Telangana High Court

M/S. Ykm Entertainment And Hotels ... vs State Bank Of India, And Another on 17 January, 2022

Bench: Ujjal Bhuyan, A.Venkateshwara Reddy

IN THE HIGH COURT FOR THE STATE OF TELANGANA, HYDERABAD
                          ****

                         W.P.No.32216 2021


Between:

M/s. YKM Entertainment & Hotels Private Limited
And six others.
                                                            Petitioners
                              VERSUS
State Bank of India,
Rep. by its Deputy General Manager
And another.
                                                           Respondents



             JUDGMENT PRONOUNCED ON: 17.01.2022




              HON'BLE SRI JUSTICE UJJAL BHUYAN
                             AND
         HON'BLE SRI JUSTICE A.VENKATESHWARA REDDY



1.    Whether Reporters of Local newspapers
      may be allowed to see the Judgments?                        :   Yes
2.    Whether the copies of judgment may be
      Marked to Law Reporters/Journals?                :    Yes
3.    Whether His Lordship wishes to
      see the fair copy of the Judgment?               :    Yes



                                                  ____________________
                                                   UJJAL BHUYAN, J
                                      2


              * HON'BLE SRI JUSTICE UJJAL BHUYAN
                              AND
          HON'BLE SRI JUSTICE A.VENKATESHWARA REDDY


                          + W.P.No.32216 2021



% 17.01.2022

#    Between:

M/s. YKM Entertainment & Hotels Private Limited
And six others.
                                                              Petitioners
                                  VERSUS
State Bank of India,
Rep. by its Deputy General Manager
And another.
                                                            Respondents

!       Counsel for Petitioners          Sri Mamidi Avinash Reddy


^       Counsel for the respondents      : Sri A. Krishnam Raju,

<GIST:


> HEAD NOTE:



? Cases referred


1   (2007) 8 SCC 449
2   (2010) 2 SCC 114
3   AIR 1963 SC 1558
4   (2010) 14 SCC 38
5   (2013) 11 SCC 531
                                             3


      THE HON'BLE SRI JUSTICE UJJAL BHUYAN
                       AND
 THE HON'BLE SRI JUSTICE A. VENKATESHWARA REDDY

                            W.P.No.32216 OF 2021

ORDER:

(Per Hon'ble Sri Justice Ujjal Bhuyan)

Seven petitioners have joined together and have

instituted the present common proceeding under Article 226 of

the Constitution of India assailing the legality and validity of

the measures taken by the respondents under the

Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (briefly, 'the

SARFAESI Act' hereinafter) including issuance of e-auction

sale notice dated 27.10.2021 fixing auction sale of the

schedule property on 08.12.2021.

2 We have heard Mr.Mamidi Avinash Reddy, learned

counsel for the petitioners and Mr.A.Krishnam Raju, learned

counsel for the respondents.

3 Petitioner No.1 is a company incorporated under the

provisions of the Companies Act, 1956. It is engaged in the

hospitality business in what was then the composite State of

Andhra Pradesh. In this regard, petitioner No.1 proposed to

construct a five star hotel at Tirupati by entering into an

agreement with the Holiday Inn Group on 30.12.2008.

4 Petitioner No.1 entered into a term loan agreement dated

30.08.2011 with a consortium of banks, the lead bank being

the then State Bank of Hyderabad. As per the term loan

agreement, consortium of banks had sanctioned and

disbursed loan of Rs.136 crores to petitioner No.1. According

to the petitioners there was considerable delay in sanctioning

the loan and its disbursement; in fact there was total delay of

about 21 months.

5 While executing the project of constructing five star

hotel, promoters of petitioner No.1 required more funding.

When this was brought to the notice of the consortium of

banks, a meeting of joint lenders forum was held on

18.08.2016 and a corrective action plan was formulated to

provide additional term loan of Rs.34.57 crores to petitioner

No.1.

6 Allegation of the petitioners is that though the lead bank

i.e. State Bank of Hyderabad had released the sanction order

for additional term loan on 18.11.2016, the same was not

executed. However, petitioner No.1 made payment of Rs.10.27

crores anticipating execution of sanction order.

