2016 (9) TMI 713 - HC - Indian Laws

Procedure followed by the bank in accordance with the statutory mandate of the SARFAESI Act and the Rules of 2002 - auction sale held by bank - Held that - The 7th respondent/auction purchaser is put to loss owing to a lapse primarily attributable to the bank in following the mandatory procedure stipulated in the Rules of 2002. Be it noted that the judgment in MATHEW VARGHESE 2015 (1) TMI 461 - SUPREME COURT was delivered as long back as on 10.02.2014, but the bank chose to ignore the legal position as settled therein and resorted to its own procedure, nearly a year and a half later, in July, 2015. The 7th respondent/auction purchaser would therefore be entitled to be suitably compensated for the loss caused to it in this regard. We therefore direct refund of the amounts deposited by the 7th respondent with the bank along with interest thereon at the rate of 18% per annum from the date of each deposit. Significantly, this was the rate of interest awarded by the Supreme Court to the bidder in MATHEW VARGHESE1 who had also parted with his monies. The amount so determined shall be refunded by the bank to the 7th respondent within two weeks from the date of receipt of a copy of this order by way of a pay order/bankers cheque. The writ petition is accordingly allowed setting aside the order passed by the Debts Recovery Tribunal, Visakhapatnam. We further hold that the sale held by the Indian Overseas Bank on 15.07.2015 was illegal, being in utter violation of the statutory mandate of Rules 8 and 9 of the Rules of 2002. All steps taken by the bank pursuant to the said illegal sale are also set aside.

Summary

Issues Involved:
1. Legality of the auction sale conducted by the bank.
2. Compliance with the statutory mandate of the SARFAESI Act and the Rules of 2002.
3. Rights and obligations of the borrower and the auction purchaser.
4. Compensation for the auction purchaser due to procedural lapses by the bank.

Detailed Analysis:

1. Legality of the Auction Sale Conducted by the Bank:
The petitioner challenged the order dated 15.09.2015 by the Debts Recovery Tribunal, Visakhapatnam, which upheld the auction sale held on 15.07.2015 by the Indian Overseas Bank under the SARFAESI Act. The petitioner sought to set aside the proceedings, including the auction sale, alleging non-compliance with the statutory requirements. The court noted that the auction sale was conducted after the notified date without issuing a fresh sale notice, which was contrary to the mandate of the SARFAESI Act and the Rules of 2002.

2. Compliance with the Statutory Mandate of the SARFAESI Act and the Rules of 2002:
The court examined whether the procedure followed by the bank adhered to the statutory requirements. It was found that the auction sale, initially scheduled for 01.07.2015, was postponed to 15.07.2015 without issuing a fresh sale notice. The Supreme Court in MATHEW VARGHESE V/s. M.AMRITHA KUMAR had held that a clear 30 days notice must be given to the borrower for any sale or transfer. If the sale does not occur on the scheduled date, the secured creditor must follow the procedure afresh, issuing a new sale notice. The court concluded that the bank's actions violated these statutory mandates, rendering the auction sale illegal.

3. Rights and Obligations of the Borrower and the Auction Purchaser:
The petitioner, as a guarantor and thus a borrower under Section 2(1)(f) of the SARFAESI Act, was entitled to be notified and involved in the auction process. The bank's failure to comply with the statutory requirements, including obtaining the borrower's consent for extending the time for deposit of the balance sale consideration, was a significant lapse. The court emphasized that the extension of time for payment must be agreed upon in writing by all parties, including the borrower, as stipulated in Rule 9(4) of the Rules of 2002 and affirmed in GENERAL MANAGER, SRI SIDDESHWARA COOPERATIVE BANK LTD. V/s. IKBAL.

4. Compensation for the Auction Purchaser Due to Procedural Lapses by the Bank:
The court acknowledged the loss suffered by the 7th respondent/auction purchaser due to the bank's failure to follow the mandatory procedure. As a result, the court directed the bank to refund the amounts deposited by the auction purchaser with interest at the rate of 18% per annum from the date of each deposit. This compensation was aligned with the precedent set by the Supreme Court in MATHEW VARGHESE1.

Conclusion:
The writ petition was allowed, setting aside the order dated 15.09.2015 by the Debts Recovery Tribunal. The auction sale held on 15.07.2015 was declared illegal, and all subsequent steps taken by the bank were nullified. The court permitted the bank to initiate fresh proceedings under the SARFAESI Act, if necessary, in accordance with the law. Pending miscellaneous petitions were closed, and no order as to costs was made.