A.I.P. Rolling Mills Pvt. Ltd. vs State Bank Of India And Ors.

S.N.H. Zaidi, J

The instant appeal has been directed against the judgment and order dated 29.10.2010 passed by the Presiding Officer of DRT-II, Chandigarh in S.A. No. 228/2010, M/s. A.I.P. Rolling Mills Pvt. Ltd. v. Authorized Officer, State Bank of India & Anr., whereby the S.A. has been dismissed and the amount deposited by the applicant/appellant has been forfeited. A resume of the factual matrix of the case is that one AMCO Fabrics Pvt. Ltd. had availed certain credit facilities from the respondent Bank and to secure the repayment thereof mortgaged the property, i.e., factory, land and building situated at Plot No. B-156, measuring 2500 sq. yds., Phase IV-A, Focal Point Dhandari Kalan, Ludhiana, Punjab. As the borrower company failed to repay the loan, the respondent Bank took measures for the enforcement of its security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) by sale of the aforesaid mortgaged property. The respondent Bank, after issuing demand notice under Section 13(2) of the Act, took possession of the property in question and issued notice on 16.5.2010 for the sale thereof at the reserve price of Rs. 2.43 crores. through auction to be conducted on 18.6.2010. As per the terms of the sale notice, the sealed bids were to be submitted at the SARC. Civil Lines, Ludhiana branch of the Bank by 12 noon on 18.6.2010. which were to be opened at 12.30 p.m. on the same day and the intending buyer was to submit his bid along with a demand draft of 10% of the reserve price and the highest/successful bidder was to deposit 25% of his bid amount within 24 hours. Since a lone bid of Rs. 2.44 crores of M/s. Knit Well Fashions, respondent No. 3, was received, it was declared the successful bidder and 25% of the bid amount was deposited by it within the stipulated time.

On 22.6.2010, the appellant, without impleading the highest bidder, filed an S.A. before the DRT-II, Chandigarh for setting aside the auction sale as well as for restraining the Bank from confirming the sale with the allegations that on getting the knowledge of the sale of the property in question through publication in the newspaper, it had approached the Bank at SARC, Civil Lines, Ludhiana branch and obtained information with regard to the property, that on being fully satisfied it had decided to participate in the sale proceedings of the property and after getting a draft of Rs. 24.30 crores prepared in favour of the Bank, approached its Authorized Officer at 11 a.m. along with the said DD, but the said officer informed that the property had been withdrawn from the auction due to some stay and directions of the High Court of Punjab and Haryana and did not give any tender documents, that the applicant, however, waited at the premises of the Bank till 1 p.m., and on being satisfied that no auction had been conducted, left the premises at about 1.15-1.30 p.m. but at about 4 p.m. on that very day it came to know that the auction proceedings were conducted and a single bid of Rs. 2.44 crores of M/s. Knit Well Fashions was received and the said bidder had been declared the successful bidder, that the applicant was intending to purchase the said property for Rs. 2.70 crores but the Bank in a clandestine manner did not permit it to participate in the bid process and then at 7.30 p.m. it had sent a letter to the DGM of the Bank at Chandigarh mentioning the aforesaid circumstances and submitting its offer/bid for 3 sum of Rs. 2.70 crores, enclosed the copy of the said DD.

On 24.6.2010, the Bank intimated the DRT that the highest bidder had deposited 25% of the bid amount and the sale was ready for confirmation. Thereupon, the DRT directed the applicant/appellant to deposit 25% of its alleged bid amount of Rs. 2.70 crores and also to submit an undertaking agreeing to the inter se bidding with the highest bidder and restrained the Bank from confirming the sale. On 28.6.2010, the DRT extended the time for the deposit of the said amount by two days and also directed to issue summons to the highest bidder to get his version in the matter. On 1.7.2010, the applicant/appellant deposited the demand drafts with the Bank to make his total deposit to Rs. 67.50 lacs.

In the meanwhile, the mother of the borrowers of the loan approached the Punjab and Haryana High Court by way of writ petition (CWP No. 11019/2010 Smt. Sunderjit Kaur v. State Bank of India & Ors., inter alia, praying for the acceptance of the proposal for one-time-settlement and for quashing the sale notice dated 16.5.2010 and the Hon'ble High Court, while issuing notice on the motion, vide order dated 1.7.2010, directed the parties to maintain the status quo with regard to the property.

