Kajal Aggarwal And Ors vs Renu Jain And Ors

The appellants are the auction purchasers of property No.12, Block C-7, Krishna Nagar (Northern Portion) Village Ghondli, IllaqaShahddara, Delhi('hereinafter to be referred as 'the property in question'). This property was sold by the recovery officer attached to DRT-1, Delhi in order to execute the recovery certificate issued by the DRT-1 in Original Application No.392/2014 filed by respondent no.2 Bank under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act,1993('RDDBFIAct' in short) for recovery of its unpaid loan money of 4,10,46,698/- which it had advanced to one Firm by the name of M/s Radhey Sham Trading Co. Property in question was sold by way of e-auction on 28.02.2018. Neither the borrower nor the O.A. applicant Bank was dissatisfied with that sale for a sum of Rs.3.61 crores. Sale certificate was issued by the recovery officer on payment of full auction money by the appellants andphysical possession of the property in question was delivered to them.

On 04.04.2018 respondent no. 1 herein. Ms. Renu Jain, approached the recovery officer and represented that she was desirous of purchasing the property in question but she could not participate in the auction since she was misguided by officials of the CH Bank. She offered to pay a sum of Rs.3.80 crores as against the amount of Rs. 3.61 crores paid by the appellants herein(auction purchasers) to buy the property in question. Subsequently, the respondent no.2 increased her offer to Rs.4.33 crores. However, the learned recovery officer rejected her request vide his order dated 04.05.2018.

Respondent no. 1 then carried the matter to the learned Presiding Officer of DRT by filing an appeal under Section 30 of the RDDBFI Act and challenged the decision of the recovery officer rejecting her request to cancel the sale of the property in question in favour of the appellants herein and to sell the same in her favour at the higher price offered by her. The learned Presiding Officer of the DRT-1 accepted her appeal vide impugned order dated 25.03.2019 which is under challenge in the present appeal at the instance of the two auction purchasers. The learned Presiding Officer has asked the recovery officer to conduct inter-se bidding between the two auction purchasers, appellants herein, and the respondent no.1 herein who wanted to buy the property in question at a higher price but without participating in the public auction(e-auction).

The impugned order of the learned DRT, which gives in detail the background facts leading to the filing of appeal before the DRT and now the present appeal, is re-produced below:-

"This appeal is preferred Appeal under Section 30(1) of the Debts Due to Banks and Financial Institutions Act, 1993 against the order dated 4th May, 2018 passed by the Recovery officer-II attached to this Tribunal in R.C. No.119/2016 titled Punjab National Bank vs. Radhey Sham Trading Co. and the factual matrix leading to the filing of the present appeal is as follows.

On 10th January, 2018, learned Recovery Officer had issued sale proclamation qua the property bearing Plot No.12, Block C-7, Krishna Nagar (Northern Portion) Village GhondliIllaqaShahddara, Delhi (total covered area with stilt floor 7728 sq.feet) at reserve price of Rs.3.61 crores through e-auction in the recovery proceedings in R.C. No.119 of 2016 and on having come to know the appellant approached the respondent bank and made enquiries regarding the auction, but the officials of the respondent bank misled her and told her that it would not be better for her to participate in the auction. Being interested to purchase the property in question, she moved an application vide Diary No.3177 dated 4th April, 2018 before the learned Recovery Officer making an offer for a sum of Rs.3.80 crores to be paid within thirty days from the date of approval or by the time granted by this Tribunal. She also enclosed Demand Draft of Rs.93.50 lacs being upfront of the offered price. However, on 4th May, 2018 during the course of hearing learned Recovery Officer expressed that she should increase the offer for more than 10% but after completing the proceedings, learned Recovery Officer informed that appropriate orders shall be passed. Accordingly, vide her application filed vide Diary No.3101 dated 10th May,, 2018 she made an offer for a sum of Rs.4.33 crores which is more than 20% of the offer already made for Rs.3.80 crores, but she came to know that the learned Recovery Officer confirmed the auction in favour of respondents no.2 & 3 for Rs.3.61 crores without considering the submissions made by her and that she is ready to purchase the property in question for Rs.4.33 crores and had already deposited a sum of Rs.93.50 lacs with the Registry of this Tribunal.

