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TMI Blog2009 (11) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... ned advocate for the respondent-bank is directed to intimate the respondent-bank about this direction to ensure compliance by respondent-bank. Respondent-bank is further directed to undertake the process of disposal of the property in question once again in accordance with law, after complying with statutory requirements from the stage of possession notice under section 8(1) of the Rules. It will be open to respondent-bank to consider the proposal of settlement made by the company and negotiate further terms in this regard, if respondent-bank so desires - SPECIAL CIVIL APPLICATION NO. 8584 OF 2009 WITH CIVIL APPLICATION NO. 11176 OF 2009 - - - Dated:- 12-11-2009 - D.A. MEHTA, J. Mihir Joshi and Manav A. Mehta for the Petitioner T.V. Shah and Harshadray A. Dave for the Respondent JUDGMENT 1. RULE. In light of the controversy involved in the petition and the view that the court is inclined to adopt, the petition is taken up for final hearing and disposal today. Learned advocates appearing for respondents are directed to waive service of rule. 2. Before proceeding with narrating the facts and the contentions of respective parties it is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharge its liability and, hence, action was initiated under provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('the Securitisation Act') by respondent-bank. After statutory notice under section 13(2) of the Securitisation Act followed by notice under section 13(4) of the Securitisation Act dated 6th November, 2008 the petitioners undertook to hand over the possession of the properties in question to respondent-bank on 8th January, 2009. On 10th January, 2009 a public notice inviting bids for holding public auction on 21st January, 2009 was issued but no bids in response were received. On 30th July, 2009 the petitioners, through the company made an offer of settling the account on a one time basis by paying Rs. 2.01 crore towards all outstanding dues. On 31st July, 2009 the said offer was revised to the tune of Rs. 2.25 crore. Respondent-bank made a counter-offer to increase the offer by the company by another sum of Rs. 24,00,000. On 4th August, 2009 the petitioners received a letter intimating the petitioners that the properties in question were sought to be sold to a prospective buyer who had made an offer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th October, 2008 was admittedly a possession-cum-sale notice in terms of section 13(4) of the Securitisation Act read with rule 8(1) and 8(6) of the Rules. This would indicate sufficient compliance with the statutory requirement and sub-rule (6) of rule 8 of the Rules did not envisage necessarily a separate notice. If there was a substantial compliance with the Rules the technical plea raised by the defaulting borrower and/or guarantor should not be accepted. It was submitted that pursuant to the said notice respondent-bank also published a public notice in newspaper for holding a public auction by inviting bids from prospective buyers, but as there was no response respondent-bank called upon the petitioners to settle the account by making a reasonable offer. That while the offer for settlement was being considered respondent No. 2 had approached respondent-bank for purchasing the property and accordingly respondent-bank informed the petitioners on 4th August, 2009 that an offer had been received from a prospective buyer for purchasing the property in question for a sum of Rs. 2.15 crore and the bank intended to accept the said offer. The bank also informed the petitioners to eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober, 2008 was permissible and no further notice was envisaged. That notice with regard to sub-rule (6) of rule 8 of the Rules need not contain all the details as laid down by Madras High Court in the case of M.M. Gupta v. Maars Software International Ltd. AIR 2007 (Mad.) 5. Learned advocate for respondent No. 2, therefore, submitted that the said respondent was a bona fide purchaser who had tendered the full amount which had been accepted by the bank, sale confirmed in its favour and, therefore, the petition be rejected. 9. In the event respondent-bank had merely rejected the offer made by the petitioners with valid reasons possibly no intervention would have been called for. The court does not intend to lay down any general proposition that in each and every case where either the borrower or the guarantor objects to sale by a private negotiation and/or makes a counter-offer the secured creditor is duty bound to accept such an offer. The same would eventually turn on facts of each case. 10. In the facts of the present case it is not in dispute that in the first instance the company offered to settle the account for a sum of Rs. 2.25 crore. The bank did not receive a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There has to be strict compliance considering the fact that the secured creditor is dealing with property of a borrower or a guarantor. The authorised officer is merely a custodian of the property and cannot exercise the rights of an owner. "8. Sale of immovable secured assets. - (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these Rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchase who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor : Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9: Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price." 