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Judgment
D. Murugesan, J.—The instant writ petition raises the following questions:-
(1) Whether in terms of the second proviso to sub-rule (2) of Rule 9 of the Security Interest (Enforcement) Rules, 2002, the secured creditor
could sell the secured asset below the reserve price mentioned in the sale notice without the consent of the borrower/ guarantor?
(2) In the event the secured creditor obtains the consent of the borrower/guarantor to sell the secured asset for a price less than the reserve price,
whether such consent would entitle the secured creditor to sell the secured asset by private treaty without following the conditions enumerated
under the proviso to sub-rule (6) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?
(3) Whether the secured creditor could sell the secured asset by private treaty without there being a settlement containing terms between the
borrower/guarantor in writing in terms of sub-rule (8) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?
The facts giving rise to the above questions, in a nutshell, are as follows. The first respondent-Punjab National Bank (for short, ''the Bank'')
advanced certain loan facilities to various wine shops, namely, M/s Eswari Wines, Mahalakshmi Wines, Nanda Wines, Highway Wines, Raj
Wines, Mini Pak Wines, Sri Easwari Wines, Annai Wines, Olympic Wines, Sri Sakthi Wines and Sri Balaji Wines during the year 1999, as the
retail sale of Indian Made Foreign Liquor was allowed to individuals under licence as per the then policy of the Government, and the petitioner and
her husband stood as guarantors for those loan facilities and the petitioner had offered the subject secured asset as a collateral security.
Subsequently, the Government changed the policy and imposed a prohibition on the grant of licences to private individuals for the purpose of retail
selling of Indian Made Foreign Liquor. By that policy, the licences granted to those individuals earlier ceased to operate and the rights came to be
vested with the State Government run Corporation, namely, Tamil Nadu State Marketing Corporation Limited. In view of the above, the
borrowers could not repay the loan amounts. Without the consent of the petitioner, guarantees were extended after the change of policy knowing
fully well that the borrowers would not be in a position to repay the loan in view of the closure of business.
As the borrowers had not repaid the loan amounts, the Bank filed O.A. No. 213 of 2004, impleading the individual borrowers as well as the
petitioner and her husband, for recovery of a sum of Rs. 2,05,52,585.25 together with further interest at the rate of 19 percent per annum from
8.7.2004 till the date of re-payment. The said O.A. was defended by the petitioner among others by filing a written statement and inter alia
contending that the guarantees stood discharged for renewal of the facilities without the consent of the guarantor. While the said O.A. was pending,
the Bank invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for
short, ''the SARFAESI Act'') and issued a notice dated 15.12.2004 u/s 13(2) to the petitioner demanding the payment of unpaid loan amount
within a period of sixty days. Though the petitioner sent an elaborate reply, the Bank failed to consider the same and issued the notice dated
22.3.2005 u/s 13(4) and took symbolic possession of the secured asset on 24.7.2008. After the symbolic possession was taken, the Bank issued
the sale notice, which was questioned by the husband of the petitioner before the Debts Recovery Tribunal-I in S.A. No. 62 of 2009. The said
sale notice was finally set aside by the Tribunal. Thereafter, the Bank again issued another sale notice dated 21.7.2009. Challenging the said notice,
the petitioner filed S.A. No. 171 of 2009 before the very same Tribunal and obtained an interim order of stay. In view of the grant of stay, the
Bank withdrew the sale notice. Since the sale notice was withdrawn by the Bank, the petitioner also withdrew the S.A. No. 171 of 2009.
Subsequently, the Bank issued another sale notice dated 16.4.2010. The petitioner along with her husband questioned the said sale notice also
by filing S.A. No. 130 of 2010 before the very same Tribunal and obtained an interim order of stay of confirmation of sale on 20.5.2010.
Thereafter, the Bank issued yet another sale notice dated 28.5.2010 by fixing the reserve price at Rs. 23 lakhs in respect of the secured asset of
the petitioner which was given as security. The sale could not be held on the fixed date for want of bidders. Hence, the Bank sent the
communication dated 27.7.2010 to the petitioner, which reads as follows:-
The possession of the schedule mentioned mortgaged property (secured asset) was taken on 24.07.2008 in terms of the powers conferred under
the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the rules framed
there under. The said secured asset was brought for public auction by inviting tenders on various dates the last being done on 2.7.2010 with a
reserve price of Rs. 23.00 lakh. However, there were no bidders.