Aggrieved with the impugned order dated 4th May, 2018 confirming the sale in favour of respondents no.2 & 3 in respect of the property in question, the appellant has filed the present appeal contending that the same is contrary to the facts on record and is based on mere surmises and conjectures. It is further contended that the impugned order is not only contrary to law but also against the principles of natural justice and equity and has been passed without application of judicious mind. Learned Recovery officer has failed to appreciate that against the reserve price fixed at Rs.3.61 crore, the appellant has made offer of Rs.3.80 crores which was even enhanced up 4.33 crores. The impugned order has been alleged to be passed without any rhyme or reason and ignoring the better offer and even without recording her submissions.

In response to the notice issued, the respondent bank has filed its reply contending that the impugned order is valid being passed in consonance with law and does not call for any interference. It is further contended that the appellant has not come before this Tribunal with clean hands and has misled the Tribunal. The impugned order is legally sustainable for the reason that the appellant has no locus-standi to file the objection because she never participated in the auction and a person who does not participate in the auction cannot file any objection. The appellant is guilty of abuse of process of law and the provisions of Rule 60 & 61 of the Second Schedule to Income Tax Act, 1961 postulates the policy of an auction sale become absolute if it is not challenged within thirty days thereof. Admittedly, the objection /application was filed by the appellant on 4th April, 2018 vide Diary No.3177 whereas the auction was held on 28thFebruary, 2018 and it is, thus, clear that the said application/objection was filed on 35th days from the date of auction which is beyond the limitation period of 30 days. It is submitted that the impugned order passed by the learned Recovery Officer is perfectly legal and is liable to be sustained as neither any fraud has been alleged nor proved while conducting e-auction of the property in question in the present case and declaring respondents no.2 & 3 as the successful bidders. It is further contended that in the matter of ValiKhimji& Co. Vs. O.L. of Hindustan Introproduct, 2008(9) SCC 299, it has been held that if it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation with higher amount and it will become an unending process. Accordingly, a prayer has been made to dismiss the present appeal with costs.

In their joint reply, respondents no.2 & 3 have also contended that the present appeal is not maintainable as the appellant even having come to know, did not participate in the auction and now wants to take the property in question without participating in the auction and even the application filed by her before the learned Recovery Officer is also time barred inasmuch as the auction was held on 28th February, 2018 whereas she filed the said application on 4th April, 2018 i.e. after 30 days of the auction. The answering respondents have submitted that they have purchased the property in question by spending almost an amount of Rs.4 crores towards the sale consideration, poundage fee and the registration charges and on the other hand, the appellant is making mockery of process of law as has rightly been noted down by the learned Recovery Officer in the impugned order, which is perfectly legal and sustainable in the eyes of law. A prayer has, thus, been made to dismiss the present appeal with costs.

I have heard learned counsel for the parties and have gone through the entire material on record carefully.

Now the point for consideration is whether the appellant is entitled for setting aside the sale conducted by the learned Recovery Officer on 4th May, 2018 in respect of the said property bearing Plot No.12, Block C-7, Krishna Nagar (Northern Portion) village Ghondli Illaqua, Shahdara, Delhi (total covered area with stilt floor 7728 sq.feet) as prayed for?

The contention of the appellant is that on 10th January, 2018 learned Recovery Officer issued sale proclamation in respect of the property in question at reserve price of Rs.3.61 crores and upon coming to know about the same, she approached the respondent bank but she was misled by the officials of the respondent bank that various litigations are going on qua the said property. It is further contended that since she was interested to purchase the said property, she filed an application vide Diary No.3177 dated 4th April 2018 before the learned Recovery Officer and made an offer of Rs.3.80 crores to be paid within thirty days and also deposited Rs.93.50 lacs being upfront amount of the offered price, which is still lying deposited with the Registry. It is further the contention of the appellant that on 4th May 2018 during the course of hearing, learned Recovery Officer expressed his opinion that the appellant should increase the offer by more than 10% and accordingly on 10th May 2018 she moved an application vide Diary No.3101 making an offer for Rs.4.33 crores but by that time, she came to know that the learned Recovery Officer had confirmed the sale in favour of respondents no.2 & 3 on 4th May, 2018 itself and that too at the reserve price of Rs.3.61 crores. It is contended by the appellant that she is ready to purchase the said property at Rs.4.33 crores and has already deposited Rs.93.50 lacs with this Tribunal.

