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Judgment
R. Banumathi, J.—Employees Provident Fund Organization, Madurai Region, has filed W.P.(MD) No. 11317 of 2010 challenging the
auction sale notice, dated 05.08.2010, issued by the Authorized Officer, Union Bank of India, Regional Office, Madurai, on the ground that the
Employees Provident Fund Organization has priority over all other debts. The borrower from Union Bank of India has filed Writ Petition No.
12690 of 2010, challenging the letter, dated 24.05.2010, issued by the Union Bank of India, Rajapalayam Branch, not accepting the request of the
Petitioner/borrower for revival of OTS and to direct the bank to revive the OTS Scheme. For convenience, the parties are referred to as per the
ranking in W.P. (MD) No. 12690 of 2010.
The writ Petitioner availed certain credit facilities from the Union Bank of India, Rajapalayam Branch, and the 2nd Respondent. The Petitioner
has mortgaged factory land and building and also residential property, apart from the hypothecation of plant and machinery in the factory with the
Respondent bank to secure repayment of the loan facilities availed by the Petitioner. The credit limits were enhanced at the request of the Petitioner
to the tune of Rs. 907.12 lakhs. Since the Petitioner has not adhered to the repayment schedule nor serviced the interest, the account of the
Petitioner was classified as a ""Non-Performing Asset""(NPA) as on 31.03.2003. Notice u/s 13(2) of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (in short ""SARFAESI Act"") was issued on 13.12.2006. The writ Petitioner has
not sent any reply to the demand notice nor paid any amount towards its liability. The Respondents Bank issued possession notice for the
immovable and movable properties on 11.12.2008 and the physical possession of the properties was taken on 28.06.2010. Insofar as the
movable properties are concerned, panchanama, as required under Rule 4(1) of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Rules, 2002 was drawn and taken.
By its letter dated 21.01.2009, the Petitioner requested the Respondents Bank for settlement under OTS Scheme and offered to pay a sum of
Rs. 470 lakhs towards full and final settlement of dues. Considering the request of the Petitioner, the Respondent bank permitted OTS fixing Rs.
489 lakhs towards the full and final settlement of the dues and also fixing the time limit for payment of OTS amount. Admittedly, even the 1st
installment was not paid by the Petitioner and hence the OTS proposal was duly cancelled by the Respondent Bank on 21.07.2009. Since the
Petitioner has not regularized the accounts, the Respondent Bank filed an application u/s 14 of SARFAESI Act before the District Collector,
Virudhunagar, and an order came to be passed on 01.04.2010 for taking possession.
When the matter stood thus, the Petitioner gave a letter to the Respondent bank on 12.04.2010 for sale of the fixed assets for settling the
account and by its letter dated 19.04.2010, the Respondent Bank acknowledged the receipt of the said letter. The Petitioner had given another
letter, dated 16.04.2010, for sale of the properties by private negotiation. When the matter stood thus, the Petitioner filed W.P.(MD) No. 5519 of
2010 seeking a mandamus to consider its representation, dated 16.04.2010, for OTS and this Court by order, dated 21.04.2010, granted an
order of interim stay on condition that the Petitioner should pay a sum of Rs. 1 crore within a period of one month there from. On an application
filed by the Petitioner, the period was extended till 21.06.2010. The Petitioner has not complied with the conditional order and has not paid the
amount. In the meantime, when the main writ petition W.P. (MD) No. 5519 of 2010 itself came up for hearing on 27.05.2010, this Court
dismissed the writ petition.
Thereafter, pursuant to the order passed u/s 14 of SARFAESI Act by the District Collector, Virudhunagar, physical possession of the secured
assets was taken on 28.06.2010 and publication for taking physical possession of the assets was given in Newspapers on 02.07.2010 and
thereafter the Respondent bank issued sale notice on 05.08.2010, fixing the date of sale on 06/09/2010.
Challenging the action of the Respondent bank, the Petitioner filed an appeal before the Debts Recovery Tribunal, Madurai, in S.A. No. 124 of
2010. The Respondent bank filed an application before the Debts Recovery Tribunal seeking permission to conduct auction sale on 27.09.2010.
By the order dated 21.09.2010, the Debts Recovery Tribunal, Madurai, permitted the RespondentBank to conduct the sale on 27.09.2010 but,
not to confirm the sale. Accordingly, the Respondent bank conducted the sale on 27.09.2010.
