properties which are on record.
38. The first sale notice did not contain any reference to movable
properties. The sale notice issued on 29 October 2022 was for sale of
movable and immovable properties. The properties were sold on an 'as is
where is' basis. It is sold together with a resort building and other
improvements. Property No.1 under Item No.1 in the sale notice, is the
property having a total extent of 267.40 Ares comprised of 257.49 Ares in
Sy. Nos.85/8, 85/9, 85/7A, 85/7B, 85/10, 87/1, 87/2, 87/3 and 9.91 Ares
in Sy. No.11/2/1 together with resort building and all other improvements
including plant and machinery, furniture, fixtures and other equipment
2025:KER:56663
thereon in Vayalar East Village, Cherthala Taluk, Alappuzha District, in the
name of M/s. Vasu Coco Resorts (Pvt.) Ltd., by virtue of Sale deed
No.1155/ 2009 dated 26 May 2006, of SRO Cherthala. Item Nos. 2, 3, 4,
5, and 6 are immovable properties, registered in the name of the Directors.
The certificate of sale listed Item No.1 as resort with all other improvements
therein. This has to be seen in the context of the findings of the DRAT as
to whether the resort was put to sale along with the movables.
39. The certificate of sale issued under Rule 9 of the Rules of 2002 in
respect of immovable property is on record file. It gives description of the
immovable property in two parts with Item Nos. 2 to 6 and the second is
the certificate of sale for the immovable property. Then, the certificate of
sale for the movable property is on record. The certificate of sale for the
immovable property states that Part 1 is having an extent of 257.49 Ares
and Part 2 is 9.91 Ares, Item 2 is a property having an extent of 2 Ares and
18 sq. metres, Item 3 is the property having an extent of 2 Ares and 02 sq.
metres, Item 4 is the property having an extent of 4.03 Ares, Item 5 is the
property having an extent of 4.05 Ares, and Item 6 is the property having an
extent of 4.86 Ares. The certificate of sale for the movable properties issued
under Rule 7(2) of the Rules of 2002 is on record. The description of the
movable property is provided item-wise in the annexure and includes items
which can be either fixed or non-fixed.
40. The list of movable properties is annexed as Exhibit-P9 to the writ
petition. There are several items which are kitchen equipments, such as ice
2025:KER:56663
cube machine, baker table, ice storage bin, blenders, chiller, Chinese work
range, cold room, contact grill savoyer, exhaust hood, steamers, marble top
table, electric deck, sandwich griller, stone top table, vegetable processor,
wall mounted cabinets, water boilers, work table, gym equipments, water
pump, water coolers, etc. The second category is gym equipments. The
third is general equipments, such as water pumps, pump sets, multimedia
projectors, wall mounted speakers, media hub, diesel pump sets, audio
systems, water treatment system, solar water heater, aid conditioning system,
laundry equipments, electrical installation, generator sets, fire extinguishers,
windmill equipments, play equipments, computer network and peripherals,
furniture and fixtures, such as beds, tables, office tables, chairs, dining tables,
loungers, poolside tables, sofas, stone heaters, vanity counters, wardrobes,
various vehicles, battery operated carts, house boats, canoes, pedal boats,
passenger boats with accessories, speed boards, row boats, etc.
41. According to the Bank, all these fixtures are part of the resort and
would not attract buyers if sold independently. Therefore, they were not
separately mentioned and were sold together with the resort. This viewpoint
could be possible when a resort is being sold, all associated fixtures and
equipment that contribute to making the resort functional would fetch a
better value if sold as a whole, rather than being separately valued and
notified. It could be that this approach would fetch a better value. Equally, it
is possible that a buyer may not be inclined to take over a resort as it is. He
may choose to buy the immovable property of the resort and change or
2025:KER:56663
replace the movable items. It is also possible that the purchaser of a resort
may have a different vision for operating it, be it in a traditional, local
culture or modern style, and may, therefore, prefer to purchase only the
immovable property and furnish or equip it in accordance with its own
preferences. According to the Borrower, various items such as houseboats,
speed boats, and several electrical and other items possess independent
value, which is substantial. It cannot be said that the houseboats and speed
boats do not have any separate or independent value at all. We do not wish
to draw conclusions but, on this aspect, the DRT has completely failed to
apply its mind. There can be no doubt that the purpose and intent of a sale
under the SARFAESI Act, 2002 and the Rules of 2002 is to fetch the best
and maximum price for the secured assets.
