TaxTMI 
TaxTMI 
2018 (5) TMI 1241
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....RFAESI Act) before the Debts Recovery Tribunal (hereinafter, the Tribunal) at Hyderabad. Their prayers therein read as follows: (i) Declare that the E-Auction Sale Notice dated 21-10-2016 issued by the Respondent Bank and fixing the date of auction on 30-11-2016 against the schedule properties as arbitrary, illegal and not maintainable under the Act and Rules, 2002, (ii) Declare that the Notice issued under Rule 8 (6) of the Rules, 2002 dated 23-09-2016 and 03-11-2016 issued by the Respondent Bank against the alleged secured assets as arbitrary, illegal and not maintainable under the Act and Rules, 2002, (iii) Set aside all the measures initiated by the Respondent Bank under Section 13 (4) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act read with the Security Interest (Enforcement) Rules, 2002 including the Demand Notice issued by the Respondent Bank against the schedule property, (iv) Declare that taking physical possession of the unit along with plant and machinery belongs to the Applicant No.1 without following Rule 4 read with Rule 8 of the Rules, 2002 by the Respondent Bank as illegal and arb....
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....der this issue in Authorized Officer, State Bank Of Travancore v. Mathew K.C. [2018] 146 SCL 83 (SC) The case arose out of the interim order passed by the Kerala High Court in a writ petition staying further proceedings at the stage of measures being taken under Section 13(4) of the SARFAESI Act. The Supreme Court observed that the SARFAESI Act is a complete code in itself and the High Court ought not to have entertained the writ petition in view of the alternative remedies available thereunder. On facts, the Supreme Court found that the writ petition was not instituted bonafide but only to stall further action for recovery. There was no pleading as to why the remedy under Section 17 of the SARFAESI Act was not efficacious and no compelling reasons were cited for bypassing the same. Referring to case law on the subject, the Supreme Court concluded that the writ petition ought not to have been entertained and that the interim order was granted for the mere asking without assigning special reasons and without even allowing a hearing to the bank. 8. Similar was the view taken by the Supreme Court a little earlier in November, 2017, in AGARWAL TRACOM (P.) LTD. v. PUNJAB NATIONAL BAN....
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....urt is bound to keep in view while exercising power under Article 226 of the Constitution. 45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance." 9. Much earlier, in RASHID AHMAD v. MUNICIPAL BOARD OF KAIRANA ,AIR 1950 SC 163 the Supreme Court had observed that though existence of an alternative legal remedy was something to be taken into consideration while granting writs, when the authority concerned acted in violation of the relevant law, resulting in infringement of fundamental rights, the person aggrieved is entitled to have his grievance redressed without being relegated to a statutory remedy which may not, in such circumstances, be an alternative remedy. 10. Significantly, in R.VIMALA v. STATE BANK OF INDIA, 2017(1) ALD 193 (DB) a deci....
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.... Court on 11-04-2016 in M.AMARENDER REDDY v. CANARA BANK [2016](5) ALD 354 (DB) was holding the field. In the light of the ratio laid down therein, the bank necessarily had to maintain a clear 30 days gap after issuance of the notice under Rule 8(6) of the Rules of 2002 and another clear 30 days gap after publication of the sale notice under Rule 9(1) thereof. On facts, it was manifest that issuance of the sale notice on 23-09-2016 followed by publication of the sale notice under Rule 9(1) of the Rules of 2002 on 23-10-2016 did not satisfy the said requirement. Despite the same, the Tribunal found it fit to grant a conditional order and as the petitioners failed to comply with the same, the auction sale was held by the bank on 30-11-2016, notwithstanding clear transgression by the bank in abiding by the mandate of M.AMARENDER REDDY7. It is no doubt true that the decision of this Court in M.AMARENDER REDDY7 was reversed by the Supreme Court in CANARA BANK v. M.AMARENDER REDDY [2017] 4 SCC 735 and it was held therein that it is permissible to simultaneously issue the notice under Rule 8(6) of the Rules of 2002 and publish the sale notice under Rule 9(1) thereof, as long as 30 days cl....
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.... one or the other party. Grant of an interim stay in an undeserving case at the stage of sale of the secured asset would put the secured creditor and the innocent auction purchaser to hardship as the secured creditor would not be in a position to realize the full sale consideration and conclude the sale transaction. The rights of such secured creditor and auction purchaser would be put on hold unfairly at the behest of the applicants/borrowers, even though they have no tangible merit in their case. On the other hand, the uniform approach adopted by the Tribunals of granting interim relief by invariably directing payment of a percentage of the dues/reserve price, irrespective of the merits of the case, not only causes irreparable injustice to the applicant/ borrower in a deserving case, but also defeats the very purpose of creation of this statutory remedy under the SARFAESI Act. 18. It is also to be noticed that Section 17(5) of the SARFAESI Act requires the Tribunal to deal with a securitization application made under Section 17(1) as expeditiously as possible and endeavour to dispose it of within 60 days from the date of filing. The proviso thereunder empowers the Tribunal to ....