In the meanwhile, the Employees Provident Fund Organization has filed a writ petition in W.P. (MD) No. 11317 of 2010, challenging the
auction sale notice, dated 05.08.2010, on the ground that the Organization has priority over all other debts. By the order dated 31.08.2010, this
Court has granted an order of interim stay from proceeding with the sale of the property without settling the dues to be paid to the Employees
Provident Fund Organization.
Learned Counsel for the Petitioner Mr. Jayesh Dolia has contended that even though the Respondent Bank came to know about the interim
order passed by this Court in W.P. (MD) No. 11317 of 2010 on 31.08.2010 and the bank has also entered appearance on 08.09.2010,
suppressing the above facts, the Bank has moved the Debts Recovery Tribunal and obtained permission to conduct the auction sale on
27.09.2010. Learned Counsel for the writ Petitioner has taken strong exception to the conduct of the Respondent bank in not bringing it to the
notice of the Tribunal about the stay granted by this Court in W.P.(MD) No. 11317 of 2010.
We have heard the learned Counsel appearing for the Respondent Bank. Taking us through the various dates and events, the learned Counsel
for the Respondent Bank has submitted that when the Petitioner has already defaulted in the OTS and when the Petitioner is a willful defaulter, the
Petitioner cannot seek for a direction to revive OTS and accept the amount of Rs. 470 lakhs.
We have also heard Mr. G.R. Swaminathan, learned Counsel appearing for the Employees Provident Fund Organization, the Petitioner in
W.P.(MD) No. 11317 of 2010.
As pointed out by us earlier, based upon the Petitioner''s letter dated 21.01.2009, the Respondent bank has sanctioned OTS directing the
Petitioner to pay a sum of Rs. 489 lakhs. As per the settlement proposal, a sum of Rs. 100 lakhs was to be paid within one month from
24.04.2009 and the balance amounts were to be paid in three installments, i.e. the entire OTS amount of Rs. 489 lakhs was to be paid before
31.08.2009. Admittedly, even the 1st installment was not paid by the Petitioner and hence the OTS proposal was duly cancelled by the
Respondent Bank on 21.07.2009. Having been a defaulter, the Petitioner cannot seek for a direction to revive the OTS. In this context, we may
usefully refer to the decision of the Supreme Court in Calibre Knives Pvt. Ltd. and Anr. v. State Bank of India - reported in 2006(13) Comp Cas
294(SC), wherein one time settlement arrived at between the borrower and the bank, but later on it was withdrawn by the bank. It that case also,
the debtor approached the State Bank of India for one time settlement scheme evolved by them in accordance with the guidelines of the Reserve
Bank of India. But the Debts Recovery Tribunal has already passed an order in favor of the bank and further a recovery certificate was also
issued. Without being aware of the stage of the proceedings before the Tribunal, one time settlement was arrived at by the bank. Later on, the
settlement was withdrawn by the bank. Even in that case, the Supreme Court passed an order, which reads as follows:
Therefore, it is obvious that the letter was issued without being aware of the factual position in regard to the decision of the Debt Recovery
Tribunal and the issuance of the recovery certificate.
In the instant case also, the Petitioner has earlier not complied with OTS scheme. When the Petitioner has committed default in the earlier OTS
Scheme, the relief sought for by the Petitioner in W.P.(MD) No. 12690/2010 to direct the Respondent Bank to accept the OTS cannot be
granted.
Insofar as the writ petition in W.P.(MD) No. 11317 of 2010 is concerned, in respect of the provident fund dues from the Petitioner
establishment, in the counter affidavit filed by the Authorized Officer of the Respondent Bank has undertaken to pay the dues to the Employees
Provident Fund Organization. In paragraph No. 4 of the counter affidavit, the Authorized Officer of the Respondent Bank has averred as under.
...that the dues to the Petitioner Organization to the tune of Rs. 79,10,350/- would be paid first out of the sale proceeds of the properties of the
second Respondent as per Section 11(2) of employees Provident Fund and Miscellaneous Provisions Act 1952. It is also on record that the
Deputy General Manager of the bank has sent a letter to the Recovery Officer, EPF Organization, Madurai on 28.09.2010 that out of the sale
proceeds of the secured assets, the dues to the EPF Organization to the tune of Rs. 79 lakhs would be paid first."" The above undertaking given by
the Respondent Bank is recorded. In view of the above undertaking of the Bank, no further orders need to be passed in W.P. (MD) No. 11317
of 2010 filed by the Employees Provident Fund Organization and interim stay already granted is to be vacated.