On 16.7.2010. the highest bidder (M/s. Knitwell Fashions) moved an application before the DRT for the refund of Rs. 61 lacs deposited by it with the Bank towards 25% of its bid amount, contending that since the SA applicant has already made an offer of Rs. 2.70 crores, it is no more interested in purchasing the property in question. It was also clarified that it was not interested in the inter se bidding with the SA applicant as suggested by the DRT in its order dated 24.6.2010. Both the S.A. applicant and the Bank opposed that application and the said application was dismissed by the DRT. The parties were, thereafter, heard on the SA and it was dismissed by the order impugned, with the observation that after offering a higher amount for the purchase of the property in question, the applicant made its offer conditional that if the Bank ensures that it would be free from any litigation/encumbrance, then it would purchase it, whereas there was no such term/condition in the S.A. which was filed with some vested interest and ordered to forfeit the deposit made by the applicant. Aggrieved with that order, the applicant has preferred this appeal.

Mr. Sanjeev Bhandari. learned Counsel appearing for the appellant, submitted that the appellant wanted to purchase the property in question without any encumbrances, but since the High Court of Punjab and Haryana has directed for the maintenance of the status quo thereof, it is also not interested in purchasing the said property and wants its money back. He also submitted that the appellant, intending to participate in the bid process for purchasing the property in question, had got a DD of Rs. 24.30 lacs prepared on 18.6.2010 and approached the Authorized Officer of the Bank along with the DD at about 11 a.m., but it was informed that the property had been released from sale in pursuance of some order of the High Court of Punjab and Haryana Placing reliance upon the judgment rendered by the Delhi High Court on 4.5.2010 in W.P. (C) No. 10219/2009, D.J. Enterprises Ltd. & Anr., v. IFCI Ltd. & Ors., Mr. Bhandari contended that the object of the auction should have been to get the best possible price from the sale of the property and there exists no inherent right in an auction purchaser for the confirmation of sale if a higher offer is available before the confirmation of the auction sale.

Mr. S.L. Gupta, learned Counsel for the respondent Bank, submitted that the appellant could not be an aggrieved person under the provisions of the SARFAESI Act as it had not participated in the auction proceedings in terms of the sale notice and as such no legal right or interest had accrued in its favour to challenge the same. He further submitted that the SA was filed only to thwart the recovery of the public money by scuttling the sale process of the secured asset otherwise the Bank would have confirmed the sale and the public money would have recovered. Mr. Gupta also submitted that the allegations made in the SA were false as the appellant had nowhere disclosed the name of the person who had allegedly approached the Authorized Officer of the Bank. He also submitted that the Bank had received a letter of the appellant on 21.6.2010 with the false allegation that its representative had approached the Bank's Authorized Officer to submit the bid on 18.6.2010 at 11 a.m. along with a DD of Rs. 24.30 lacs but it was not allowed to submit the bid. According to him. before the Bank could react to that letter, the appellant had filed the S.A. on 22.6.2010 with the twisted facts as it appears that the appellant had visited the Bank on 18.6.2010 through its Managing Director herself to submit the bid. Mr. Gupta pointing out to a communication dated 12.1.2011 received from the Miller Ganj branch of AXIS Bank, Ludhiana, wherefrom the got the DD of Rs. 24.30 lacs issued, submitted that the respondent Bank had sought information qua the preparation/issuance of the DD from the AXIS Bank and in response thereto it was intimated that the Draft No. 017583 for Rs. 24.30 lacs was issued by the AXIS Bank at 3.30 p.m. on 18.6.2010 in favour of State Bank of India SAMP payable at Chandigarh, which clearly belies the contention that the Authorized Officer of the Bank was approached by the appellant at 11 a.m. along with a DD of Rs. 24.30 lacs to participate in the bidding process. He, however, pointing out that the sale in favour of the highest bidder could not be confirmed because of the restrained order of the DRT, further submitted that the Hon'ble High Court of Punjab and Haryana had also ordered all the parties to maintain the status quo of the properly in question He pointed out that because of the alleged offer of the appellant the entire process of sale was stopped.

Mr. Himanshu Gupta, the learned Counsel for respondent No. 3, has submitted that respondent No. 3 had made the bid of Rs. 2.44 crores because, according to its assessment, it was the appropriate price for the property in question, but when the appellant offered to purchase the property for Rs. 2.70 crores in its S.A. and the Presiding Officer issued notice to it showing his intention to order for the inter se bidding, it had filed an application for the refund of its amount deposited with the Bank as it was not interested in purchasing the property in question for a price above its offer of Rs. 2.44 crores. Mr. Himanshu Gupta reiterated that the respondent No. 3 is not willing to purchase the property anymore and wants its money back.