On the other hand, learned counsel for the respondent bank has contended that Recovery Certificate for an amount of Rs.4,10,46,698/- alongwith future interest @13% per annum was issued and the sale proclamation was issued on 10th January, 2018 by the learned Recovery Officer fixing the auction on 28th February, 2018 at 11 AM with reserve price of Rs.3.61 crore. It is further contended that the sale proclamation was duly published in two newspapers, namely, The Hindustan times (English) and Hindustan (Hindi) on 24th January, 2018. Ms. KajalAggarwal and Mr. ArunVij jointly deposited EMD and participated in the auction and they were declaredas successful bidder and after confirmation of the sale in their favour, the appellant filed an application, which was rightly dismissed by the leaned Recovery Officer. The respondent bank is willing to recover the balance amount and, as such, there is no merit in the present appeal and the same is liable to be dismissed.

In the instant case, the reserve price for the said property was fixed at Rs.3.61 and the bid was also received for that amount. It seems that there is only one bidder. It is the contention of the appellant that she approached the respondent bank to know about the particulars of the auction, but the officials of the respondent bank misguided her saying that there were various litigations in respect of the said property. Initially, the appellant had offered an amount of Rs.3.80 crores for the said property and now she has offered the same to Rs.4.33 crores for the same property. It seems that the learned Recovery officer has sold the property at minimum bid amount itself. Since the appellant has offered an amount of Rs.4.33 crores and in order to realize market valuable of the property, I am of the considered opinion that as the minimum amount now offered by the appellant is Rs.4.33 crores, which is more than by Rs.53 lacs from the previously offer of Rs.3.80 crores, no prejudice would be caused to learned Recovery Officer if an inter-sebid takes place in between the appellant and the auction purchasers. Accordingly, the sale confirmed by the learned Recovery Officer is hereby set aside and the learned Recovery Officer is directed to conduct inter-se bidding in between the appellant and the auction purchasers in order to realize high prudential value of the property.

In the result, the present appeal is allowed and the impugned order dated 4th May, 2018 confirming the sale is set aside and the learned Recovery Officer is directed to fix a date for conducting inter-se bidding in between the appellant and the auction purchasers and then confirm the sale in favour of the highest bidder amongst the appellant and the auction purchasers. No order as to costs."

I have heard counsel for the parties.

From a reading of the impugned order of the learned DRT it is evident that it was nobody's case at any stage that the auction sale of the property in question in favour of the appellants was vitiated by fraud etc. The only reason for setting aside the order of the recovery officer by the learned Presiding Officer of the DRT was that respondent no.1 herein had after the auction come out with an offer to buy the property in question for a sum of Rs. 3.80 crores, which figure was increased to Rs. 4.33 crores, as against the price of Rs. 3.61 crores at which the appellants had purchased the same by participating in the public auction.

In my view, the decision of the learned Presiding Officer is contrary to the legal position settled by the Hon'ble Supreme Court for such like situations where someone who does not participate in public auction and after coming to know the sale price at which auction of public property is concluded, surfaces and expresses a desire to buy the auctioned property at a higher price. The judgment of the Hon'ble Supreme Court which supports the appellants' case was rendered 12.08.2008 in Civil Appeal No.4992_of 2008"Valji Khimji & Company vs Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd & Ors." The paras containing the relevant facts and the views of the Apex Court are being re-produced below in extenso:-

"4. The facts of the case are that Hindustan Nitro Product (Gujarat) Ltd. was put under liquidation, and an official liquidator was appointed for it. The assets of the company were proposed to be auctioned, and hence the Court asked the official liquidator to obtain a valuation report. The official liquidator after obtaining the valuation report submitted it to the Court. The valuation of these assets, according to the official liquidator, was Rs.2.55 crores. The property was then put up for auction on 25.3.2003 after advertising it in various well-known newspapers having wide circulation, including `The Economic Times' which is a well known newspaper having wide circulation in the business community.

Several bids were received and were opened in the Court. The highest bid was that of the appellant M/s. Valji Khimji & Company amounting to Rs. 3.51 crores. .........

Although the sale was confirmed in favour of the appellant on 30.7.2003, a letter dated 22.10.2003 was sent to the official liquidator by one M/s. Manibhadra Sales Corporation (respondent No. 8 herein) offering to buy the assets in question for Rs.3.75 crores (though this offer was admittedly withdrawn later on).

Subsequently in August 2004, M/s. Castwell Alloys Limited (respondent No. 9 herein) made an offer of Rs.5 crores for the said assets. This offer was made more than one year after the confirmation of the sale in favour of the appellant.