CONDUCT OF THE RESPONDENT BANK:
We would have disposed of both the writ petitions as concluded above. But, the conduct of the Bank, which we disapprove, impelled us to
elaborate upon the matter further. As pointed out earlier, in W.P. (MD) No. 11317/2010, interim stay was granted on 31.08.2010. In the said
writ petition the Respondent Bank has entered appearance on 08.09.2010 and has also taken steps for vacating the interim stay. While so, the
Authorized Officer of the Respondent Bank has filed an application before the Debts Recovery Tribunal, Madurai, seeking permission to conduct
sale on 27.09.2010, without bring it to the notice of the Debts Recovery Tribunal about the interim order passed by this Court on 31.08.2010 and
obtained order from the Debts Recovery Tribunal in bringing the properties for sale. By order dated 21.09.2010, the Debts Recovery Tribunal has
also permitted the Authorized Officer of the Respondent Bank to conduct the sale on 27.09.2010 but, not to confirm the sale. Accordingly, the
Authorized Officer had also conducted the sale on 27.09.2010. The said proceedings are in violation of the interim order passed by this Court in
W.P. (MD) No. 11317 of 2010 on 31.08.2010.
The learned Counsel for the Respondent Bank has submitted that it has so happened because of lack of proper advice and that there was no
willful conduct on the part of the Respondent Bank to disobey the orders of this Court and to that effect an affidavit has been filed by the
Authorized Officer of the Respondent Bank. Even though an affidavit has been filed explaining its conduct of proceeding with the sale on
27.09.2010 in spite of the stay granted by this Court, we are constrained to express our disapproval to the conduct of the Respondent Bank. A
financial institution like the Respondent Bank is expected to disclose all the material facts bringing it to the notice of the Debts Recovery Tribunal
and Bank should have conducted itself as a model litigant to others. Having regard to the conduct of the Respondent bank and to uphold the
majesty of this Institution, we deem it appropriate to impose a costs of Rs. 25,000/ (Rupees twenty five thousand) on the Respondent bank, which
is payable by the Respondent bank to the Madras High Court Legal Services Committee, attached to the Madurai Bench of Madras High Court,
within a period of four weeks from the date of receipt of a copy of this order.
As pointed out earlier, by the auction notice, the following three items of properties were brought for sale.
(i) Factory land & building in S. No. 13, Door 1110A, Ward B, Block No. 12, Tenkasi Road, Rajapalayam, Virudhunagar district in the name of
M/s.?Shree Rajulakshmi Spinners (P) Ltd. (Upset price of the property is Rs. 5,15,00,000/-Rupees Five crores fifteen lacs only)
(ii)Plant & Machinery kept in the factory situated at Factory land & building in S. No. 13, Door 1110A, Ward B, Block No. 12, Tenkasi Road,
Rajapalayam, Virudhunagar district in the name of M/s.?Shree Rajulakshmi Spinners (P) Ltd. (Upset price of the property is Rs. 1,10,00,000/-
Rupees one crore ten lacs only)
(iii) 1115.50 sq.ft. of land with building at Door No. 129 (old), 87 (new) Ward No. 14, Thambapillai Street, Rajapalayam, Virudhunagar District,
owned by Mr. P.V. Ramasubramania Raja. (The upset price of the property is Rs. 21, 38, 000/-Rupees Twenty one lacs thirty eight thousand
only).
16 . On 16.11.2010, the learned Counsel for the Respondent Bank that for the sale of 2nd item of properties, namely plant and machineries, they
have received offer for a sum of Rs. 1.10 crores. However, the Petitioner/Borrower has filed an affidavit stating that they have better offer from
M/s. Devi Traders, Patel Road, Ram Nagar, Coimbatore, and that the Petitioner is also agreeable for the sale of plant and machinery to the said
purchaser for a sum of Rs. 1.20 crores, which is more than the highest bid received by the Authorized Officer of the Respondent Bank in the
auction sale conducted by them on 27.09.2010. The learned Counsel for the Respondent bank has also submitted that on payment of Rs. 1.20
crores, the bank is ready to release the plant and machineries hypothecated to the Bank.
Recording the said statements of the learned Counsel for the borrower and also the learned Counsel appearing for the Respondents bank, by
order dated 16.11.2010, we have directed the borrower to deposit Rs. 1.20 crores before the 2nd Respondent Bank on 19.11.2010 and posted
the matter on 23.11.2010 for further orders. Today, when the matter was taken up for hearing, it was represented that Pursuant to the said order
dated 16.11.2010, the borrower has deposited the said sum of Rs. 1.20 crores with the 2nd Respondent Bank and on such deposit, the 2nd
Respondent bank has also issued a letter dated 22.11.2010 stating that they are releasing the plant and machinery specified in Item No. 2 of the
Sale Notice, dated 05.08.2010.
