Madras High Court
P.Arockiyasamy vs The Authorised Officer/Chief ... on 14 December, 2021
WP (MD)No.22355/2019
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 14.12.2021
CORAM
THE HONOURABLE MRS. JUSTICE PUSHPA
SATHYANARAYANA
AND
THE HONOURABLE MR.JUSTICE P.VELMURUGAN
W.P.(MD)No.22355 of 2019
and W.M.P.(MD)No.19129 of 2019
P.Arockiyasamy .. Petitioner
Vs.
1.The Authorised Officer/Chief Manager,
Indian Bank,
Zonal Officer – Chennai,
“Vairam”, 112, Sir Thyagaraya Road,
T.Nagar, Chennai – 600 017.
2.The Branch Manager,
Indian Bank,
Kochadai Branch,
2/3, G.V.Towers, Opp. Fenner India,
Near Passport Office, Melakkai Main Road,
Kochadai, Madurai.
3. N.Subburaj,
Proprietor,
M/s.RMS Flour Mill,
No.2/32C, Raja Mill Compound,
Workshop Road, Madurai-624 001. .. Respondents
(R2 & R3 cause title amended as per the order
dated 13.12.2021 made in
W.M.P(MD)No.17595 of 2021)
***
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Prayer : Writ Petition filed under Article 226 of the Constitution of
India praying to issue a Writ of Certiorarified Mandamus calling for
the records relating to the impugned communication
Ref.No.ZO/LEGAL/SARFAESI/ KOCHADAI/465, dated 19.09.2019
issued by the first respondent and quash the same and
consequently direct the first and second respondents to pay the
amount of Rs.3,77,500/- along with interest up to date.
***
For Petitioner :
Mr.V.Veerapandian,
for M/s.Vastlaw Associates
For Respondents : Mr.Jawahar Ravindran,
Standing Counsel for RR 1 and 2
ORDER
PUSHPA SATHYANARAYANA, J.
The communication of the respondents Bank dated
19.09.2019 rejecting the request of the petitioner to refund 25% of
the sale auction amount deposited by him or to offer loan for the
balance 75% of the sale consideration for the action conducted on
24.08.2018 under the SARFAESI Act and also forfeiting the amount
so deposited by him, is under challenge in this writ petition.
2. The case of the writ petitioner is that he is running a
small road side eatery and with the fond hope of buying a property,
he participated in the e-auction brought out by the respondents
Bank on 24.08.2018 with respect to the property at No.6, Iswaryam
Nagar, Narasingham village-IV Bit, owned by the third respondent,
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which was brought to auction for committing default in repayment
of credit facilities, pursuant to the notice dated 20.07.2018 and
emerged as a successful bidder, by tendering a sum of Rs.15.10
lakhs against the upset price of Rs.12.85 lakhs. In terms of the
conditions of the said notice, he remitted 25% of the bid amount on
27.08.2018, which was pegged at Rs.3,77,500/- and agreed to pay
75% of the amount, which was Rs.11,32,500/- within 15 days
thereafter. Thus, the sale was confirmed in his favour. Based on the
same, the title documents were furnished to him, so as to enable
him to avail housing loan facilities. When the same were furnished
to the Banks and subjected for legal opinion, it came to light that
the third respondent has no valid title over the subject property.
The petitioner brought these facts to the knowledge of the second
respondent and sought for credit facilities to pursue further in the
matter, to which, the second respondent also agreed upon and
assured to arrange for credit facilities. The petitioner also submitted
a representation on 28.02.2019 to the second respondent in this
regard. But he was issued with the impugned notice dated
19.09.2019. Hence, the present petition.
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3. The second respondent filed a counter-affidavit dated
19.11.2019 resisting the prayer of the writ petitioner. The second
respondent questioned the maintainability of the writ petition on the
ground that the petitioner has to invoke the appellate jurisdiction of
the Debts Recovery Tribunal under Section 17 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (in short, 'the SARFAESI Act') against the action
of the secured creditor under Section 13(4) and prayed for dismissal
of this writ petition. It is also contended that even on merits, the
writ petition is liable to be dismissed. The second respondent has
given no assurance to the petitioner to extend credit facility for the
subject e-auction purchase, which is not permissible under the
SARFAESI Act, but they only assured to extend housing loan facility
for constructing building after purchase. The second respondent
claimed that there was no dispute with regard to the title of the
third respondent, as loan was sanctioned only after obtaining legal
opinion. The second respondent alleged that the petitioner could not
secure any loan or mobilize funds to deposit the remaining 75%
amount and thus, only to get refund of 25% of the amount
deposited by him, he started to spin a yarn, which fact is evidenced
by non-production of the legal opinion allegedly obtained by the
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petitioner qua the title of the property.