I have considered the submissions of the parties' Counsel and perused the record. The contention of the appellant that it had approached the Authorized Officer of the Bank on 18.6.2010 at 11 a.m. along with a DD of Rs. 24.30 lacs is falsified by the communication of the AXIS Bank dated 12.1.2011, filed by Mr. S.L. Gupta. DD No. 17583 issued by Miller Ganj, Ludhiana branch of AXIS Bank on 18.6.2010 tallies with the copy of the DD, Annexure-2 to SA, filed by the appellant. The time of issue of the said DD at 3.30 p.m., however, makes the contention of the appellant that it approached the Authorized Officer along with the DD at 11 a.m. on 18.6.2010 unacceptable. In view of this, appellant's further contention that it intended to participate in the bid process for purchasing the property in question for Rs. 2.70 crores cannot be believed, as the said amount has been mentioned after the bid amount of respondent No. 3 was made known to everybody after the opening of the sealed bid at 12.30 p.m. and in all probability, the appellant would have also come to know of that amount. There is no dispute that by the time the appellant had filed the S.A. offering to purchase the property for Rs. 2.70 crores. the sale in favour of respondent No. 3 was not confirmed, but since the appellant had based its alleged claim on falsehood, therefore, I am of the considered view that the same cannot be accepted. Thus, the contention of Mr. Gupta that the main purpose of the appellant was to scuttle the sale process of the property has force and is accepted, as the sale proceedings had come to a halt on the offer of the appellant to purchase the property in question in Rs. 2.70 crores against the highest bid of Rs. 2.44 crores. The subsequent change in the stand of the appellant that it would purchase the property only if it comes to it without any encumbrance shows that the appellant's intention was never to purchase the property but to scuttle the its sale process, which had ultimately hindered the recovery of the public money. The Counsel for the appellant had also stated about the changed stand qua the purchase of the property before this Tribunal at the time of admission of this appeal on 18.11.2010. This changed stand of the appellant is not acceptable in view of the fact that in Paragraph 3 of its S.A. it has stated that after approaching the Bank at SARC, Civil Lines, Ludhiana as well as contacting its Authorized Officer at Chandigarh it, being fully satisfied, had decided to participate in the sale process of the property in question.

In the case of D.J. Enterprises Ltd. & Anr. v. IFCI Ltd. & Ors. (supra), the Hon'ble Delhi High Court, has held that the object of the auction proceedings is to get the best price from the sale of the properties and there is no inherent right in the auction purchaser for confirmation of the sale if there is availability of higher offer before the confirmation of the sale. It has also been held that the Recovery Officer owes a fiduciary duty as a trustee to get the best price which mandates that even a confirmed sale can be set aside. This proposition of law does not help the appellant in view of the facts and circumstances of this case, where the highest bidder itself is not willing to purchase the property and seeks the refund of its deposit, as such there is no contest to the appellant's offer. Although the offer of the appellant for purchasing the property in Rs. 2.70 crores is much above the highest bid of Rs. 2.44 crores, but since the appellant too has changed its stand and made its offer conditional to buy the property only if it comes without any encumbrances, therefore, the appellant does not have any case so far as its claim to purchase the property in question is concerned. The order impugned dismissing the SA, therefore, is not suffering with any legal infirmity or illegality.

There is no dispute to the circumstance, that with the filing of the S.A. the process of recovery of the public money has come to a grinding halt as on getting a much higher offer than the offer made by the highest bidder, the DRT had stayed the confirmation of safe in favour of the highest bidder While challenging the Bank's action qua the conduct of auction proceedings and offering to purchase the property in question in Rs. 2.70 crores, the appellant had not put any condition for its purchase in its SA. This circumstance lends support to the view of the DRT that a false and fictitious SA was filed only to frustrate the sale of the secured asset and to stall the recovery of the public money, in my opinion, the DRT is right in holding that after offering a higher amount, the appellant cannot be permitted to say that it is not ready to purchase the property unless the Bank ensures that it would come to it free from any litigation or encumbrance, as it was never a term/condition of offer for the purchase of that property. I am also in agreement with the DRT that by filing such application precious time of the Tribunal is wasted. In order to curb this practice the DRT has ordered for the forfeiture of the amount deposited by the appellant. The appellant has deposited Rs. 67.50 lacs, as 25% of its alleged offer. However, forfeiture of such a huge amount towards penalty is neither warranted nor justifiable. In my view, for scuttling the auction process and for causing hindrance in the recovery of the public money, a penalty of Rs. 1 lac would be appropriate and proper.

In view of the discussion made above, this appeal fails and is dismissed, but the order impugned is modified to the extent that instead of forfeiture of the entire 25% of the offered amount, i.e. Rs. 67.50 lacs, deposited by the appellant, an amount of Rs. I lac only shall be forfeited which shall be deposited by the respondent Bank as per the direction of the DRT given in the order impugned and the balance amount shall be returned to the appellant within a week from the date of receipt of a copy of this order. There is no order as to the cost. Copy of this order be furnished to the parties as per law and one copy be sent to the DRT concerned forthwith.