TaxTMI 
TaxTMI 
TaxTMI 
2009 (7) TMI 1295
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....f the second respondent as arbitrary, illegal, unconstitutional and ultra vires the provisions of SARFAESI Act and Security Interest (Enforcement) Rules, 2002. 2. Bereft of all details, the basic facts are as follows:- The present writ petitioners are the borrowers. In respect of a loan transaction entered between the present petitioners and the first respondent Bank, the property in question was given as a security. After the Bank took action under the requisite provisions under Section 13(4) of the SARFAESI Act, challenging the sale notice, proceedings under Section 17 was initiated by the petitioners and the same is still pending before the Debts Recovery Tribunal. During the pendency of such proceedings, an interim order of stay was passed by the Debts Recovery Tribunal subject to deposit of One crore. The petitioeners filed an appeal before the Debt Recovery Appellate Tribunal challenging the above condition. The Tribunal however, passed an order permitting the petitioners to deposit the amount in two instalments to be paid on or before 13.2.2009 and 13.3.2009. The Bank however, filed W.P.No.1149 of 2009 challenging such order of the Debt Recovery Appellate Tribunal and the ....
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....ttlement by offering to pay a sum of ₹ 3,20,00,000/- out of total dues of ₹ 3,84,00,000/-. A subsequent letter was sent on reiterating same proposal. On 11.5.2009 the Bank issued a communication which was handed over to the petitioners on 12.5.2009,calling upon them to pay the entire dues by 14.5.2009. On 18.5.2009 the Bank issued letters to the effect that the petitioners had failed to discharge the loan, and therefore, the auction would be confirmed and ultimately, on 20.5.2009 Respondent No.1 confirmed the auction sale in favour of the Respondent No.2 even though he was the single bidder. 5. In this background, the confirmation is being challenged by the petitioners. The main contention raised by the petitioners is to the effect that as per the Security Interest (Enforcement) Rules, 2002, which was framed in exercise of power under Section 38(1)(b) of Sub-Section 2 r/w. Section 13(4)(10) and (12), the confirmation of sale is illegal as it is in contravention of the provisions contained in Rule 9. It is also contended that Respondent No.2 was the only bidder and therefore, such bid should not have been accepted. 6. The main stand taken by the Bank is to the effect t....
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.... bare reading of Rule 9(2) makes it clear that three contingencies can arise when an auction takes place. Those are, (i) the bidder offers an amount, which is more than the upset price, (ii) the bidder offers an amount, which is less than the reserve price, and (iii) the bidder offers an amount, which is neither less nor more than the upset price. If the amount offered by the highest bidder is more than the upset price fixed under Rule 8(5) the sale shall be confirmed in favour of such higher bidder. This however, is subject to confirmation by the Secured Creditor. If the bid amount is less than the upset price, no sale shall be confirmed as contemplated under the first proviso to Rule 9(2). The second proviso makes it clear that if the authorised officer fails to obtain a price higher than the reserve price, the sale can be confirmed only with the consent of the borrower and the secured creditor. It is thus obvious that if the price offered is same as the reserve price, it cannot be said that the Authorised Officer has obtained a price higher than the reserve price. A combined reading of all the provisions contained in Rule 9(2) makes it clear that if the price offered is higher t....
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.... and therefore, the authorised officer could confirm such sale only with the consent of the borrower and the secured creditor. It is crystal clear from the present stand taken by the borrower indicates that there is no consent for confirmation of such sale. As a matter of fact, the Authorised Officer has never bothered to find out from the borrower whether he was willing that the sale should be confirmed, despite the fact that the Authorised Officer had failed to obtain a price higher than the reserve price. 13. The learned counsel appearing for respondents 1 and 2, however, contended that purposive interpretation should be given to the two provisos, which should be read together, and since the main intention is to ensure that the Bank recovers its money as expeditiously as possible and without any unnecessary technical hurdle, and the second proviso should be construed to mean that if the bid price is less than the reserve price, with the consent of the borrower, such auction can be confirmed but when the price offered is at par with upset price, it can be confirmed even without the consent of the borrower. 14. We do not think that in view of the clear language in the second pro....