4. Heard the learned counsel on either side and perused
the materials placed before this Court.
5. When this petition came up for hearing on 22.10.2019,
this Court passed the following order :
"3. According to the petitioner this communication is
anti-dated. The petitioner's case is that on receipt of the
documents of title from the respondent bank after payment of
Rs.3,77,500/- they obtained legal opinion and found that the
title was defective. It is not the case of the respondent Bank
that the borrower had defective title to the property. However,
they seek to rely on Rule 9(4) of the Security Interest
Enforcement Rules, 2002 to justify their forfeiture.
4. In our considered view, if there is a defective title, no
person can be compelled to purchase a property especially
when the respondent bank is a nationalised bank. If there is a
defective title, it is not clear as to how loan was sanctioned to
the third respondent. These are all issues which we need to
consider in the writ petition. Thus, considering the conduct of
the respondent Bank, we direct the respondent bank to deposit
Rs.3,77,500/- to the credit of this Writ Petition in W.P.(MD)No.
22355 of 2019, before the Indian Bank, Madurai Bench of
Madras High Court branch within one week from the date of
receipt of a copy of this order. On such deposit, the same shall
be retained by the Bank in an interest bearing account and
abide by the orders that may be passed in the writ petition.
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5. Learned Counsel who accepted notice for the
respondent Bank seeks time to file counter. The respondent
bank after complying with the above direction is directed to file
counter affidavit before the next hearing date.
6. List the matter for hearing on 18.11.2019."
The said direction was complied with and the same was recorded in
the order dated 07.07.2021.
6. From the above, it is clear that this Court entertained
the instant writ petition on the premise that the title of the property
is not clear, which was not disclosed to the petitioner. In the
counter-affidavit also, it is not the stand of the respondents Bank
that the title documents were given to the petitioner earlier to
satisfy himself about the title of the property. When the petitioner is
not satisfied with the title of the property, the respondents Bank,
having not shown the title deeds to him earlier, cannot compel him
to purchase the property. Thus, the claim of the respondents Bank
qua the maintainability need not be gone into.
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7. The second respondent relied upon Rule 9(5) of the
Security Interest (Enforcement) Rules, 2002, to pass the impugned
order and the said provision reads as follows :
"9. Time of sale, issue of sale certificate and delivery of
possession, etc. -
(1) ....
(5) In default of payment within the period mentioned in
sub-rule (4), the deposit shall be forfeited 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. ....... "
8. The learned counsel for the petitioner relied on a recent
order of the First Bench of this Court in Shanmugavelu V. The
Authorised Officer, Central Bank of India, reported in 2021-5-
L.W. 289, to contend that the impugned order is erroneous. In the
said case, the original auction-purchaser, who deposited the initial
bid amount, questioned the order of forfeiture passed by the Bank
before the Debts Recovery Tribunal II, Chennai (DRT), which, in
turn, while setting aside the order permitted the Bank to retain a
portion of the amount, i.e., five lakh, towards the expenses incurred
in conducting the sale for the second time. When the Bank took it
on appeal before the Debt Recovery Appellate Tribunal, Chennai
(DRAT), it enhanced the retention of amount by the Bank to fifty
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five lakhs. Both the secured creditor - bank and the original auction-
purchaser of the property questioned the propriety of the order
passed by the DRAT enhancing the forfeiter originally ordered by
the DRT before this Court. While setting aside the order of the DRAT
and restoring the order of the DRT, the First Bench held as follows :
"10. Section 74 of the Contract Act, 1872 provides for
compensation for breach of contract where the penalty is
stipulated. Section 73 of the Contract Act is the general rule
that provides for compensation for loss or damage caused by
breach of contract and Section 74 is where the quantum is
specified. What Section 73 of the Contract Act mandates is that
a party who suffers as a result of a breach committed by the
other party to the contract "is entitled to receive from the party
who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the
usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from
the breach of it". Any detailed discussion on such provision
would be beyond the scope of the present lis and may require
many more sheets that may be conveniently expended in the
present exercise. Indeed, Section 73 of the Contract Act is in
the nature of a jurisprudential philosophy that is accepted as a
part of the law in this country. In short, it implies that only
such of the loss or damage suffered by the party not in breach,
may be recovered from the party in breach, as a consequence
of the breach. It is possible that as a result of the breach, the
party not in breach does not suffer any adverse impact. It is
also possible, as in the present case, that as a consequence of
the breach, the party not in breach obtains a benefit. In such
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cases, where no loss or damage has been occasioned to the
party not in breach, such party cannot extract any money
merely on account of such breach, as the entitlement in law to
compensation is not upon the commission of breach, but only
upon any loss or damage being suffered as a consequence
thereof. That is elementary.