Both M/s. Manibhadra Sales Corporation and M/s. Castwell Alloys Limited filed applications praying for recall of the order dated 30.7.2003 by which the sale was confirmed in favour of the appellant. On 10.9.2004, the learned Company Judge took up both these applications and passed an order dated 10.9.2004 recalling the order dated 30.7.2003 by which the sale was confirmed.

Aggrieved against the said order dated 10.9.2004 the appellant filed an appeal before the Division Bench of the High Court which was dismissed by the impugned judgment dated 25.8.2005 and 26.8.2005. Aggrieved, this appeal has been filed before us by way of Special Leave.

We have carefully perused the impugned judgment & order of the learned Division Bench as well as the order dated 10.9.2004 of the learned Single Judge and are of the opinion that the same cannot be sustained.

It may be noted that the auction sale was done after adequate publicity in well-known newspapers. Hence, if any one wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date.

However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction sale will ever be complete.

It is not in dispute that the auction was an open auction after wide publicity in well-known newspapers. Hence, there was nothing to prevent M/s. Manibhadra Sales Corporation and M/s. Castwell Alloys Limited to have participated in the auction, but they did not do so. There is no allegation of fraud either in this case. Hence, in our opinion, there was no justification to set aside the confirmation of the sale.

Learned counsel for the appellant Mr. Sundaram has relied upon the decision of this Court in M/s Kayjay Industries (P) Ltd. vs. M/s. Asnew Drums (P) Ltd & Ors. (1974) SCC 213 in which it was observed that mere inadequacy of price cannot demolish every court sale. The Court also observed in para 7, as under:

"If Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through"

On the other hand, learned counsel for the respondents relied upon a decision of this Court in Divya Manufacturing Company (P) Ltd. etc. vs. Union Bank of India & Ors. etc. (2000) 6 SCC 69. We have carefully perused the above decision and we find that it is clearly distinguishable.

The facts of the case were that at the initial stage the appellant offered 37 lakhs for purchasing the property in question. At the intervention of the court the price was raised to 1.3 crores, and ultimately it was found that the property could be sold for Rs.2 crores. It was on these facts that this Court held that even after confirmation of the sale the same could be set aside.

Thus, the ratio in Divya Manufacturing Company (P) Ltd. (supra) was that if there is fraud then even after the confirmation the sale can be set aside because it is well-settled that fraud vitiateseverything. On the facts of that case, the Court was of the view that that confirmed sale deserved to be set aside.

If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount.

It could have been a different matter if the auction had been held without adequate publicity in well- known newspapers having wide circulation, but where the auction sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they will be themselves be to blame if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price.

Of course, the situation may be different if an auction sale is finalized say for Rs.1 crore, and subsequently somebody turns up offering Rs. 10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done.

In the present case we are satisfied that there is no fraud in the auction sale. It may be mentioned that auctions are of two types -

(1) where the auction is not subject to subsequent confirmation and

(2) where the auction is subject to subsequent confirmation by some authority after the auction is held.

In the first case mentioned above, i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.

In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by any one in this case.

In view of the above, we allow this appeal and set aside the impugned judgments and orders of the learned Single Judge as well as the Division Bench dated 25.8.2005 and 26.8.2005. The confirmation of the auction sale dated 30.7.2003 in favour of the appellant stands upheld. There shall be no order as to costs."

This judgment of the Hon'ble Supreme Court applies on all fours to the facts of the case in hand and by itself is sufficient to set aside the impugned order of the learned DRT. The only submission made on behalf of the respondent no.1, at whose instance the learned Presiding Officer has set asidea confirmed sale just because she was offering a higher price, during the course of hearing of this appeal that since she was making an offer to buy the property in question at a higher price the sale in favour of the appellants was liable to be set aside cannot be accepted in view of the said decision of the Hon'ble Supreme Court. In fact, the appeal of respondent no.1 herein should have been outrightly rejected by the learned Presiding of the DRT.

This appeal is accordingly allowed. The impugned order dated 25.03.2019 passed by the learned Presiding Officer of DRT-II, Delhi is set aside and that of the recovery officer dated 04.05.2018 in RC No. 119/2016 is restored and the auction sale of the property in question in favour of the appellants herein will remain intact and there will be no inter-se bidding between them and respondent no.1 Ms. Renu Jain.

Records of DRT/RO be sent back with copies of this order.