At this stage, the bidders who had already submitted their tenders to the 1st Respondent have raised objections for our earlier order dated
16.11.2010 on the ground that before passing the said order, permitting the sale of plant and machineries to M/s. Devi Traders, Coimbatore no
opportunity was afforded to them. The miscellaneous applications filed by them seeking to impaled themselves as party to the writ proceedings
were ordered by this Court today and they have been impleaded as Respondents 3 and 4 in W.P.(MD) No. 11317 of 2010 and Respondents 4
and 5 in W.P.(MD) No. 12690 of 2010.
Learned Counsel Mr. G. Prabhu Rajadurai, appearing for the Respondents 3 and 4 in W.P.(MD) No. 11317 of 2010, has submitted that the
newly impleaded Respondents, namely Baskarraja and B. Hema are interested in bidding for both Item Nos. 1 and 2 and in respect of item No. 1,
they have made an offer of Rs. 5.15 crores and in respect of plant and machineries (Item No. 2) they offered a sum of Rs. 1.10 crores and in the
auction held on 27.09.2010, they have also remitted initial amount of Rs. 61,50,100/-. He would further submit that without Item No. 2, the plant
and machineries, item No. 1 would not fetch much value and therefore the order dated 16.11.2010 seriously affects the interest of Respondents 3
and 4 who had already bid in the auction.
Learned Counsel appearing for the newly impleaded Respondents 4 and 5 in W.P. (MD) No. 12690/2010, namely (i) R.M. Textiles,
Tiruppur, and (ii) Srivishnu Traders, Rajapalayam, has also submitted that they are ready to give higher offer than that of Rs. 1.20 crores offered
by M/s. Devi Traders, Coimbatore, in respect of item No. 2, the plant and machineries.
Having regard to the submissions of the bidders, we are of the view that if the properties are sold for higher amount, it will fetch huge amount
for the bank, which will be useful for the Bank and it would also be beneficial to the borrower as well as the employees of the borrower. In the
interest of the Bank/creditor, the borrower as well as the employees, we deem it appropriate to modify our order, dated 16.11.2010 and also
directing the Respondent bank to go for fresh auction in respect of all the three items of properties.
Learned Counsel for the borrower Mr. Jayesh B. Dolia has submitted that pursuant to the letter given by the Bank they have already removed
one load of plant and machinery. However, the borrower has undertaken to return the plant and machineries so removed within two days from the
date of this order. In respect of the remaining plant and machineries, specified in Item No. 2 of the sale notice are concerned, the Respondent
Bank is directed to continue to keep the plant and machineries in safe custody. On restoration of the plant and machineries removed by the
borrower, the bank is directed to return the sum of Rs. 1.20 crores deposited by the borrower. In case plant and machineries are not returned
value of the machinery so removed shall be retained by the Bank.
In the result, the writ petitions are disposed of in the following terms.
(i) The borrower/writ Petitioner in W.P (MD) No. 12690/2010 is directed to return the one load of plant and machineries which have been
removed by them within two days from the date of this Order. In respect of the plant and machineries mentioned in Item No. 2 of the Sale Notice,
the Respondent bank is directed to continue to keep them in safe custody. Subject to the restoration of the plant and machinery removed by the
borrower, the amount of Rs. 1.20 crores is ordered to be returned to the borrower by the Respondent bank. In case plant and machineries are not
returned, value of the machinery so removed shall be retained by the Bank.
(ii) Thereafter, the bank shall proceed with fresh auction and such auction is subject to the further orders to be passed by the Debts Recovery
Tribunal.
(iii)Recording the undertaking given by the Respondent bank in paragraph 4 of its counter affidavit filed in W.P.(MD) No. 11317/2010, Writ
Petition in W.P.(MD) No. 11317 of 2010 is disposed of as no further orders need be passed. Stay granted is vacated. Connected M.P. (MD)
Nos.2 and 3 of 2010 are closed.
(iv) W.P. (MD) No. 12690 of 2010 is dismissed. Connected M.P. (MD) No. 2 of 2010 is dismissed and M.P. (MD) No. 3 of 2010 is closed.
(v)In view of our finding in paragraph 13 of this order, the Respondent bank is directed to pay a cost of Rs. 25,000/- (Rupees twenty five
thousand) to the Madras High Court Legal Services Committee, attached to the Madurai Bench of Madras High Court, within a period of four
weeks from the date of receipt of a copy of this order.