The undersigned hereby calls upon you to bring bidder/offer to purchase the property at the reserve price fixed i.e. Rs. 23.00 lacs or in the
alternative to express your consent for sale of the secured asset for less than the reserve price fixed. If the undersigned does not receive either of
these within 15 days from this day, it would be assumed that you have no better offer to bring and it shall be deemed that you have consented for
the sale of the secured asset for an amount less than the reserve price of Rs. 23.00 lacs which was fixed earlier. Schedule
All that piece and parcel of land and shop situated at No. 10/1A3, Montieth Road, Egmore, Chennai-8 belonging to Mrs. A. Varalakshmi (entire
description of the property as given in our Auction Notice dt. 28.05.2010.
3(A). In response to the said communication, the petitioner sent the reply dated 13.8.2010 to the Authorised Officer of the Bank, which reads as
follows:-
With reference to the above mentioned letter, we wish to inform you that the said property mentioned by you and to bring you an offer for the sale
of the property, I would like to enumerate the following points:-
The absence of a bidder is because you have not put up or taken due care to publish the contents of your intention for the said property. Hence
the reason for no bidders of the same.
If you attempt to sell the property less than the reserve price of Rs. 23,00,000/-, it would be disputed by me in a legal manner in the Court.
There is already an order from the Hon''ble DRT-I.
Any further action taken by you without my knowledge would be challenged appropriately by me in a legal manner.
It is the case of the petitioner that in spite of the said reply, the Bank sent the communication dated 2.5.2011, whereby and whereunder the
Bank informed the petitioner that the secured asset had been sold for a sum of Rs. 21 lakhs in favour of Mrs. Rekha Dave, the second respondent
in the writ petition by way of private treaty. For completion of facts, it can be also pointed out that, alleging in utter disobedience of the interim
order of stay granted by the Debts Recovery Tribunal on 20.5.2010 the Bank had issued a further sale notice and also sold the property through
private treaty, the petitioner also filed an application before the Debts Recovery Tribunal against the Bank for contempt.
In the above factual scenario, the petitioner has come forward with the present writ petition seeking for a Writ of Declaration, declaring the sale
of the petitioner''s property situate at Door No. 10/1A3, Old No. 3, Montieth Road, Egmore, Chennai is unconstitutional, illegal and ultra vires of
the SARFAESI Act and the Rules made there under.
In support of the petition, Mr. Srinath Sridevan, learned counsel for the petitioner argued that the sale in favour of the second respondent by the
Bank through private treaty, as communicated in their letter dated 2.5.2011, is contrary to sub-rule (6) and sub-rule (8) of Rule 8. In any event, in
terms of the proviso to sub-rule (2) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 (for short, ''the Rules''), the Bank cannot reduce
the reserve price and sell the secured asset without the consent of the guarantor.
In response to the above case of the petitioner, the Bank in the counter affidavit, after narrating the extension of loan facilities to various
individuals, has stated that the petitioner stood as guarantor for the loan availed by various individuals and as the loan agreements are subsisting, the
Bank is entitled to recover the unpaid loan amount equally from the guarantor like the petitioner by invoking the provisions of the SARFAESI Act.
It is further stated that though the Debts Recovery Tribunal granted interim stay in S.A. No. 62 of 2009 on condition of the petitioner paying 20
percent of the amount claimed in two instalments, the said condition was not complied with and the stay became inoperative. Nevertheless, by the
time the date fixed for the sale was over, further sale notices were issued. Each time when the sale notice was issued, the petitioner had
approached the Tribunal by questioning the sale notice and thereby effectively prevented the sale to take place. For that reason only, the Bank was
compelled to issue number of sale notices and in the last sale notice dated 28.5.2010, the reserve price was fixed at Rs. 23 lakhs. Even then, there
were no bidders and therefore the Bank informed the petitioner to bring bidder/offer to purchase the secured asset at the reserve price fixed at Rs.