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.... fit case to non-suit the petitioners on the ground that they have already invoked the statutory remedy under the SARFAESI Act. 21. Nutshelled, the facts of the case: The first petitioner company availed two term loans and working capital facilities, with a total limit of Rs. 670.00 lakh, from the bank in May, 2011. Various properties were mortgaged/hypothecated as security therefor. Due to irregularities in the operation of the loan accounts, the bank classified them as non-performing assets on 28-06-2014. Recovery proceedings under the SARFAESI Act were initiated by issuing demand notice dated 15-09-2014 under Section 13(2) thereof. The outstanding dues mentioned therein were Rs. 7,20,51,842/- as on 11-09-2014. This demand notice detailed the hypothecated movable property and mortgaged immovable properties. The hypothecated movable property included current assets, plant and machinery, vehicles, etc., as set out in Schedule-C appended thereto. The mortgaged immovable properties were the 20 acres of land at the Mega Industrial Park, Kopparthy, YSR District, with buildings; house property at V.V. Nagar Colony, Kukatpally, Balanagar Mandal, Ranga Reddy District; Industrial Plot o....
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....wever paid by the third respondent company only on 17-01-2017. This amount was credited to the term loan and C.C. accounts of the first petitioner company. After adjustment of the realized amounts, the outstanding dues that still remained, according to the bank, aggregated to Rs. 34,18,037.65 ps. as on 31-03-2017. 24. It appears that the bank thereafter came out with a One Time Settlement scheme for outstanding dues of over Rs. 20,00,000/- as on 31-03-2017. This scheme was applicable to cases pending before Courts/Tribunals and also where the bank had initiated proceedings under the SARFAESI Act. As the remaining outstanding dues of the petitioners were over Rs. 20,00,000/- as on 31-03-2017, the bank issued letter dated 14-09-2017 informing the petitioners that they were eligible to avail the benefit of the scheme. The petitioners however misunderstood this offer to mean that they could pay the total outstanding dues by way of a One Time Settlement, so as to nullify the sale held on 30-11-2016. This was the grievance that was originally put forth by them in this writ petition. Be that as it may. 25. Primarily, two issues arise for consideration, apart from some incidental one....
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....e Rules of 2002 provided that the sale should be confirmed in favour of the purchaser who offered the highest sale price in his bid or tender or quotation or offer to the authorized officer, subject to confirmation by the secured creditor. The first proviso thereunder stipulated that no sale should be confirmed if the amount offered by way of the sale price was less than the reserve price. The second proviso, however, stipulated that if the authorized officer failed to obtain a price higher than the reserve price, he could, with the consent of the borrower and the secured creditor, effect the sale at such price. Rule 9(3) provided that on every sale of immovable property, the purchaser should immediately deposit 25% of the sale price with the authorized officer and in default of such deposit, the property should forthwith be sold again. Rule 9(4) stipulated that the balance of the purchase price should be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. Rule 9(5) provided that in default of payment within the period mentioned ....
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.... the borrowers had filed a securitization application which was coming up for hearing on 20-12-2016 and asked the third respondent company to pay the balance amount after 20-12-2016. The third respondent company addressed reply dated 14-12-2016, i.e., the same day, acknowledging the banks letter and requesting 45 days time to remit the balance, due to internal adjustment of funds. By response dated 14-12-2016, i.e., the very same day, the bank informed the third respondent company that, having considered the request, it was permitting 45 days time to pay the balance sum of Rs. 7,35,00,000/-. 33. In effect, the bank granted extension of time beyond the statutorily stipulated 15 days period. In this regard, Sri M. Narender Reddy, learned senior counsel, would point out that with effect from 04-11-2016, Rule 9(4) of the Rules of 2002 stood amended, whereby the bank could unilaterally extend the period for making payment of the balance sale consideration. Rule 9(4) of the Rules of 2002, as it stood after the amendment vide G.S.R.No.1046(E) dated 03-11-2016, which came into effect from 04-11-2016, reads as under: (4) The balance amount of purchase price payable shall be paid....