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....lously complied with. A bare analysis of the statutory provisions and more particularly the statutory rules framed under such provisions clearly evince the intention to provide procedural safeguards while enabling the secured creditors to adopt speedier methods. When the statutory rules contemplate a specific provision, it does not lie in the mouth of the secured creditor to contend that even though the Rules lay down a particular procedure, the secured creditor or the Debts Recovery Tribunal or the Authorised Officer, while discharging their duties under the Act and the Rules, is not required to follow the procedure contemplated merely on the ground that violation is "technical", according to the Bank. It is no doubt true that a borrower's property is put to auction only because there is default on the part of the borrower, but that does not give right to the Bank or the Debts Recovery Tribunal or the Authorised Officer to flout the mandatory statutory provision. 18. Learned counsel appearing for the Bank has placed reliance upon a decision of the single Judge of the Madhya Pradesh High Court reported in AIR 2009 MP 13 (SMT. GODAWARI SHRIDHAR v. UNION OF BANK OF IN....
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....e sale lower than the reserve price? 13. From the above principle of law laid down by Hon'ble the Supreme Court it is clear that when the word 'may' has been used in statute or rule it cannot always be interpreted that it is a mandatory provision and in view of the provisions of the aforesaid Rule the word 'may' cannot be construed as mandatory because the Act has been enacted to facilitate recovery of loan by the financial institutions. It may be possible that in certain circumstances, as in the present case, financial institution is not in a position to fetch or receive the reserve price, hence it has a discretion to sale the property below the reserve price of the property." After the above analysis, the learned single Judge issued the following directions :- "14. In the present case, the Bank has fairly offered the petitioner to sale the property on a higher price, i.e., more than ₹ 50 lakhs. From the aforesaid act of the Bank it is clear that the Bank is acting fairly and reasonably. The petitioner herself is not able to sell the property for more than ₹ 50 lakhs. Hence, in my opinion, the auction proceedings and notification can....
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.... price. That he could refuse the bid which is below the upset price." 21. The above said general observation may not be applicable to the present case in view of the specific provision that the auction cannot be confirmed without the consent of the secured creditor and the borrower, unless it fetches a price higher than the reserve price. 22. A fair reading of the provisions contained in Rule 9 makes it clear that if the highest bid is higher than the upset price, such highest bid shall be confirmed by the authorised officer in favour of the highest bidder, which, however, is subject to confirmation by the secured creditor. This provision is apparent from the provisions contained in Rule 9(2). At that stage, obviously a discretion is given to the secured creditor to accept the highest bid or even go in for a fresh bid. For example, if the secured creditor, on the basis of the relevant materials, comes to a conclusion that the highest bid offered, even though higher than the reserve price, does not reflect the true market value and there has been any collusion among the bidders, the secured creditor in its discretion may refuse to confirm such highest bid notwithstanding th....
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....ded that defect if any in the process of confirmation by the authorised officer can also be challenged before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act and since the petitioner has not availed of such alternative remedy, the present writ petition cannot be entertained. 26. Though it may appear as if there was an alternative remedy, in our considered opinion, existence of alternative remedy may not be considered as a bar in the present case inasmuch as the present case does not require the determination of any disputed question of fact and the matter is being decided purely on interpretation of the statutory provisions and the rules and to relegate the parties to pursue their remedy under the Act before the Debts Recovery Tribunal and thereafter at the Debts Recovery Appellate Tribunal would ultimately be an exercise in futility, which would unnecessarily prolong the matter. 27. Learned counsels appearing for Respondent No.1 and also Respondent No.2 further submitted that in the previous round of litigation before the High Court, the present petitioner could have raised this aspect inasmuch as the amount offered by Respondent No.2 has been disclosed before t....