Akron (Acron) Healthcare Pvt. Ltd. vs Mukesh Gupta

Ranjit Singh, J

Through this order two appeals are being disposed of as a common order is under challenge in both these appeals.

The S.A. filed by the respondents 1 and 2 seeking setting aside of the sale of their property mortgaged with the bank and to declare the said sale to be null and void is allowed and the sale in favour of respondent M/s. Akron Healthcare Pvt. Ltd. has been set aside by the Tribunal below. Accordingly, the present appeals have been filed by M/s Akron Healthcare Pvt. Ltd. and the bank to impugn the order passed by the Tribunal below.

The respondents Mr. Mukesh Gupta and Mr. Arjun Mittal had filed this S.A. to challenge the sale on various counts. It is alleged that no notice under sections 13(2) or section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, the SARFAESI Act) was served on the said respondents while taking over the possession over the property. Plea further is that this property was sold without complying with the provisions of rule 8(8) of the Security Interest (Enforcement) Rules (for short, the Rules). The appellant, M/s Akron Healthcare Pvt. Ltd. objected to and filed response and raised a preliminary objection about the maintainability of the S.A. on the ground that this was hopelessly barred by limitation. The appellant also pleaded that the respondents 1 and 2 who were applicants before the Tribunal below could not raise the plea that the property was sold at a price lower than market value, as they were not the owner of the said property. This property was owned by M/s Abka Pharmacare PVt. Ltd. which is not the applicant in the said S.A. As per the appellant, the company is a separate juristic person distinct and different from its directors or shareholders. Some other pleas were also raised which may not be necessary to notice in view of the impugned order having been passed only on the ground that the sale was conducted without complying wit the provisions of rule 8(8) of the Rules.

After considering the pleadings before it, the Tribunal framed the following issues requiring decision:-

Whether SA is barred by limitation?

Whether the notices under Section 13(2) and 13(4) of SARFAESI Act were served upon the applicants?

Whether the properties in question have been sold in compliance of Rule 8(8) of the Rules, 2002?

The Tribunal found that the S.A. application was well-within time as the dispute of violation of one-time settlement was going between the parties till 29.9.2010 and thus limitation would commence w.e.f. this date. The plea of the respondents that no notice under section 13(2) or section 13(4) of the SARFAESI Act was served has been negated However, the Tribunal has held that the provisions of rule 8(8) of the Rules, which is relevant in this case were not followed, as there is nothing on record to show that the appellant agreed for selling the secured asset for RS.67 lacs by private treaty on receiving intimation from the respondent bank regarding availability of an offer. The Tribunal has viewed that the sale by private treaty require written consent by the mortgager in terms of Rule 8(8) as evident from the words "on such term as may be settled between the parties in writing." The sale accordingly has been set aside on this count.

I have heard the counsel for the parties. As per the counsel appearing for the appellants, the view taken by the Tribunal below is not justified even by mere reading of rule 8(8) of the Rules. As per the counsel, any sale other than the public auction or public tender is to be on such terms as may be settled between the parties in writing. The counsel would emphasize that the use of word 'shall' and 'may' in the same rule to contend that the requirement laid down in the rule so far as the settlement between the parties is concerned cannot be held mandatory in character. As per the counsel, when the words 'shall' and 'may' are used in the same section, the word 'may' cannot be interpreted to read it to be mandatory. Counsel would further contend that the word 'parties' in rule 8(8) of the Rules would refer to parties which are concerned with the sale and would not include in its purview the borrower who has no concern with the sale when the property is put to sale. The counsel would submit that if this requirement is read into this rule that such sale is to be on such terms as may be settled between the borrower and the bank, then no borrower would ever consent for such a sale and in that event this provision itself would become redundant.

