2010 (10) TMI 947 - HC - VAT and Sales Tax

Procedural Violations in Auction Process Lead to Refund: Court Emphasizes Transparency in Bank Auctions

Chemstar Chemicals and Intermediates (P) Ltd. Versus Commercial Tax Officer, Purasavakam Assessment Circle, Chennai and others

The court found the writ petition maintainable due to procedural violations during the auction process, allowing it despite alternative remedies under the ... Relief sought for issuing appropriate direction to the second respondent/State Bank of Mysore to refund the sale advance of ₹ 25,20,000 paid to the schedule mentioned property on March 11, 2010 Held that:- The petitioner is entitled to ignore the auction sale of the property burdened with an order of attachment by the Sales Tax Department and as and when he exercises his right not to proceed further, the respondent-bank is bound to refund the amount deposited by him and this court is hence, inclined to grant the relief as sought for by the petitioner herein. In the result, the writ petition is allowed as prayed for. The second respondent-bank is directed to refund the sale advance to the petitioner within two weeks from the date of receipt of the copy of this order. Issues Involved:1. Maintainability of the writ petition.2. Disclosure of encumbrances by the bank.3. Compliance with Rule 8(6) of the Security Interest (Enforcement) Rules, 2002.4. Entitlement of the petitioner to a refund of the sale advance.Detailed Analysis:1. Maintainability of the Writ Petition:The primary issue was whether the writ petition was maintainable given the alternative remedy available under the SARFAESI Act. The court held that the writ petition was maintainable because the relief sought was not against the measures taken under section 13(4) of the SARFAESI Act but was related to procedural violations during the auction process. The court referenced the Supreme Court's judgment in Union Bank of India v. Satyawati Tondon and other relevant cases, concluding that the alternative remedy was not an absolute bar to exercising writ jurisdiction, especially when there was a violation of natural justice principles.2. Disclosure of Encumbrances by the Bank:The petitioner argued that the bank failed to disclose the encumbrance (attachment by the Sales Tax Department) on the property, which was a material fact affecting the auction. The court found merit in this argument, noting that the bank's failure to disclose the encumbrance in the public notice and during the document inspection misled the petitioner. The bank's counter-argument that the petitioner was aware of the encumbrance on March 5, 2010, was not substantiated with adequate evidence.3. Compliance with Rule 8(6) of the Security Interest (Enforcement) Rules, 2002:The court examined Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, which mandates the disclosure of encumbrances in the sale notice. The court held that the bank's failure to disclose the attachment by the Sales Tax Department in the public notice was a violation of this rule. The court emphasized that such disclosures are crucial for potential bidders to make informed decisions, and non-compliance with this rule invalidated the auction process.4. Entitlement of the Petitioner to a Refund of the Sale Advance:Given the procedural violations and the bank's failure to disclose material facts, the court concluded that the petitioner was entitled to a refund of the sale advance. The court referenced previous judgments, including those by the Division Bench of the High Court and the Supreme Court, which supported the petitioner's right to a refund in similar circumstances. The court directed the bank to refund the sale advance of Rs. 25,20,000 to the petitioner within two weeks from the date of receipt of the order.Conclusion:The writ petition was allowed, and the court directed the second respondent-bank to refund the sale advance to the petitioner within two weeks. The court emphasized the importance of strict compliance with procedural rules and the duty of banks to disclose all material facts to ensure fair and transparent auction processes.