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Judgment
Both these petitions are directed against the
auction sale of cotton bales lying as Pledge under the
Pledge Agreement. Considering that the facts are
identical and common issues raised in both cases, the
matters are taken up for hearing together. However,
the facts from Special Civil Application No.13867 of
2016 are recorded hereunder:-
This petition under Article 226 of the
Constitution of India, in connection the case arising
out of Section 176 of the Indian Contract Act, is filed
with a prayer to quash and set aside the auction notice
published by the respondent-HDFC Bank.
2.1 In the petition, it is the case that the
petitioners are alleged Pawner of of the respondent
Pawnee Bank and that the petitioners have entered into
a contract of pledge with the respondent Bank for
availing financial facilities. The pledge was in the
form of cotton bales as the petitioners are
agriculturists, engaged in cultivation of cotton.
2.2 On account of default, the respondent Bank
issued auction sale notice to sale out the cotton bales
lying under pledge with different godowns. The rates
fixed for such auction were nominal, thereby likely to
cause huge loss to the petitioners.
2.3 The auction sale notice was challenged by the
petitioners by filing Special Civil Suit No.78 of 2015
before the Principal Senior Civil Court, Junagadh along
with prayer for injunction, restraining the respondent
Bank from alienating, transferring and disposing of the
cotton bales. Pending such suit, some amount was
deposited in the month of July 2016 and against such
deposit, proportionate cotton bales were ordered
released by the Bank.
2.4 In June 2016, the petitioners were able to
get confirmed order for export of cotton bales, but the
respondent Bank sought for copies of confirmed export
orders and other details of buyers. Thereafter, by e-
mail, the petitioners received auction notice dated
09.08.2016 for auction of the balance cotton bales
(1726). The petitioners seek to challenge this auction
notice.
Heard Mr.Mihir Thakore, learned Senior
Advocate with learned Advocate Mr.Vishwas K.Shah for
the petitioners, learned Advocate Mr.Anip Gahdhi for
respondent No.1 and learned Advocate Mr.Vimal Patel
with learned Advocate Mr.Hitesh Patel for respondent
No.2 in Special Civil Application No.13867 of 2016 and
learned Senior Advocate Mr.Anshin Desai with learned
Advocate Mr.Jeet Rajyaguru for the petitioner, learned
Senior Advocate Mr.Mihir Thakore with learned Advocate
Mr.Vishwas K.Shah for respondent Nos.1 to 11, learned
Advocate Mr.Anip Gahdhi for respondent No.12 and
learned Advocate Mr.Vimal Patel with learned Advocate
Mr.Hitesh Patel for respondent No.13 in Special Civil
Application No.20244 of 2016.
Learned Advocate for the petitioners
submitted that the respondent Bank is a banking and
financial service company and is a Scheduled Commercial
Bank and hence, auction notice issued under the Act of
the Parliament, i.e. to say Section 176 of the Indian
Contract Act and therefore, the action is amenable to writ jurisdiction.
4.1 It is submitted that as the respondent Bank
is not confirming with the requirements of Section 176
of the Indian Contract Act, the action of the
respondent Bank is challenged. It is submitted that
the auction notice ought to have mentioned the date,
time and place of auction and non-mentioning of such
details vitiates the auction notice itself. It is
further submitted that valuation of the cotton bales
prior to auction of sale is sine qua non and that the
valuable right of the petitioners to redeem is taken
away as no opportunity is given to the petitioners in
that regard.
4.2 It is submitted that the act on the part of
the respondent Bank in proceeding with the auction sale
in surreptitious manner is indicative of the fact that
the respondent Bank has no intention to conduct the
auction sale in transparent and reasonable manner to
preserve the best interest of the Bank itself as well
as the petitioners.
As against this, an affidavit in reply is
filed on behalf of the respondent Bank with preliminary
contention along with reply on merits that the petition
is not maintainable against the respondent Bank, which
is a private Bank as the action under challenge is
purely commercial action, which falls within the
definition of commercial activity of Banking, for which
writ would not be maintainable. Reliance is placed on
the decision of this Court in case of Ionic Metalliks &
Ors. Vs. Union of India & Ors., reported in 2015 (2)
GLH, 156 decision of the Apex Court in case of Federal
Bank Ltd. Vs. Sagar Thomas & Ors., reported in (2003)
10 SCC, 733.
5.1 On facts, it is submitted that the
petitioners had availed financial facilities from the
respondent Bank and in form of security, pledged cotton
bales and entered into a pledge agreement. On failure
to repay the amount, notices for recall of loan to all
the petitioners were issued on 13.02.2015. Thereafter,
notices of intimation of sale of stock to all the
petitioners were issued on 21.02.2015.
5.2 By letter dated 28.06.2016, the petitioners
responded to the notices which are produced by the
respondent Bank along with its affidavit at Annexures-
A, B, C and D, which are, according to the respondent
Bank, deliberately not produced by the petitioners.
Thereafter on 09.08.2016, auction notice was issued in
local newspaper and a corrigendum on 11.08.2016.
5.3 It is stated that on 30.06.2016, an amount of
Rs.5,41,16,399/- is due from the petitioners, of which,
in July 2016, Rs.2,75,80,000/- was paid and therefore,
as on date, an amount of Rs.2,79,30,302/- is due and
payable. The pledged goods were stored in different
warehouses within the factory premises of the
petitioners and the petitioners have never allowed
Collateral Manager to shift the pledged goods to the
respondent Bank or other location.