7 On 07.07.2017, the loan account of petitioner No.1 was

migrated to the Stressed Assets Management branch of State

Bank of India for recovery of the dues. Petitioner No.1 was

advised by the respondents to go for One Time Settlement

(OTS) of the dues. Though petitioner No.1 submitted proposal

for settlement at Rs.80 crores, the same was not accepted by

the respondents on the ground that the quantum was too low.

8 According to the petitioners, respondents thereafter

issued demand notice under Section 13 (2) of the SARFAESI

Act. In response, petitioner No.1 submitted another proposal

for OTS at Rs.105 crores. Without responding to the same,

respondents issued possession notice under Section 13 (4) of

the SARFAESI Act on 30.11.2018. Thereafter, sale notice

dated 10.01.2019 was issued for sale of the mortgaged

property (secured asset) in respect of which the reserve price

was fixed at Rs.83.6 crores.

9 Against such action of the respondents, petitioner No.1

filed securitization application under Section 17 of the

SARFAESI Act before the Debts Recovery Tribunal-II,

Hyderabad (Tribunal) which was registered as S.A.No.56 of

2019. However, the auction, in terms of the sale notice dated

10.01.2019, did not materialize as no bidders participated in

the auction.

10 Petitioner No.1 and respondents entered into a joint

memorandum of compromise dated 30.08.2019 as per which

petitioner No.1 agreed to pay a total amount of Rs.112 crores

in four installments towards full and final settlement of its

outstanding liability. In view of such settlement, Original

Application filed by the respondents before the Tribunal, being

O.A.No.787 of 2018, was withdrawn, vide order dated

19.09.2019, passed in I.A.No.4260 of 2019.

11 It is alleged that without sanctioning the settlement,

respondents filed a miscellaneous application before the

Tribunal contending that petitioner No.1 had failed to comply

with the terms of the said compromise and therefore

O.A.No.787 of 2018 should be revived. The same has been

registered as M.A.No.61 of 2020, which is being contested by

petitioner No.1 and is now pending adjudication before the

Tribunal.

12 While the matter rested thus, respondents have issued

the impugned auction notice dated 27.10.2021 fixing auction

of the schedule property on 08.12.2021.

13 Aggrieved, present Writ Petition has been filed seeking

the reliefs as indicated above. It is stated that the Tribunal is

presently non-functional as there is no presiding officer.

Therefore, petitioners have straightaway approached this

Court under Article 226 of the Constitution of India instead of

filing securitization application under Section 17 of the

SARFAESI Act.

14 Various grounds have been raised in support of the

challenge including withdrawal of O.A.No.787 of 2018 by the

respondents on compromise. That apart, it is contended that

there is violation of Rule 8(1) of the Security Interest

(Enforcement) Rules, 2002 inasmuch as the respondents had

failed to affix the impugned notice at a conspicuous place of

the schedule property.

15 This Court, by order dated 07.12.2021, directed the

respondents not to confirm the sale pursuant to the auction

sale and also not to issue the sale certificate.

16 Respondents have filed counter affidavit. A preliminary

objection has been raised as to maintainability of the writ

petition. It is stated that following the compromise, petitioner

No.1 had withdrawn S.A.No.56 of 2019 on 16.09.2019. In

fact, S.A.No.56 of 2019 was dismissed as withdrawn by the

Tribunal on 16.09.2019. In the meanwhile, respondents took

over physical possession of the primary security of petitioner

No.1 on 20.07.2021. Aggrieved by the aforesaid action of the

respondents, petitioner No.1 filed fresh securitization

application under Section 17 of the SARFAESI Act before the

Tribunal on 18.09.2021, filing number of which is SR No.729

of 2021. It is alleged that at the time of filing the fresh

securitization application, the Tribunal was fully functional.

Presiding officer of the Tribunal retired on attaining the age of

superannuation only on 19.11.2021. During the interregnum

petitioner No.1 did not take any steps to move and pursue the

securitization application and now taking the plea that since

there is no presiding officer and the Tribunal is non-functional,

the present writ petition has been filed. Interestingly, in the

writ petition there is no mention about filing of the

securitization application on 18.09.2021 before the Tribunal.

Filing of the securitization application on 18.09.2021 which is

pending is a material fact. But the same has been suppressed

by the petitioners in the writ petition. Such suppression of

material fact would disentitle the petitioners from any

discretionary relief from the writ court.

