2016 (6) TMI 2 - HC - Indian Laws

Re Auction orders under SARFAESI ACT - Held that - While we recognise the duty on the part of the respondent Bank under Article 14 to act fairly, we cannot also, in the facts of this case, hold that the omission on the part of the respondent Bank in informing the writ petitioner about the pendency of the case before the Tribunal or the order passed, the contents of which we have already taken note of, would afflict the re-auction notice with an illegality. In terms of the conditions, quite clearly, the writ petitioner had failed to act in the manner provided under the terms of the auction notice, which were binding on the writ petitioner. In such circumstances, when the respondent Bank decides to go in for re-auction, we would think that it may not be appropriate to place the blame at the doorstep of the respondent Bank in judicial review proceedings or to interfere with the re-auction. There remains question relating to reserve price. The reserve price fixed in the re-auction is about ₹ 51,00,000/- more than what was fixed in the first auction. The learned Senior Counsel for the respondent Bank would submit that the Bank officers had fixed the price on their perception of the price that would be fetched in the auction. It may be true that the writ petitioner had quoted higher price in the first auction, but that sale did not go through. More importantly, this is a matter, which was not really put in issue by way of appropriate pleadings for the learned Single Judge to have entered the finding as he has done. In such circumstances, on the said score also, it may not be appropriate to interfere with the re-auction. It is not that we are oblivious of the fact that, ordinarily, banks, particularly public sector banks, are expected to make all efforts to fetch the maximum price for the properties so that the auction is fair to the borrower and also to the Bank itself when large amounts are due to it; but, since we are concerned with the legality of the action of the respondent Bank, it may not be appropriate for us to consider the matter further even on the lines of conducting a re-auction, with which idea, we did toy with in our minds. The upshot of the above discussion is that the appeal filed must be allowed; the directions issued by the learned Single Judge must be set aside; and the writ petition must be dismissed. However, we would think that, in regard to the question about the forfeiture of ₹ 50,00,000/-, which has been effected by the respondent Bank, we should leave it open to the writ petitioner to seek appropriate remedy before the competent forum, if advised. The amount, however, deposited by the writ petitioner in a sum of ₹ 1,77,00,000/-, which has been directed to be put in Fixed Deposit under orders of this Court, shall be returned to the writ petitioner along with the accrued interest.

Summary

Issues Involved:
1. Legality of the re-auction conducted by the respondent Bank.
2. Fairness of the respondent Bank's actions under Article 14 of the Constitution of India.
3. Compliance with the terms of the auction and statutory provisions.
4. Adequacy of the reserve price fixed for the re-auction.
5. Entitlement of the writ petitioner to a refund of the deposited amount or execution of the sale deed.

Detailed Analysis:

1. Legality of the Re-auction Conducted by the Respondent Bank:
The re-auction was challenged on the grounds that the respondent Bank did not act fairly. The writ petitioner argued that the Bank failed to inform bidders about the pending litigation and interim order. The court found that the respondent Bank issued the auction notice on 18.06.2013, and the last date for submission of bids was 22.07.2013, with no litigation by the principal borrower at that time. The principal borrower filed an application on 25.07.2013, and an interim order was passed on 26.07.2013, stating that the auction could proceed but the sale would not be confirmed. The writ petitioner deposited 25% of the bid amount on 27.07.2013. The interim order was vacated on 14.10.2013, and the Bank asked the petitioner to deposit the remaining amount within 15 days. The petitioner requested more time due to the pending litigation but did not comply with the deposit requirements. The court concluded that the re-auction was not illegal as the petitioner failed to adhere to the auction terms.

2. Fairness of the Respondent Bank's Actions under Article 14 of the Constitution of India:
The court scrutinized the Bank's actions under Article 14, which mandates fairness. The respondent Bank issued the auction notice without any pending litigation. The interim order by the Tribunal on 26.07.2013 did not prevent the auction but delayed the sale confirmation. The Bank communicated with the petitioner after the interim order was vacated, providing reasonable time for the deposit. The petitioner's letters indicated an intention to withdraw from the bid, seeking a refund instead. The court found that the Bank acted fairly by giving time extensions and clarifying its position, and the petitioner's failure to deposit the balance amount justified the re-auction.

3. Compliance with the Terms of the Auction and Statutory Provisions:
The auction terms required the highest bidder to deposit 25% of the bid amount immediately and the balance within 15 days of sale confirmation. The petitioner deposited 25% but did not pay the balance within the stipulated time. Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, mandates the balance payment within 15 days or an agreed extended period. The court noted no written agreement for an extension, and the Bank's communications indicated no further extension beyond the reasonable time given. The petitioner's non-compliance with the auction terms led to the forfeiture of the deposit and justified the re-auction.

4. Adequacy of the Reserve Price Fixed for the Re-auction:
The reserve price for the re-auction was Rs. 1,70,00,000/-, higher than the initial reserve price of Rs. 1,19,00,000/-. The writ petitioner argued that the re-auction reserve price was inadequate compared to his bid of Rs. 2,01,00,000/- in the first auction. The court found that the reserve price was fixed based on the Bank's perception and was not challenged with appropriate pleadings. The court emphasized that banks should aim to fetch the highest price but concluded that the reserve price issue did not warrant interference with the re-auction.

5. Entitlement of the Writ Petitioner to a Refund of the Deposited Amount or Execution of the Sale Deed:
The petitioner sought either the execution of the sale deed or a refund of the deposited amount. The court noted the petitioner's letters requesting a refund and reluctance to proceed with the purchase due to pending litigation. The court ruled that the petitioner was not entitled to a mandamus for sale deed execution as he failed to comply with the auction terms. However, the court allowed the petitioner to seek a refund of the forfeited amount through appropriate legal remedies. The amount of Rs. 1,77,00,000/- deposited by the petitioner under court orders was directed to be returned with accrued interest.

Conclusion:
The appeal was allowed, setting aside the learned Single Judge's judgment. The writ petition was dismissed, and the re-auction was upheld as valid. The petitioner was permitted to seek a refund of the forfeited deposit through other legal avenues, and the deposited amount of Rs. 1,77,00,000/- was ordered to be returned with interest.