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....placed reliance on the Full Bench judgment of the Orissa High Court in Sarthak Builders (P.) Ltd.. v Orissa Rural Development Corpn. Limited AIR 2014 Orissa 83 The issue under consideration was as to whether the SARFAESI Act would apply to a loan transaction entered into prior to coming into force thereof. The Full Bench observed that the SARFAESI Act intends to provide a remedy in respect of pre-existing loans and the interpretation that it would apply only to future debts would defeat the very purpose of that law, which was to reduce non-performing assets. Reference was made by the Full Bench to Halsburys Laws of England, wherein the position was crisply summarized thus: The presumption against retrospection does not apply to the legislation concerned merely with matters of procedure or of evidence; on the contrary, provisions of that nature are to be construed as retrospective unless there is a clear indication that such was not the intention of Parliament. 40. The Full Bench summed up the following conclusions: (i) Presumption against retrospectivity is not applicable to enactments which merely affect procedure or change forum or are declaratory; (ii) Re....
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....us, qua an institution which was subsequently notified under Section 2(1)(m) of the SARFAESI Act, it would be applicable similarly from the date when it was so made applicable to it. Referring to the decision of the Orissa High Court in SARTHAK BUILDERS (P.) LTD. 10, (supra) the Supreme Court approved the view taken therein. Dealing with the argument that such a construction would give retrospective operation to the provisions of the SARFAESI Act, the Supreme Court observed that retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. It was further observed that the SARFAESI Act was to provide a measure against security interests and its scheme is really to provide a procedural remedy against the security interests already created. Opining that the definition clauses in the SARFAESI Act clearly convey the legislative intent that the SARFAESI Act applies to all existing agreements, irrespective of the fact whether the lender was a notified financial institution on the date of the execution of th....
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....etrospective effect. It was however noted that if legislation confers a benefit on some persons without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant a retrospective effect. The Constitution Bench therefore observed that the rule against retrospective operation is a fundamental rule of law that no statute should be construed to have retrospective operation unless such construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. A distinction was however made by the Constitution Bench in so far as clarificatory or declaratory amendments were concerned. On facts, the Constitution Bench held that an assessment would create a vested right and an assessee cannot be subjected to re-assessment unless a provision to that effect is inserted by amendment, either expressly or by necessary implication, with retrospective effect. It was therefore held that the proviso to Section 113 of the Income-tax Act, 1961 could not be treated a....
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....on purchasers deposit should be forfeited and the benefit of such forfeiture was being given to the borrower by crediting the said amount to the loan account. However, the amended provision now states that the deposit which would stand forfeited, upon the default of payment within the period mentioned in Rule 9(4), would be to the benefit of the secured creditor. The amendments brought about therefore cannot be said to be declaratory, clarificatory or procedural and were, in consequence, only prospective in operation. 47. It may be noted that the provisions of Section 13 of the SARFAESI Act were amended before the amendment of the Rules of 2002. The amendments to the SARFAESI Act were brought about by Act No.44 of 2016 with effect from 01-09-2016. Significantly, Section 13(8) of the SARFAESI Act also stood amended thereby. The un-amended Section 13(8) of the SARFAESI Act, as it stood prior to 01-09-2016, was as under: "(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the se....
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....sset and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub- section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the SARFAESI Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a constitutional right protected under Article 300-A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. 29.3 Therefore, dehors the extent of borrowing made and whatever costs, charges were incurred by the secured creditor in respect of such borrowings, when it comes to the question of realising the dues by bringing the property entrusted with the secured creditor for sale to realise money advanced without approaching any court or tribunal, the secured creditor as a TRUSTEE cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SARFAESI Act. 50. As pointed out by the Supreme Court ....
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....ease or assignment or sale of the assets, before tendering of such amount under this sub-section, no further step should be taken by the secured creditor and therefore, the right of redemption has to be construed accordingly. However, it may be noticed that the amended Section 13(8) attaches vital importance to the date of publication of the notice. In so far as the date of publication of the notice under Rule 9(1) is concerned, be it for a public auction or for inviting tenders from the public, the secured creditor is bound to wait for 30 days from the date on which such publication is carried out before proceeding to the actual sale. Prior to this date, no steps could possibly be taken by the secured creditor for transfer of the secured asset. Therefore, it is only in the other two situations, that is, where the secured creditor resorts to sale of the secured asset by inviting quotations under Rule 8(5)(a) or by private treaty under Rule 8(5)(d) of the Rules of 2002, that the possibility of a step being taken by the secured creditor for transfer would arise. The situation covered by clauses (i) & (ii) of amended Section 13(8) therefore would not arise where the sale is through pu....