23 lakhs in their communication dated 27.7.2010. The Bank also gave an option to the petitioner-guarantor to express her consent for sale of the
secured asset for a price less than the reserve price already fixed by the Bank. Though a reply dated 13.8.2010 was sent by the petitioner, the
petitioner had only disputed the fact that there were no bidders in the earlier auction and that the petitioner also informed the Bank that if the Bank
attempted to sell the secured asset less than the reserve price, it would be disputed in a legal manner in the Court. Only under the said
circumstance, the Bank had no other option except to sell the secured asset in question by way of private treaty to the second respondent herein.
The factum of such sale has been communicated to the petitioner vide the letter of the Bank dated 2.5.2011.
In support of the above contentions of the Bank, Mr. V. Girish Kumar, learned counsel has submitted that the Bank has strictly complied with
the provisions of Rule 8(5)(b) and 9 of the Rules. According to the learned counsel, the intention of the petitioner is only to drag on the
proceedings, whereby huge amounts availed by various individuals to run their business had been locked and the Bank was unable to realize the
monies in spite of number of sale notices having been issued. As those notices were questioned by the petitioner before the Debts Recovery
Tribunal and she also obtained interim order of stay, the Bank had no other option except to reduce the reserve price, as there were no bidders for
that price, and sold the secured asset by way of private treaty. According to the learned counsel, there is absolutely no infirmity in the procedure
adopted by the Bank in selling the secured asset by private treaty, as the said sale is in conformity with the Rules.
We have considered the respective averments and the rival contentions made by the learned counsel on either side. For determining the
questions raised in the writ petition, we may refer to the relevant provisions of the SARFAESI Act. Chapter III of the SARFAESI Act deals with
the enforcement of security interest. In the event any borrower, who is under a liability to a secured creditor under a security agreement, makes any
default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured credit as non-
performing asset, then, the secured creditor may issue a notice u/s 13(2) in writing requiring the borrower to discharge in full his liabilities to the
secured creditor within sixty days from the date of notice. In the event the borrower fails to discharge the liability in full the amount demanded in the
Section 13(2) notice within the stipulated period, the secured creditor may take measures to take possession of the secured asset of the borrower
including the right to transfer by way of lease, assignment or sale for realizing the secured asset. The secured creditor is also entitled to take over
the management of the business of the borrower. After the receipt of notice u/s 13(2), the borrower has an opportunity to make
representation/objection to Section 13(2) notice in terms of Section 13(3A), and if the representation/objection is not acceptable or tenable, the
Bank shall communicate within one week from the date of receipt of such representation/objection the reasons for non acceptance of the
representation/objection to the borrower.
For regulating the procedure for recovery, the Central Government is empowered to make Rules in terms of Section 38. By virtue of that
provision, the Security Interest (Enforcement) Rules, 2002 were made. For -the purpose of sale of immovable properties, the compliance of the
provisions of Rules 8 & 9 of the Rules are mandatory and the same read as under:-
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 an owner of ordinary
prudence would, under the similar circumstances, take of such property.
(4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or
otherwise disposed of.
(5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property
from an approved value and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of
such immovable secured asset by any of the following methods:-
(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty.
(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided
that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor
shall cause a public notice in two leading newspapers; one in vernacular language having sufficient circulation in the locality by setting out the terms
of sale, which shall include,--
(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the secured creditor;
(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property.
(7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the
web-site of the secured creditor on the Internet.
(8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
Time of sale, issue of sale certificate and delivery of possession, etc.-
(1) No sale of immovable property under these rules shall take place before the expiry 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 purchaser 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.
(3) to (10).....
Point Nos. (1) & (2): Incidentally, before a discussion on the points in issue, we may mention that the liabilities of the borrower and the
guarantor are co-extensive and in that sense, the secured creditor may proceed against the secured asset of the guarantor as well. In this context,
we may refer to the definition of ''borrower'' u/s 2(1)(f) of the SARFAESI Act as meaning, any person who has been granted financial assistance
by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance
granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company
consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance. Hence, the
borrower includes the guarantor as well. The very same view has been taken by the Division Bench of this Court in W.P. No. 17016 of 2009
dated 16.6.2010 (Indian Bank v. Debts Recovery Appellate Tribunal and others).