42. Before the DRAT, the Borrower had urged the issue of the sale of
movable and immovable properties together. The Bank had submitted that
the movables were part of the resort and could not be sold separately, as no
buyer would come forward to purchase them separately. The DRAT has
dealt with this aspect in the following paragraphs:
"9 (i) First point urged on behalf of Appellants is that there
are six items of properties in the Sale Notice, but, for all
items, only a single reserve price is indicated, and Bank is
expected to notify reserve price for each item, thereby, it has
not followed the Enforcement Rules, 2002. It is also the
contention of Appellants that a separate procedure is
contemplated for Sale of movables, but in the Sale Notice,
Bank described as Sale of movable and immovable
properties, which is also a violation of Enforcement Rules,
2025:KER:56663
2002. Advocate for Appellants submitted, Rule 6 of
Enforcement Rules, 2002, contemplates Sale of movable
secured assets, whereas, Rule 8 of Enforcement Rules, 2002,
contemplates Sale of immovable secured assets.
9 (ii). In reply to this, it is the argument of Advocate for
Bank that Securitisation Rules independently deals with, set
of Rules, for movable and immovable properties, and only
when movables are separately sold, procedure contemplated
under Rule 6 of Enforcement Rules, 2002, has to be
followed. He submitted, here, the movables are part of the
Resort, and they cannot be separated. He submitted that
immovable property has to be treated along with movables,
because they are only accessories for running the Resort,
and no buyer will come forward to purchase them
separately. He further submitted, in Sale Notice itself, it is
clearly indicated that Sale for both movables and immovable
property. He further submitted that no specific pleading is
taken in the Securitisation Application regarding Sale of
movables and immovable property together, in amended
portion. It is submitted, only objection taken in the
pleadings is that, there is no separate reserve price for six
items of properties, and a single reserve price for all six
items is not permissible.
9 (iii). Learned Senior Advocate for Auction Purchaser,
while adopting the arguments of Bank's Advocate,
contended that, Respondent No.3 is a bonafide purchaser,
and only after verifying the details indicated in Sale Notice,
it quoted the bid amount.
***
9 (v). Advocate for Appellants referred to the Judgement of
Hon'ble High Court of Telangana in the case of M/s. Alpine
Pharmaceuticals Pvt. Ltd. and Anr. Vs. Andhra Bank and
Ors., in Writ Petition No. 13936/2019 dated 24.01.2020,
2025:KER:56663
for his proposition that Rules 6 and 8 of Enforcement
Rules, 2002, cannot be clubbed, but that decision cannot bе
applied here, because, here the movables referred to by
Advocate for Appellants, are all part and parcel of Resort
and only accessories for running the Resort, and they cannot
be treated separately. Therefore, objection of Appellants
with regard to clubbing of movables and immovable
property in one Sale, cannot be sustained.
***
The DRAT accepted the contention of the Bank that no buyer would come
forward to purchase the immovable property separately. The DRAT has
glossed over this aspect put forth by the Borrower regarding the fairness in
the approach of the Bank in not selling the movable and immovable
properties separately. The issue before the DRAT was a factual one.
43. Though it is indeed for the Bank to decide which approach would
fetch a better value, the DRAT was not divested of its powers to at least
broadly examine whether the approach adopted by the Bank has unfairly
prejudiced the Borrower. The DRAT has simpliciter accepted the assertion
that no buyer will come forward if the movables are sold separately. The list
of movables contains both type of items which, prima facie, could be sold
separately, and some of them were fixtures. The items, such as houseboats,
speed boats, etc., could possess independent value. Therefore, the finding of
the DRAT that it was not necessary to sell the movable and immovable
properties separately is rendered without proper application of mind. Once
the list itself prima facie indicated certain items which could be sold
separately, it was incumbent upon the Bank to establish that those items had
2025:KER:56663
no independent value and necessarily had to be sold along with the resort.