16.1 It is stated that the outstanding dues of petitioner No.1

as on 30.11.2021 is Rs.316.65 crores.

16.2 Referring to the interim order passed by this Court on

07.12.2021, it is stated that since the respondents were not

restrained from conducting the auction sale, the same was

held on 08.12.2021 as per schedule. A total of 26 lots of

property were put up for auction on 08.12.2021. Lot No.1 and

lot No.4 could not be sold due to lack of bidders. But the

remaining lots were sold.

17 On merit, respondents have stated that petitioner No.1

had entered into a term loan agreement on 30.08.2021 with a

consortium of banks led by the erstwhile State Bank of

Hyderabad, whereby an amount of Rs.136 crores was

sanctioned and released as term loan to petitioner No.1.

According to the respondents there was no delay in

sanctioning and releasing the loan amount.

18 Subsequently, at the request of petitioner No.1 the joint

lenders forum agreed to provide additional term loan of

Rs.34.57 crores.

19 There was default by petitioner No.1 in repaying the loan

amount. In view of such a situation, loan account of petitioner

No.1 was migrated to the Stressed Assets Management branch

of State Bank of India on 07.07.2017 to facilitate recovery of

dues.

20 While acknowledging that petitioner No.1, vide letter

dated 08.06.2018, had offered an amount of Rs.80 lakhs for

OTS, it is stated that the same was not accepted and

communicated vide letter dated 25.06.2018 as the amount

offered was not reasonable.

21 In the meanwhile, respondent No.1 i.e. State Bank of

India, Stressed Assets Management branch filed an application

under Section 19 of the Recovery of Debts due to Banks and

Financial Institutions Act, 1993 (briefly referred to hereinafter

as 'the 1993 Act') against petitioner No.1 and others before the

Tribunal for recovery of a sum of Rs.184,82,88,871-00.

Simultaneously, respondent - State Bank of India issued

demand notice dated 09.08.2018 to petitioner No.1 under

Section 13 (2) of the SARFAESI Act.

22 At that stage, petitioner No.1 submitted a proposal, vide

letter dated 11.11.2018 for OTS. The amount being low, the

proposal of petitioner No.1 was not accepted.

23 Thereafter, respondent - State Bank of India issued

possession notice dated 30.11.2018 under Section 13 (4) of the

SARFAESI Act with regard to the primary security provided by

petitioner No.1. Subsequently, respondent - State Bank of

India issued possession notices dated 18.02.2019 with regard

to collateral securities provided by petitioner No.1. Ultimately

respondent - State Bank of India issued sale notice dated

10.01.2019. At that stage, petitioner No.1 filed S.A.No.56 of

2019 before the Tribunal. Though no interim order was

passed by the Tribunal, the proposed auction did not

materialize for want of bidders.

24 Petitioner No.1 and respondents filed a joint compromise

memo dated 30.08.2019 before the Tribunal in O.A.No.767 of

2018. As per the said joint compromise, petitioners had

agreed to pay a sum of Rs.112.00 crores in four installments

plus 100% cash margin of Rs.2.70 crores towards full and final

settlement of their liability.

25 In view of such settlement, respondents filed I.A.No.4620

of 2019 before the Tribunal to record terms of the compromise

and on that basis to dispose of O.A.No.767 of 2018. By order

dated 19.09.2019, Tribunal recorded the terms of compromise

and also the decision of the petitioners to withdraw all cases

filed by them against the respondents immediately including

S.A.No.56 of 2019. It was clarified that in the event of failure

in payment of the compromise amount or any installments as

agreed, the compromise settlement would be treated as

cancelled and respondents would be entitled to the claim made

in O.A.No.767 of 2018 after adjusting the amount paid by the

petitioners. Accordingly, O.A.No.767 of 2018 was allowed by

the Tribunal in terms of the joint memo of compromise.

Liberty was granted to the respondents to approach the

Tribunal for issuance of recovery certificate against the

petitioners in the event of failure of the petitioners to pay the

compromise amount.

26 As already noted above, S.A.No.56 of 2019 filed by the

petitioners before the Tribunal was dismissed as withdrawn on

16.09.2019.