Before we consider the grievance espoused by the petitioner and the response of the Bank, we may refer to the objects of the SARFAESI
Act in nutshell. SARFAESI Act and the Rules made there under have provided for a speedier and more efficacious remedy to the secured
creditors coming within the purview of the Act to realize the debts by sale of the secured asset. Even though the avowed intention is to ensure
speedy recovery, SARFAESI Act and the Rules have laid down several procedural safeguards obviously with a view to ensure that there is no
abuse of the power conferred under the Act and the Rules and to provide a modicum of protection to the borrowers or the person whose
properties are sold. In tune with the above object, the right of the secured creditor to resort to the provisions of SARFAESI Act would arise only
in the event where any borrower, who is under liability to a secured creditor under a security agreement, makes any default in payment of a
secured debt or any installment thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset. In the
event of failure by the borrower to discharge in full the liabilities within sixty days from the date of the notice u/s 13(2) and the representation or
objection, if any made u/s 13(3A), was not accepted by the secured creditor and a communication of the conclusion was also made to the
borrower, then the secured creditor may take recourse to one or more of the following measures in terms of Section 13(4) of the Act viz., (a) take
possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the
secured asset; (c) appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor; and (d)
require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is
due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. The secured
creditor may also approach the Chief Metropolitan Magistrate / District Magistrate for assistance in taking possession of the secured assets as
provided u/s 14 of the Act.
Thus, under the scheme of Chapter III relating to enforcement of security interest, the borrower has only an opportunity to make
representation or objection in terms of sub-section (3A) of section 13 and even such representation or objection is not accepted by the secured
creditor, the borrower has no right even to challenge the same in view of the proviso to Section 13(3A). On the other hand, in the event of failure
of the borrower to comply with the notice u/s 13(2), the secured creditor can resort to the provision of Section 13(4) for taking possession and the
right to make any appeal in exercise of the power u/s 17 would be available to the borrower only after the proceedings u/s 13(4). Even when the
secured creditor takes up symbolic possession u/s 13(4), it could move the District Magistrate/Chief Metropolitan Magistrate u/s 14 for a direction
to appoint an Advocate Commissioner, who shall be entitled to take physical possession. As the act of District Magistrate/Chief Metropolitan
Magistrate is only ministerial, no adjudication is contemplated u/s 14 and even the borrower or the guarantor, as the case may be, is not entitled to
a notice. Of course, these provisions are intended to speedy recovery of security interest. In this backdrop, strict compliance of each provision
assumes importance.
As regards the Rules framed under the Act, in case of immovable secured assets, Rule 8(1) contemplates that 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 the Rules, to the borrower and
by affixing the possession notice on the outer door or at such conspicuous place of the property. Sub-rule (2) of Rule 8 contemplates that the
authorised officer shall publish the possession notice referred to in sub-rule (1) in two leading newspapers, one in vernacular language having
sufficient circulation in that locality and so on. These are all certain provisions whereby the borrower and the general public are put on notice by the
authorised officer for having taken possession. The provisions of the Rules contemplate the procedure for issuance of demand notice, procedure to
be followed after issue of notice, valuation of movable secured assets, sale of movable assets and issue of certificate of sale.
The above discussion on both the provisions of the Act and the corresponding Rules relating to taking over possession of immovable property
would undoubtedly show that the secured creditor cannot deviate from the above procedures.
In the given case, though the auction was notified at least on three occasions, the fact remains that the sale could not take place for some
reason or other, be it whether due to the pendency of the Sarfaesi appeal before the Debts Recovery Tribunal at the instance of the petitioner or
whether there were no bidders. The sale notice dated 28.5.2010 shows that the reserve price was fixed at Rs. 23 lakhs and whereas, by the
communication of the Bank dated 2.5.2011, the secured asset was sold for Rs. 21 lakhs, which is less than the reserve price and that too by way
of private treaty. In these circumstances, the questions raised in the writ petition must be considered and answered and we do so accordingly.
Once the possession of the secured asset has been taken by virtue of the provisions of the SARFAESI Act, in terms of sub-rule (5) of Rule 8
of the Rules, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix
the reserve price of the property and may sell the whole or any part of the immovable secured asset by any of the following four methods viz., (a)
by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting
tenders from the public; (c) by holding public auction; or (d) by private treaty. Sub-rule (5) of Rule 8 refers to effecting of sale of immovable
property as contemplated in sub-rule (1) of Rule 9 of the Rules. Sub-rule (1) of Rule 9 provides that no sale of immovable property under these
rules shall take place before the expiry 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. Rule 9(1) refers to the proviso to sub-rule (6) of Rule 8, where it
states that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured
creditor shall cause a public notice in two leading newspapers; one in vernacular language having sufficient circulation in the locality by setting out
the terms of sale, which shall include (a) the description of the immovable property to be sold, including the details of the encumbrances known to
the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be
sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may
be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge
the nature and value of the property.