5.4 It is submitted that the auction process is
concluded and stock sold to M/s.Gill & Company Pvt.
Ltd. could not be given physical possession as the
petitioners have caused obstruction.
Having considered the submissions made by the
rival parties and having gone through the documents
which are produced on record in support of the
respective claim, this Court is of the view that the
petitioners who have defaulted in payment, for which
each of the petitioners have been issued with a
Liquidation Notice in conformity with Clause 18 of the
Loan cum Pledge Agreement. This Notice was issued on
01.11.2014. It also appears that even after the public
advertisement in the local newspapers, the petitioners
failed to repay the outstanding amount. A request
made by the petitioners to withhold the auction
proceedings was acceded to initially, on the promise by
the petitioners that the outstanding amount of the loan
would be cleared. Despite the aforesaid, the
petitioners have not cleared their outstanding and
again on 13.02.2015, a notice for recall of the loan
was issued by the respondent Bank intimating to the
petitioners about shifting of the stock with the
collateral manager of the Bank. It was also
communicated that to stop the further process of
liquidation, the petitioners are free to clear the
total liability. Thereafter, in the Notice dated
12.02.2015, by the respondent Bank to each of the
petitioners, it was intimated that in view of the
default on part of the petitioners, the respondent Bank
has to proceed with the enforcement of the pledge and
liquidate the stock by publication in the newspaper.
It appears that the public auction pursuant
to the aforesaid proceedings was subject matter of
challenge by the petitioners by instituting a Special
Civil Suit No.78/2015 before the learned Principal
Senior Civil Court at Junagadh. It appears that the
petitioners did not succeed in their application for
staying the auction proceedings. It appears that
thereafter, the petitioners were able to deposit an
amount of Rs.2,75,80,000/= with the respondent Bank and
secured release of 1750 cotton bales. However,
remaining 1726 cotton bales still continued to be under
the pledge and therefore, when the respondent Bank
issued auction notice in the local newspaper for sale
of 1726 cotton bales, it was a proceeding in
continuation with the previous process undertaken by
the respondent Bank towards auction of sale of goods
pledged. It was only to facilitate the petitioners and
on the basis of their assurances, the actual auction
process was postponed on previous occasion and
therefore, it cannot be said that the notice informing
the petitioners dated 09.08.2016 was lacking in any
legal aspect. It has now come on record that the
respondent Bank has proceeded further with the auction
and the bid of the respondent No.2 is accepted at
Rs.2,32,02,688/= which appears to have been transferred
already to the respondent Bank. This Court by an
order dated 22.08.2016 gave one more chance to the
petitioners to approach the Bank with the amount
mentioned in the notice of the respondent Bank to
compute their claim over the pledged goods. There also
it appears that the petitioners have failed in availing
that opportunity which is recorded by this Court in the
order dated 14.09.2016 in Civil Application
No.8942/2016.
The attempt therefore, on part of the
petitioners in filing the present petition/s is to
simply stall the proceedings which appears to be the
legitimate right of the respondent Bank under the
Pledge Agreement between the petitioners and the
respondent Bank.
The preliminary objection regarding
maintainability of the writ petition deserves
consideration. The Apex Court in the reported
judgment of Federal Bank Limited (supra) has held as
under :-
"33. For the discussion held above, in our view, a private company carrying on banking business as a scheduled bank, cannot be termed as an institution or a company carrying on any statutory or public duty. A private body or a person may be amenable to writ jurisdiction only where it may become necessary to compel such body or association to enforce any statutory obligations or such obligations of public nature casting positive obligation upon it. We don''t find such
conditions are fulfilled in respect of a private company carrying on a commercial activity of banking. Merely regulatory provisions to ensure such activity carried on by private bodies work within a discipline, do not confer any such status upon the company nor put any such obligation upon it which may enforced through issue of a writ under Article 226 of the Constitution. Present is a case of disciplinary action being taken against its employee by the appellant Bank. The respondent''s service with the Bank stands terminated. The action of the Bank was challenged by the respondent by filing a writ petition under Article 226 of the Constitution of India. The respondent is not trying to enforce any statutory duty on the part of the Bank. That being the position, the appeal deserves to be allowed."
In the judgment of Ionic Metalics (supra),
this Court has taken a view that in case of a private
Bank the action of the Bank in the course of its
commercial business cannot be amenable to the writ
jurisdiction. This Court is of the view that
commercial transactions of the Bank while acting on the
Pledge Agreement was in an attempt to protect its
commercial interests in conformity with the agreement.
This action on part of the petitioners is already a
subject matter of challenge before the Civil Court. As
held by this Court in the aforementioned judgment as
well as by the Apex Court, the petition for issuance of
writ for the prayer to quash and set aside the auction
in the Notice dated 09.08.2016 is not maintainable,
more so, where the petitioners are defaulters and the
action of the respondent Bank is commercial in nature.
The contention therefore, by the petitioners to
maintain the petition/s on the ground of Section 176 of
the Indian Contract Act, which is a legislation is not
required to be examined in the facts of this case.
Both the petitions are therefore, rejected.
Notice is discharged. Interim relief, if any, stands
vacated.
In view of the order passed in main petition,
Civil Application does not survive. Disposed of
accordingly.