2018 (5) TMI 1241 - HC - Indian Laws

Validity of E-auction Sale - validity of 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 - petitioners argue that the writ petition is maintainable as the statutory alternative remedy proved to be ineffective and that pendency of the same would not bar his clients from invoking the extraordinary jurisdiction of this Court under Article 226 of the Constitution - SARFAESI Act. Held 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. The writ petition is accordingly allowed holding that the sale held by the bank on 30-11-2016 stands vitiated on grounds more than one. Consequently the sale certificate dated 13-01-2017 shall also stand cancelled - petition allowed.

Issues Involved:
1. Maintainability of the writ petition in light of the pending Securitization Application (S.A.) before the Debts Recovery Tribunal (DRT).
2. Compliance with statutory procedures under the SARFAESI Act and related rules.
3. Validity of the auction sale and the subsequent sale certificate.
4. Extension of time for payment of the auction bid amount without the borrower’s consent.
5. Issuance of the sale certificate to a nominee of the highest bidder.
6. Adequacy of the valuation and reserve price fixation for the auctioned property.

Issue-wise Analysis:

1. Maintainability of the Writ Petition:
The petitioners had already filed S.A. No. 513 of 2016 before the DRT challenging the auction sale notice and other measures taken by the bank under the SARFAESI Act. The bank contended that the writ petition should be dismissed as the issues were pending before the Tribunal. However, the court noted that the Supreme Court has cautioned against entertaining writ petitions under the SARFAESI Act due to the hierarchy of statutory remedies. Nevertheless, the court emphasized that refusal to entertain such petitions is a self-imposed restraint and discretion must be exercised judiciously on a case-by-case basis. Given the Tribunal's failure to recognize the merit in the petitioners' contentions and the significant delay in disposing of the S.A., the court found that the alternative remedy was ineffective, thereby justifying the maintainability of the writ petition.

2. Compliance with Statutory Procedures:
The petitioners argued that the bank did not comply with the statutory requirements under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. Specifically, the bank did not maintain a clear 30 days gap between the notice under Rule 8(6) and the publication of the sale notice under Rule 9(1). The court found that the bank failed to provide the petitioners with the mandatory 30 days notice to exercise their right of redemption, thereby violating the statutory mandate.

3. Validity of the Auction Sale and Sale Certificate:
The auction sale held on 30-11-2016 and the subsequent sale certificate issued on 13-01-2017 were challenged on multiple grounds. The court found that the sale process was vitiated due to the bank's failure to adhere to the statutory procedures, including the improper extension of time for payment of the auction bid amount and the issuance of the sale certificate to a nominee of the highest bidder. These actions were found to be irregular and contrary to the rules.

4. Extension of Time for Payment:
The bank extended the time for the third respondent company to pay the balance 75% of the bid amount without obtaining the petitioners' consent. The court held that under the un-amended Rule 9(4) of the Rules of 2002, any extension of time required the agreement of all parties involved, including the borrower. The bank's unilateral extension of time was therefore invalid.

5. Issuance of Sale Certificate to a Nominee:
The sale certificate was issued in the name of Amarox Pharma Pvt. Ltd., a nominee of the third respondent company, contrary to the terms of the sale notice which stipulated that the sale certificate would be issued only in the name of the purchaser. The court held that this constituted an irregularity, further tainting the sale process.

6. Adequacy of Valuation and Reserve Price Fixation:
The petitioners contended that the reserve price fixed for the auctioned property was based on an outdated valuation report. The court noted that the bank relied on a valuation report that was nearly a year old, which was not in the interest of the borrower given the volatile nature of the real estate market. This failure to obtain a current valuation report before fixing the reserve price was another irregularity affecting the validity of the auction sale.

Conclusion:
The court allowed the writ petition, holding that the auction sale held on 30-11-2016 and the subsequent sale certificate dated 13-01-2017 were vitiated by multiple irregularities, including non-compliance with statutory procedures, improper extension of time for payment, and issuance of the sale certificate to a nominee. Consequently, the sale and sale certificate were set aside. The bank was, however, allowed to initiate fresh recovery measures in accordance with the SARFAESI Act and the relevant rules.

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