A combined reading of the above provisions would show that in the event the authorised officer intends to sell the secured asset by inviting
tenders from the public in terms of sub-rule (5)(b) of Rule 8 or by holding public auction in terms of sub-rule (5)(c) of Rule 8, he shall cause a
public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale as
indicated earlier in terms of the proviso to sub-rule (6) of Rule 8. This provision is intended for the purpose that when the sale is to be effected by
inviting tenders from the public by holding public auction, the public must be made aware of the description of the immovable property, the details
of the encumbrances, the secured debt for recovery of which the property is to be sold, reserve price, time and place of public auction, deposit of
earnest money and other conditions which the authorised officer considers it material for a purchaser to know in order to judge the nature and
value of the secured asset. The said proviso to sub-rule (6) of Rule 8 is mandatory in the event the authorised officer intends to sell the secured
asset by inviting tenders from the public by holding public auction. One more condition for such sale is that in terms of Rule 9(1), no sale of
immovable property shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers by
virtue of the proviso to sub-rule (6) or notice of sale is served to the borrower. To this extent, there is no dispute.
However, in the event the authorised officer intends to sell the secured asset by the above two methods by fixing the reserve price and if he
fails to obtain a price higher than the reserve price, he shall effect the sale at such price which is consented by the borrower in terms of the second
proviso to Rule 9(2) of the Rules. The authorised officer has two options. In the event the authorised officer fails to obtain a price higher than the
reserve price and in the event the consent of the borrower is obtained, he can sell the secured asset at such price for which the borrower has
consented by following the procedure enumerated in sub-rule (5)(b) and (c) as well as sub-rule (6) of Rule 8. The consequential question would be
in the event the consent of the borrower could not be obtained, namely, when the borrower refuses to give consent, what would be the procedure
to be adopted by the authorised officer? In the event no consent could be obtained, he cannot resort to sell the property either by obtaining
quotations or by private treaty and has no other option except to resort to sale by public tenders or public auction. In this context, a reference also
can be made to the first proviso to Rule 9(2) of the Rules providing that no sale under the 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. Only for that reason, the second proviso requiring the consent of the
borrower has been made. This issue will be considered in point no. (3). As far as the first question is concerned, in the event the authorised officer
fails to obtain a price higher than the reserve price, he cannot sell the secured asset for a lesser price than the reserve price without the consent of
the borrower. The said issue came up for consideration before a Division Bench of this Court in K. Raamaselvam, R.M. Meenal Ramaselvam
Proprietrix, Shuttle Weaves International and R.M. Meenal Ramaselvam Proprietrix, Meenakshi Fabrics International Vs. Indian Overseas Bank
and M. Thanigachalam, where the Division Bench held as follows:-
12....It is crystal clear from the present stand taken by the borrower that there is no consent for confirmation of such sale. As a matter of fact, the
Authorised Officer has never bothered to find out from the borrower whether he was willing that the sale should be confirmed, despite the fact that
the Authorised Officer had failed to obtain a price higher than the reserve price.
We do not think that in view of the clear language in the second proviso, such a contention can ever be countenanced. In fact, the first and
second provisos contemplate the situation that if the bid amount is less than the reserve price, such a position is covered by the first proviso and if
the bid amount is more than the reserve price, the situation is contemplated in the main provision. However, if the Authorized Officer fails to obtain
the price higher than the reserve price, with the consent of the borrower, the sale may be confirmed only after the borrower and the secured
creditor give their consent. By no stretch of imagination, it could be construed that even if the Authorised Officer fails to obtain price higher than the
reserve price, he may, confirm the sale without obtaining any consent from the borrower or from the secured creditor.
Point Nos. (1) and (2) are answered accordingly.