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....9-2016, and the amended Section 13(8) applied in full force to the right of redemption available to the petitioners pursuant to the Rule 8(6) notice dated 23-09-2016. In consequence, the right of redemption extended to them would have been alive only up to the date of publication of the notice of public auction under Rule 9(1) of the Rules of 2002. 56. In this context, the date of service of the Rule 8(6) notice dated 23-09-2019 assumes importance. According to the petitioners, they were served with the said notice only on 01-10-2016. This averment stands unrebutted. Even otherwise, given the fact that the notice was issued on 23-09-2016 and the notice of sale by public auction was published in newspapers on 23-10-2016, there was no clear thirty days gap available even between the said two dates. In this regard, it may be noted that in R.VIMALA 5, this Court held that in computing the 30 clear days notice to be afforded to a borrower in the scheme of the Rules of 2002, the day of publication of the notice in the newspapers and the day of the actual sale have to be excluded. Though this observation was made in the context of the 30 days gap to be maintained under Rule 9(1), the s....
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....ipation of the petitioners. Further, it is not the banks case that the petitioners waived their rights under the rule. In the absence of any clear waiver being pleaded and established, the bank was bound by the mandate. 61. Another irregularity that was committed by the bank in the course of the sale is that though the third respondent company participated in the auction sale held on 30-11-2016, the sale certificate pursuant thereto was ultimately issued in the name of Amarox Pharma Pvt. Ltd., as per the nomination of the third respondent company. It appears that sale certificate dated 13-01-2017 was initially prepared by the bank in the name of the third respondent company but later, a fresh sale certificate was made out in the name of Amarox Pharma Pvt. Ltd. The question is whether this change could have been permitted. A bidder in an auction sale held under the SARFAESI Act cannot undertake such participation in furtherance of real estate opportunism or by way of a business venture, so as to nominate a third party subsequently, after making a tidy profit for himself. If any such profit is made by an auction purchaser between the date of his bidding in the auction sale and iss....
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....e name of his nominee, as privity of contract would be only between the successful bidder and the bank. 64. Further, even if Amarox Pharma Pvt. Ltd. is a sister concern of the third respondent company, they are both independent and separate legal entities, and in the event any transfer is to take place between them, it would entail payment of revenue to the State in the form of stamp duty, which now stands obviated by nomination of the sister concern by the third respondent company and acceptance thereof by the bank. Thus, this irregularity further taints the sale. 65. One last issue that merits mention is that the bank resorted to fixation of the reserve price of Rs. 8,03,00,000/- in the sale notice dated 21-10-2016, without proper valuation of the properties put to sale. The petitioners would point out that in the sale notice dated 16-06-2016, whereunder the bank had proposed to sell the same properties on 29-08-2016, the reserve price was Rs. 8.90 crore but the said auction failed for want of bidders, and surprisingly, the bank then resorted to the sale under the impugned sale notice dated 21-10-2016, whereunder the reserve price was reduced to Rs. 8.03 crore. Though this ....
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....t case was less than a year old, the bank could rely upon the same for fixing the reserve price. 67. In this regard, it may be noted that Rule 8(5) of the Rules of 2002 specifically provides that before effecting sale of the immovable property, the authorized officer should obtain valuation thereof from an Approved Valuer and thereafter fix its reserve price in consultation with the secured creditor, so as to sell it by any of the modes/ methods prescribed thereunder. The policy of the bank however seems to be that a valuation which is less than one year old can be taken into account for this exercise. Given the fluidity and volatility of the real estate market, this Court finds that the broad time frame of one year adopted by the bank is not in the interest of the borrower. 68. In this regard, reference may also be made to Rajiv Subramaniyan v. Pandiyas [2014] (SC)/[2014] 126 SCL 346 (SC)/[2014] 2 COMP. LJ 331 (SC)/[2014] 186 COMP CASE 73 (SC) (SC) wherein the Supreme Court, while referring to MATHEW VARGHESE 9, (supra) observed as under: "13. This Court in Mathew Varghese case further observed that the provision contained in Section 13(8) of the SARFAESI Act, 2002 ....
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....hen compared with the reserve price in the earlier sale notice issued less than four months earlier. This Court therefore finds that this is one more irregularity which adversely impacts the subject sale. 70. On the above analysis, this Court finds that the sale held by the bank on 30-11-2016 pursuant to the notice dated 23-09-2016 under Rule 8(6) of the Rules of 2002 followed by the sale notice dated 21-10-2016, published in newspapers on 23-10-2016 under Rule 9(1) of the Rules of 2002, fell foul of the statutory mandate at its very inception, as the petitioners were not afforded the required 30 days clear notice to exercise their right of redemption, as the requisite gap was not maintained between the date of receipt of the Rule 8(6) notice dated 23-09-2016 and the publication of the Rule 9(1) sale notice on 23-10-2016, whereupon their right of redemption under the amended Section 13(8) of the SARFAESI Act stood prematurely extinguished. 71. To compound matters further, the bank thereafter committed the error of permitting extension of time to the third respondent company, the auction purchaser, to pay the balance 75% of the sale consideration without taking the petitioners....