Court invalidates auction notice, rules in favor of petitioner due to excessive demands. Verify asset status before action.

The court deemed the auction notice invalid as the petitioner had paid more than the demanded amount, ruling in favor of the petitioner. It emphasized the necessity of verifying non-performing asset status before taking action under the Act. The court found the demand for securitization expenses excessive and directed the petitioner to pay only a portion of the requested amount. While legitimate expenses were acknowledged, the professional fees charged by enforcement agents were considered disproportionate. The court granted the writ petition, absolving the petitioner of further obligations and advising the bank to address the excessive securitization expenses with the RBI.

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Issues Involved:
1. Validity of the auction notice issued by the respondent bank.
2. Determination of non-performing asset status.
3. Legitimacy of the demand for securitisation expenses.
4. Proper incurrence of costs, charges, and expenses by the secured creditor.
5. Professional fees charged by the enforcement agents.

Issue-wise Detailed Analysis:

1. Validity of the Auction Notice Issued by the Respondent Bank
The petitioner questioned the auction notice published on 21st October 2007, inviting bids for the sale of his commercial complex. He argued that the notice did not verify whether the account had become a non-performing asset (NPA) as per section 2(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the Act"). The petitioner had paid Rs. 27.96 lakh by 18th August 2006, which exceeded the liability of Rs. 26,23,999.10 mentioned in the notice. The court held that the bank should have verified if the liability was still outstanding before initiating follow-up measures under sub-section (4) of section 13. Since the petitioner had paid more than the demanded amount, the auction notice was deemed invalid.

2. Determination of Non-Performing Asset Status
The court emphasized that before any action under sub-section (2) of section 13 of the Act, the secured creditor must ensure that the account is classified as an NPA according to the guidelines issued by the Reserve Bank of India (RBI). Failure to do so would vitiate the action initiated under sub-section (2). The bank's failure to verify the NPA status before issuing the auction notice was a critical lapse, rendering the notice invalid.

3. Legitimacy of the Demand for Securitisation Expenses
The petitioner argued that the bank's insistence on an additional Rs. 2 lakh towards securitisation expenses was unjust. The court noted that sub-section (7) of section 13 allows for the recovery of costs, charges, and expenses properly incurred by the secured creditor. However, these expenses must be "properly incurred," meaning they should be reasonable and necessary. The court found the bank's demand for Rs. 1,90,000 towards securitisation expenses to be exorbitant and unreasonable.

4. Proper Incurrence of Costs, Charges, and Expenses by the Secured Creditor
The court examined the expenses already debited to the petitioner's account, including inspection charges, auction notice costs, and newspaper advertisement bills. These were deemed legitimate expenses for securing the realisation of the secured asset. However, the demand for an additional Rs. 1,90,000 for the recovery agent was found to be excessive. The court directed the petitioner to pay Rs. 15,000 towards proper expenses, apart from what had already been booked to his account.

5. Professional Fees Charged by the Enforcement Agents
The court scrutinized the professional fees charged by Sisir & Ravi Associates, the enforcement agents. They had raised a bill for Rs. 1,96,641, which included a 5% fee on Rs. 35,00,213 and additional service tax. The court found no satisfactory explanation for this amount and deemed it a gross error of judgment. The court highlighted that professional fees should be commensurate with the intellectual contribution and should not exploit the borrower's situation. The court found the commission rates for recovery agents and enforcement agents to be too high and disproportionate to the nature of their work.

Conclusion
The court allowed the writ petition, directing the respondent bank to treat the petitioner as having fulfilled all obligations, given that the petitioner had liquidated the entire liability. The bank was also advised to consult with the RBI to remedy the situation regarding exorbitant securitisation expenses. No costs were awarded.

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