27 It is stated that petitioners defaulted; rather failed to

comply with the terms of the compromise settlement.

Therefore, respondents filed a miscellaneous application before

the Tribunal for issuance of recovery certificate under the 1993

Act, which was registered as M.A.No.61 of 2020.

28 Recapitulating the sequence of events, respondents have

stated that demand notice dated 09.08.2018 under Section 13

(2) of the SARFAESI Act was duly served upon the petitioners

but the outstanding dues were not paid. As a result,

respondents issued possession notice dated 30.11.2018 under

Section 13 (4) of the SARFAESI Act with regard to the primary

security. It was duly published in newspapers - Hans India,

Tirupati edition; Praja Sakthi, Chittoor edition; and Nava

Telangana, Hyderabad edition on 04.12.2018. It is stated that

such possession notice was also served upon the mortgagers

besides being affixed on the outer wall of the mortgaged

property. In respect of other mortgaged plots identical

possession notices were issued on 18.02.2019 which were also

published in newspapers - New Indian Express and Andhra

Jyothi as well as affixed at the outer wall of the mortgaged

properties besides being served upon the mortgagers.

Thereafter respondents issued notice prior to sale on

25.03.2019. Respondents also filed application under Section

14 of the SARFAESI Act before the Chief Metropolitan

Magistrate - cum - Senior Civil Judge, Chittoor who passed an

order on 19.02.2021 appointing an advocate commissioner to

take over physical possession of the primary security

mortgaged by the borrower and to deliver possession thereof to

the respondents. Accordingly, physical possession was taken

over by the advocate commissioner on 20.07.2021 and handed

over to the authorized officer of respondent - State Bank of

India. Respondents issued sale notice dated 27.10.2021

proposing auction sale of the schedule property on

08.12.2021. Such sale notice was duly published in the

newspapers Andhra Jyothi and The Hindu on 28.10.2021

besides being dispatched to the petitioners by registered post

on 27.10.2021. The said sale notice was also affixed at a

conspicuous place of the mortgaged properties. As stated

earlier, out of the 26 lots of properties put up for auction on

08.12.2021, 24 lots were sold out successfully.

29 On the basis of the above factual matrix, respondents

seek dismissal of the writ petition.

30 Detailed submissions have been made by learned

counsel for the parties which are more or less on pleaded lines.

Therefore, it may not be necessary for us to refer to in detail

such submissions. However, the submissions so made have

received the due consideration of the Court.

31 At the outset, we may reproduce the averments made by

the petitioners in paragraph No.18 of the affidavit filed in

support of the writ petition, which reads as under:

"As a matter of right the petitioners are entitled to invoke their rights under Section 17 of the SARFAESI Act, 2002 and approach the competent DRT having jurisdiction over the matter. However, both the Tribunals constituted in the State of Telangana and the Tribunal constituted at Visakhapatnam have no Presiding Officers presently as all of them have superannuated and the vacancies have not been filled up. In view of the same, approaching the DRTs at the present times by filing an application under Section 17 of the Act is a redundant exercise and the petitioner company is left with no other remedy except to approach this Hon'ble Court. It is submitted that the above stated facts conclusively establish that the process of sale of the subject property being undertaken by the Respondent Bank is not done in accordance with law causing and unless and until this Hon'ble Court intervenes and set aside the E-Auction Sale Notice dated 27.10.2021 issued under Rule 8 (6), the petitioner would suffer grave prejudice and irreparable loss as the actions of the Respondents are in violation cases of the petitioners' rights under Articles 14, 19

and 300A of the Constitution of India apart from being in violation of their statutory rights."

32 From a reading of the averments made in the above

paragraph, we find that according to the petitioners since the

Tribunal is dysfunctional on account of there being no

presiding officer, filing of an application under Section 17 of

the SARFAESI Act would be a redundant exercise. Therefore,

petitioners have approached this Court by filing the present

writ petition. However, from the counter affidavit of the

respondents, it is evident that petitioners had filed

securitization application under Section 17 of the SARFAESI

Act before the Tribunal on 18.09.2021 having SR No.729 of

2021. It has been pointed out that presiding officer of the

Tribunal had retired on attaining the age of superannuation

only on 19.11.2021. From 18.09.2021 till 18.11.2021 there

was presiding officer and the Tribunal was functional. It is

alleged that no steps were taken by the petitioners to get the

securitization application registered and to obtain necessary

order.