Point No. (3): This question relates to a situation when the borrower refuses to give consent to the authorised officer to sell the secured asset
for less than the reserve price and the authorised officer decides to sell the secured asset by private treaty. The power of the authorised officer to
sell the secured asset by private treaty is beyond dispute, as it is one of the methods contemplated for sale of immovable property in terms of Rule
8(5) of the Rules. However, in the event the authorised officer decides to sell the secured asset by private treaty, such sale should be strictly in
conformity with Rule 8(8) of the Rules. The said sub-rule states that ''sale by any methods other than public auction or public tender, shall be on
such terms as may be settled between the parties in writing''. When this rule mentions the sale by any methods other than public auction or public
tender, it conveys two things, namely, in the event the sale is made through public auction or public tender in terms of Rule 8(5)(b) and (c), the
provisions of sub-rules (6) and (7) of Rule 8 would be attracted. In the case of any other sale, the provisions of Rule 8(5)(a) & (d) would alone be
attracted. As a consequence, a sale by private treaty must be on such terms as between the parties in writing. The word ''parties'' came up for
consideration before a Division Bench of this Court-Madurai Bench in J. Rajiv Subramanian and Mrs. Nirmala Jayabalan Vs. Pandiyas, Suruthi
Fabrics and The Assistant General Manager and Authorised Officer State Bank of India Commercial Branch, where the Division Bench held as
follows:-
The first question for our consideration is as to what are the formalities to be adopted when invoking private treaty and effecting a sale on that
basis. In this connection, it would be worthwhile to refer to Rule 8(5) of the Security Interest (Enforcement) Rules, 2000 which reads thus:
Before effecting the sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the
property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any
part of such immovable secured asset by any of the following methods:
a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
b) by inviting tenders from the public;
c) by holding public auction; or
d) by private treaty.
As per the private treaty, other than public auction or public tender, it can be settled between the parties invoking as per Rule 8(8) of the Security
Interest (Enforcement) Rules, 2002. The sale of properties by private treaty is also permissible in law. The only condition is that it shall be on such
terms as settled between all the parties in writing. From this, it is clear that the presence of debtor and his willingness in writing are essential. But, in
this case, availability of such a document is neither forthcoming nor produced before this Court by the appellants or bank officials. Therefore, from
this, it could be safely concluded that the procedure as contemplated under the Security Interest (Enforcement) Rules, 2002, has neither been
followed nor been attempted to be followed.
Accordingly, point no. (3) is answered.
Having regard to our finding, we are constrained to refer to a situation whereby the borrower/guarantor either refuses to give consent in terms
of the second proviso to Rule 9(2) or agrees to any settlement in terms of Rule 8(8) of the Rules. In such event, the secured creditor may face a
situation where the secured asset may not be sold in any one of the methods enumerated under Rule 8(5) of the Rules. Going by the rules, in our
opinion, the only option to the secured creditor is to again obtain a valuation report and also to notify the reserve price on the basis of such
valuation. As a necessary corollary, he can only follow the methods enumerated under Rule 8(5)(b) & (c) of the Rules. We are conscious of the
fact that this may be a hurdle for the secured creditor in the measures to recover the loan. Such a situation cannot be avoided, when the Act and
the Rules have been made only to have a balance between the right of the secured creditor to recover the loan and the minimum right of the
borrower/guarantor for strict compliance of the provisions of the Act and the Rules. In the given case, it is not in dispute that the reserve price was
fixed at Rs. 23 lakhs and in the absence of any bidder, without there being any consent from the guarantor in terms of the second proviso to Rule 9
of the Rules, the secured creditor had sold the secured asset by private treaty, which is also in violation of Rule 8(8) of the Rules. In such event, the
sale cannot be sustained and the same is liable to be set aside. Accordingly, the action of the Bank in bringing the subject property of the petitioner
is declared unconstitutional and ultra vires the provisions of the Act and the Rules and consequently, the letter of the Bank dated 2.5.2011 is set
aside. The Bank is entitled to bring the secured asset for sale by issuance of a fresh sale notice stipulating the reserve price after obtaining valuation
report as on today or is open to bring the secured asset for sale by any one of the other methods, provided Rule 8(8) of the Rules is complied
with. The amount paid by the second respondent-purchaser shall be refunded with 12 percent interest per annum from the date of deposit till the
date of payment. The writ petition is allowed. Consequently, M.P. No. 2 of 2011 is closed. No costs.