12. Insofar as the action under provisions of the Rules is concerned, the record reveals that respondent-bank has consistently failed to comply with the statutory requirements. Under rule 8 of the Rules provision has been made for sale of immovable secured asset and an elaborate procedure has been prescribed. Sub-rule (1) of rule 8 of the Rules stipulates that in case of the secured asset being an imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic notice of sale is published in newspaper as referred to in proviso to sub-rule (6) or notice of sale has been served to the borrower. Under sub-rule (2) of rule 9 of the Rules the sale is required to be confirmed in favour of the highest bidder and subject to confirmation by the secured creditor themselves subject to two conditions/exceptions set out by the two provisos falling thereunder. The first proviso again places an embargo on the authorised officer not to confirm a sale for an amount which is lesser than the reserve price specified under sub-rule (5) of rule 8 of the Rules. The second proviso again carves out an exception that in the event the authorised officer is not in a position to obtain a higher price, namely, higher than the reserve price, the authorised officer may, with the consent of the borrower and the secured creditor, effect the sale at such price. 15. For the present it is not necessary to refer to other sub-rules of rule 9 of the Rules. Suffice it to state that they lay down the procedure for issuing a sale certificate and delivery of possession, including the point of time when such certificate is to be issued and possession handed over. 16. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property is put up for sale considering the duties cast upon the authorised officer by the Rules. 18. Sub-rule (5) of rule 8 of the Rules stipulates that an authorised officer is under a mandate to obtain valuation of the property from an approved valuer and fix a reserve price before effecting sale of the property by any of the modes prescribed vide clauses ( a ) to ( d ) . Sub-rule (6) of rule 8 of the Rules casts further duty on the authorised officer to serve the borrower a notice of 30 days for sale of the immovable property under sub-rule (5). This means that after following the procedure set out in sub-rule (5) of rule 8 of the Rules the authorised officer is required to issue a notice with a clear period of 30 days between the two termini, namely, issuance of notice and putting the property to sale. The intention being that the borrower may either ; ( i ) arrange within that period to discharge entire outstanding liability ; or ( ii ) come up with a better price or may ensure that some other purchaser offers a price better than the value of the property. If one considers proviso to sub-rule (6) of rule 8 of the Rules it becomes clear that while selling the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted when the property is to be sold by inviting public tenders or by public auction, and where the property is to be sold by a private treaty the notice to the borrower must specify so because sub-rule (6) of rule 8 of the Rules specifically says a notice of 30 days for sale of immovable secured asset under sub-rule (5) of rule 8 of the Rules has to be served. In other words, the authorised officer having chosen one of the modes set out in sub-rule (5) of rule 8 of the Rules has to specifically inform the borrower the mode and the manner in which the property is to be disposed of. 21. When one reads rule 8(8) of the Rules it becomes clear that such a sale has to be on the terms negotiated in writing and the authorised officer cannot be permitted to use the provision of employing any one of the methods of sale so as to mean that the authorised officer can change the mode and manner of sale at his sweet will. 22. This position becomes clear when one reads sub-rules (1) and (2) with the two provisos thereunder of rule 9 of the Rules which permit sale of a property below reserve price only by following the procedure laid down therein. In other words, if the property is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing insofar as the present matter is concerned, the same would not have any bearing and on the basis of such alleged conduct of the petitioners, respondent-bank, as an institution, cannot conduct itself in violation of statutory provisions. The bank cannot dispose of a secured asset as a personal vendetta in contravention of statutory requirements merely because of an alleged offence of delivering a threat by the petitioners. The bank cannot equate itself with its manager, an employee. 27. Coming to the contention raised on behalf of respondent No. 2 that there is confirmation of sale made in favour of respondent No. 2 vide communication dated 27th July, 2009 (Annexure-R2), suffice it to state that in paragraph 3 of the communication itself the said communication states that the said acceptance is subject to the order of confirmation of the sale. Similarly, the last paragraph of the said communication indicates that respondent No. 2 was to send a written acknowledgement accepting the terms and conditions stated therein. Therefore, by mere payment, which is admittedly held as deposit by respondent-bank, the contract is not complete and there is no sale confirmed in favour o ..... 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