In support of his submission, the counsel for the appellant has placed before me a judgement in the case Saheb Khan vs. Mohd. Yusufuddin & Ors., AIR 2006 S.C. 1871. This was also a case where setting aside of auction sale in execution of decree was prayed. The issue was whether the proclamation of sale by beat of drum as required under the rule was mandatory or not. The Court has held that once the pamphlet advertising sale is distributed in locality several days prior to its holding and copy of the sale notice was affixed on the property itself, the proclamation of the sale by beat of drum could not be held mandatory. The Hon'ble Court has further observed that failure on the part of the respondent to establish that he had suffered substantial injury by reason of any irregularity or fraud, the order setting aside the sale was held not proper. Reference is also made to the case Smt. Bachchan Devi & Anr. vs. Nagar Nigam , Gorakhpur & Anr., AIR 2008 Supreme Court 1282, where the Supreme Court has considered the effect of use of the words 'may' and 'shall' in the same provision. As per the Court, where the Legislature uses the words 'may' and 'shall' in two different parts of the same provision, it would appear that the legislature manifested its intent on to make one part directory and another mandatory. As per the Court, that by itself is not decisive and the power of the Court to find whether the provisions is directory or mandatory remains unimpaired. The Court has also observed that the ultimate rule for construing auxiliary verbs like 'may' and 'shall' is to discover the legislative intent and the use of words 'may' and 'shall' is not decisive of its discretion or mandates. The use of these words may help the Courts in ascertaining the legislat.ive intent without giving to it either a controlling or a determining effect. The Court has further to consider the subject matter, the purpose of provision, the object intended to be secured by the statute which is of prime importance, as also the actual words employed. Generally, the word 'shall' used in the statute is to be taken in a mandatory sense, it does not necessarily mean that in every case it shall have that effect. On the other hand, it is not always correct to say that when the word 'may' has been used, the statue is only permissive or directory in the sense that non-compliance with those provisions will not render the proceedings invalid.

Whether the requirement laid down in this rule is directory or mandatory may not be of very relevance as the core issue in this case to be considered is whether the word 'parties' used in this rule would include the borrower or not. The provisions of the SARFAESI Act and the rules made thereunder empowers the bank to conduct the sale of the property by way of public auction or by inviting public tender. Besides this, the sale can also be effected by way of private treaty. Rule 8(8) of the Rules apparently is applicable when the bank intends to carry out the sale of the property by method other than the public auction or public tender. In that event, this rule provides that such sale shall be on such terms as may be settled. The terms to be settled have to be between the seller and the purchaser and they alone would be parties to the sale. The purpose or reason behind this rule apparently is that the bank should not be able to do anything by way of private treaty without settling the terms to avoid any allegation of connivance etc. If the legislature had any intention to include the borrower in this settlement between the bank which has a charge and the prospective buyer, then the same could have very well been so provided in the provision itself clearly. The legal position as to whether this requirement is mandatory or directory would result in examination of sale to see it from the angle if any prejudice has been cause to the parties concerned. If the requirement is mandatory, then it is to be followed. If it is directory, then the forum concerned may have to see if this sale has led to any prejudice to any of the parties.

By way of alternative argument, the counsel for the appellant has also pleaded that in this case if it is viewed that the word 'parties' would include borrower then he had complete notice, as option was given to him to purchase this property, but he did not do so. I may not be required to go into this aspect once a view is that the terms are to be settled between the bank' and the prospective buyer and the word 'parties' used in this rule would not include the borrower. There is substance in the submission that the word 'parties' used in the rule relates to the sale and not to the parties which are litigating. If the sale is by any other method, it will be between the bank and the prospective buyer. So, settlement is to be between these parties and not anybody else.

To be fair to the counsel for the respondent, he has submitted that the ward 'shall' has continuously to be read with both requirements projected in the rule to give a meaning to the provision once the rule provides that the sale shall be an such terms which are to be settled between the parties, then this requirement would be mandatory and not directory. The requirement of reading the terms are mandatory as the use of ward shall indicate but settlement in writing has to be read with the ward 'may' and so appears to be directory. The parties have to agree to the terms on which the sale is to be carried out, but these terms may not necessarily be in writing, as the ward 'may' implies.

In view of above, this part of the order whereby the sale has been set aside an account of violation of rule 8(8) cannot be sustained. The present appeal is accordingly allowed. The impugned order is set aside.