33 We need not enter into the aspect regarding petitioners

not taking effective steps for getting the securitization

application registered and moving the same before the

Tribunal. This is besides the point. The point is that the

factum of petitioners filing such securitization application

before the Tribunal has not been mentioned in the writ

petition; rather suppressed. Even petitioners have not

mentioned about withdrawal of SA No.56 of 2019 on

16.09.2019 whereafter the fresh securitization application was

filed on 18.09.2021 bearing SR No.729 of 2021. Petitioners

have also not stated that respondents had filed application

under Section 19 of the 1993 Act before the Tribunal for

recovery of the outstanding dues from the petitioners which

was registered as O.A.No.787 of 2018 though there was an

oblique reference to O.A.No.787 of 2018 in the context of the

compromise settlement.

34 In PRESTIGE LIGHTS LIMITED Vs. STATE BANK OF

INDIA1, Supreme Court held that the High Court exercises

discretionary and extraordinary jurisdiction under Article 226

of the Constitution of India. A Court of law is also a Court of

equity. It is of utmost necessity that when a party approaches

a High Court, he must candidly state all the material facts

before the Court without any reservation. If there is

suppression of material facts on the part of the petitioner or

twisted facts have been placed before the Court, the writ Court

may refuse to entertain the petition and dismiss it without

entering into merits of the matter. Elaborating further, it was

held that a prerogative remedy like the writ remedy is not a

matter of course. A writ Court will bear in mind the conduct of

the parties invoking such extraordinary jurisdiction. If the

party does not disclose full facts or suppresses relevant

1 (2007) 8 SCC 449

materials or is otherwise guilty of misleading the Court, the

Court may dismiss the action without adjudicating the matter.

The very basis of writ jurisdiction rests in disclosure of true,

complete and correct facts. If material facts are not candidly

stated or are suppressed or are distorted, the very functioning

of the writ Courts would become impossible.

35 In a later judgment in DALIP SINGH Vs. STATE OF

UTTAR PRADESH2, Supreme Court referred to its decision in

Prestige Lights Limited (supra). Supreme Court also referred

to several other decisions and held that it is imperative that

the petitioner approaching the writ Court must come with

clean hands and put forward all the facts before the Court

without concealing or suppressing anything. If there is no

candid disclosure of relevant and material facts or the

petitioner is guilty of misleading the Court, his petition may be

dismissed at the threshold without considering merits of the

claim.

36 Referring to its earlier decisions in Hari Narain V. Badri

Das3 and in Ramjas Foundation V. Union of India4, Supreme

Court in Bhaskar Laxman Jadhav Vs. Karamveer Kakasaheb

Wagh Education Society5, highlighted that it is not for a

litigant to decide what fact is material for adjudicating a case

and what is not material; it is the obligation of the litigant to

2 (2010) 2 SCC 114 3 AIR 1963 SC 1558 4 (2010) 14 SCC 38 5 (2013) 11 SCC 531

disclose all the facts of the case and leave the decision making

to the Court. It was held as follows:

"46. It is not for a litigant to decide what fact is material for adjudicating a case and what is not material. It is the obligation of a litigant to disclose all the facts of a case and leave the decision making to the Court. True, there is a mention of the order dated 2nd May 2003 in the order dated 24th July 2006 passed by the JCC, but that is not enough disclosure. The Petitioners have not clearly disclosed the facts and circumstances in which the order dated 2nd May 2003 was passed or that it has attained finality."

37 In the light of the above judicial pronouncements of the

Supreme Court and having regard to the fact that there is not

only clear suppression of material facts by the petitioners but

also there is non-disclosure of relevant facts in a candid

manner, we are not inclined to entertain the writ petition. We

have decided deliberately not to adjudicate the merits of the

petitioners' claim since the petitioners have filed securitization

application before the Tribunal on 18.09.2021 bearing SR

No.729 of 2021 which will be decided by the Tribunal on its

own merits and in accordance with law. However, in view of

the fact that petitioners have not approached this Court with

clean hands, petitioners are not entitled to any relief, including