2011 (11) TMI 723 - HC - Companies Law

Summary

Issues Involved:
1. Whether the sale made by respondent Nos. 1 and 2 in favour of respondent No.3 is in conformity with Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002?
2. Whether the writ petition was maintainable without filing the appeal to the appellate authority as provided u/s 18 of the Act?
3. Whether the learned Single Judge committed an error in order to interfere with his order?

Summary:

Issue 1: Conformity with Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002
The appellant contended that the sale of the property was not in conformity with Sub Rule 6 of Rule 8 and Rule 9 of the SERFAESI Act, 2002. The court noted that the respondent-bank failed to serve a 30-day notice for the sale of the immovable property as required. The bank's publication in Indian Express and Tarun Bharat did not meet the mandatory requirements, particularly since the latter was not in the vernacular language (Kannada) of Belgaum. Additionally, the bank did not obtain a fresh valuation of the property from an approved valuer before the sale. The court found that the sale was conducted without following the mandatory provisions, rendering it invalid.

Issue 2: Maintainability of the Writ Petition
The respondents argued that the appellant should have filed an appeal u/s 18 of the SERFAESI Act, 2002, which requires depositing 50% of the debt amount. The court acknowledged the difficulty for the appellant to deposit such a significant amount, especially after losing the property. Given the special circumstances and the procedural lapses in the sale, the court held that the writ petition was maintainable. The learned Single Judge had not dismissed the writ petition on the ground of maintainability but on the ground that an earlier writ petition challenging the sale notice had been dismissed.

Issue 3: Error by the Learned Single Judge
The court found that the learned Single Judge erred by not considering the grounds urged by the appellant regarding the legality and correctness of the sale. The failure to follow Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, was a significant oversight. Consequently, the order of the learned Single Judge was set aside.

Conclusion:
The appeal was allowed, and the sale conducted by respondent Nos. 1 and 2 on 08.05.2006 was set aside. The court directed respondent Nos. 1 and 2 to re-auction the property by following the provisions of the SERFAESI Act, 2002, and the relevant rules. Respondent Nos. 1 and 2 were ordered to refund the amount paid by respondent No.3 along with the costs incurred. Respondent No.3 was granted four weeks to hand over possession of the property. The bank was directed to bear the litigation costs, quantified at Rs. 50,000, payable to the appellant.