44. Thus, we are faced with a situation where though it was urged before
the DRAT that the Bank had caused prejudice to the Borrower by not
valuing and selling the movable and immovable properties separately, this
issue was not properly considered by the DRAT, which is the final fact-
finding authority under the statute. The learned Single Judge proceeded on
the basis, relying on the decision of the Telangana High Court, that it is
mandatory to notify and sell the movable and immovable properties
separately, and that failure to do so would, by itself, vitiate the sale. This
finding, however, is not in consonance with the observations of the Hon'ble
Supreme Court in the case of Arce Polymers Private Limited., while setting
aside the decision of the Telangana High Court in the case of Alphine
Pharmaceuticals Pvt. Ltd. Resultantly, a proper factual enquiry is not
conducted by the DRAT, and the order was set aside on a different premise
by the learned Single Judge. One option was to confirm the order passed by
the learned Single Judge in setting aside the order of the DRAT, however,
we are of the opinion that the Auction Purchaser, who has deposited a
substantial amount pursuant to the auction sale, would also be prejudiced by
such a course of action. On the other hand, pursuant to the order of the
Hon'ble Supreme Court, the Borrower deposited the amount of ₹50 Crores
and status quo is granted. Accordingly, the Borrower need to be given an
opportunity to put forth their case regarding the aspect of selling the
movable and immovable properties together.
2025:KER:56663
45. In the result, we are inclined to remand the matter to the Debt
Recovery Appellate Tribunal on a limited issue. The conclusions of the
learned Single Judge that the auction sale was vitiated by fraud and
collusion and was effected below the reserve price, cannot be sustained and
are set aside. The learned Single Judge was in error in holding that it is
mandatory to sell the movable and immovable properties together under the
Rules of 2002 and failure to do so would set aside the auction sale. In
reaching this conclusion, the learned Single Judge has not considered the
principle of lender's choice emphasised by the Hon'ble Supreme Court in
the case of Arce Polymers Private Limited. However, the choice to be
exercised by the Bank, whether to sell the movable and immovable
properties together, cannot be arbitrary and has to be exercised bona fide to
secure the maximum value. The issue whether more price would be fetched
by selling the movables together with the immovables, or vice versa, is a
question of fact. In the present appeals, both the learned Single Judge and
the DRAT have not considered this issue with reference to record. Thus, the
appropriate course of action would be to modify and substitute the
impugned judgment of the learned Single Judge, and dispose of the writ
petition by partly allowing it.
46. Accordingly, the Appeals are disposed of as under:
(I) The judgment of the learned Single Judge dated 19
November 2024 in W.P.(C) No.23464 of 2024 is
substituted as follows:
2025:KER:56663
(a) The order passed by the Debt Recovery Appellate
Tribunal dated 12 June 2024 is quashed and set aside
and RA(SA) No.49/2023 is restored to file of the DRAT
for deciding the issue referred to in the preceding
paragraph within the ambit of this judgment and passing
consequential orders in the Appeal.
(b) The findings rendered by the Debt Recovery Appellate
Tribunal on the other issues, as dealt with in this
judgment, are confirmed.
(c) The Debt Recovery Appellate Tribunal will pass the final
order as above within a period of three months from the
date of appearance of the parties.
(d) The parties will appear before the Debt Recovery
Appellate Tribunal within a period of three weeks.
(e) The order of status quo operating in these Appeals will
continue till a decision is taken on the appeal by the
Debt Recovery Appellate Tribunal as above.
(f) The amount deposited by the Borrower in the registry of
this Court shall stand transferred to the Debt Recovery
Appellate Tribunal subject to the outcome of the appeal
before the Debt Recovery Appellate Tribunal.
2025:KER:56663
47. We make it clear that our observations in respect of the issue to be
decided by the DRAT are confined to the need for examination of the
factual aspects, and are not to be construed as conclusions on merits.
48. Pending interlocutory applications, if any, shall stand closed.
Sd/-
NITIN JAMDAR,
CHIEF JUSTICE
Sd/-
S. MANU,
JUDGE
krj/-
//TRUE COPY//
P.A. TO C.J.