11. Even in cases of liquidated damages, where the
quantum specified is regarded as a genuine pre-estimate by
parties to the contract, there needs to be some loss or damage
suffered for the party not in breach to even be entitled to claim
the amount quantified in the contract itself. The factum of
having suffered damages in such a situation has to be
established, though the quantum of the loss need not be, since
the contract contains a genuine pre-estimate thereof.
12. Rule 9(5) of the said Rules of 2002 has to be seen as
an enabling provision that permits forfeiture in principle.
However, such Rule cannot be conferred an exalted status to
override the underlying ethos of Section 73 of the Contract Act.
In other words, Rule 9(5) has to yield to the principle
recognised in Section 73 of the Contract Act or it must be read
down accordingly. Thus, notwithstanding the wide words used
in Rule 9(5) of the said Rules, a secured creditor may not forfeit
any more than the loss or damage suffered by such creditor as
a consequence of the failure on the part of a bidder to make
payment of the consideration or the balance consideration in
terms of the bid. It is only if such principle, as embodied in
Section 73 of the Contract Act, is read into Rule 9(5) of the said
Rules, would there be an appropriate answer to the conundrum
as to whether a colossal default of the entirety of the
consideration or the mere default of one rupee out of the
consideration would result in the identical consequence of
forfeiture as indicated in the provision.
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13. In any event, notwithstanding the reference to
Section 35 of the Act of 2002, the apparent overriding effect of
the provisions of the Act of 2002 has to be tempered in the
light of Section 37 of the Act. Though Section 37 of the Act
refers to several statutes by name,
the residual limb of such provision recognises "or any other law
for the time being in force", which would embrace the Contract
Act within its fold. It is completely unacceptable that by virtue
of the delegated legislation as in the Rules of 2002, the
fundamental principle envisaged in the Contract Act would get
diluted or altogether disregarded.
.....
20. Before parting, there is another aspect that has to be
referred to for the completeness of the discussion. The purpose
of the Act of 2002 is to ensure speedy recovery of the debt due
to secured creditors covered by such statute. Towards such
end, the provisions of the said Act and the Rules made
thereunder give primacy to the secured creditor in initially
assessing the quantum of debt due and in proceeding against
the securities furnished for realising such debt due. However,
no secured creditor, not even by embracing the provisions of
the said Act of 2002, can unjustly enrich itself or obtain any
more by way of resorting to any of the measures contemplated
under Section 13(4) of the Act or otherwise than the debt that
is due to it and the costs that may have been incurred in course
of trying to recover the debt due. In a sense, if the forfeiture
provision in Rule 9(5) of the said Rules is ready to imply what
the secured creditor in this case seeks to, it may result in a
secured creditor unjustly enriching itself, which is not
permissible."
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Applying the ratio enunciated in the above judgment, without any
semblance of doubt, this Court has to arrive at a conclusion that the
order impugned, as it is, is bad in the eye of law. This Court in the
said judgment observed that "for any quantum to be awarded on
account of the damages, there is a twin exercise which has to be
undertaken : the first limb of the exercise is to ascertain the
factum ; it is only upon the factum being established that the
quantum may be assessed.
9. Admittedly, the respondents Bank brought the property
for auction, sold it and adjusted the sale proceeds in the default
account of the third respondent. Considering factual position, we are
of the view that suffice it to allow the respondents Bank to retain a
sum of Rs.50,000/- (Rupees fifty thousand only) towards the
expenses for conducting the auction for the second time and the
respondents Bank has to necessarily refund the balance of the
amount deposited by the petitioner.
10. Accordingly, the respondents Bank are permitted to
encash the deposit made by them for a sum of Rs.3,77,500/- to the
credit of this writ petition before the Indian Bank, Madurai Bench of
Madras High Court, along with interest accrued as on the date of
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encashing it, and after retaining a sum of Rs.50,000/-, are directed
to refund the remaining sums of money to the petitioner on the
same day.
11. With the above observations and direction, the writ
petition stands allowed. No costs. Consequently, connected
Miscellaneous Petition is closed.
(P.S.N., J.) (P.V., J.)
14.12.2021
Index : Yes / No
Internet: Yes
gg
To
1. The Authorized Officer/Chief Manager,
Allahabad Bank,
Zonal Office-Chennai,
"Vairams", 112, Sir Thyagaraya Road,
T.Nagar, Chennai-600 017.
2. The Branch Manager,
Allahabad Bank, Kochadai Branch,
2/3, G.V.Towers, Opp. Fenner India,
Near Passport Office, Melakkal Main Road,
Kochadai, Madurai-625 016.
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PUSHPA SATHYANARAYANA, J.
AND
P.VELMURUGAN, J.
gg
W.P.(MD)No.22355 of 2019
14.12.2021
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