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Judgment
R. D. Khare, Chairperson
The present appeal has been filed under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the SARFAESI Act”) against the judgment and order dated 22.02.2021 passed by the DRT, Dehradun, whereby the securitization application filed by the appellant was dismissed.
The brief facts of the matter are that the respondent nos. 2 to 8 availed the credit facilities from the Allahabad Bank and utilized the same. Later-on, the said loan account was assigned to the respondent no. 1 vide assignment deed dated 30.03.2013. Since the borrowers did not maintain the financial discipline, therefore, the account was classified as NPA. In order to recover the dues, the respondent no. 1-FI initiated the recovery proceedings against the respondent nos. 2 to 8. After issuance of the demand notice and the possession notice, the respondent no. 1 issued auction sale notice dated 26.08.2020 and the tenders/bids were invited in sealed cover for auction sale of the secured properties strictly “as is where is basis”, a copy of which has been appended as annexure-3 to the appeal.
There were five bidders, who participated in the auction proceedings including the present appellant and the present appellant was the highest bidder, whose bid was for Rs. 1.25 crores, but the bid for Rs. 22.05 lacs was accepted and the sale certificate was issued in favour fo the respondent no. 9 on 14.09.2020 relying upon the clause no. 7 of the auction sale notice dated 26.08.2020 (annexure-3), which reads as under:
“Preference shall be given those who purchase M/s Shashi Oil & Facts P. Ltd. factory land & Building as well as Plant & Machinery in the NCLT, proceeding initiated by the ASREC (India) Ltd. against the M/s Shashi Oil & Facts P. Ltd.”
It transpires that pursuant to auction sale notice issued by the liquidator appointed by the Hon’ble NCLT Allahabad on 12.08.2020, the respondent no. 9 had also participated in the proceedings of auction, which was conducted on 29.08.2020 by the liquidator and the respondent no. 9 has purchased the land and building and plant and machinery and sale certificate was issued on 28.09.2020 in favour of the respondent no. 9 by the liquidator, copy of which has been appended as annexure-5 to the appeal. It is stated that the appellant had sent a protest letter against the auction held by the respondent no. 1 vide auction notice dated 26.08.2020 to the respondent no. 1, copy of which has been appended as annexure-6 to the appeal.
Thereafter, the appellant challenged the entire auction proceedings and auction sale notice dated 26.08.2020 before the DRT, Dehradun by filing S.A. No. 80/2020. Initially, the DRT, Dehradun passed a status quo order and directed the appellant to deposit 25% of the bid amount i.e. Rs. 31.25 lacs, which was duly deposited, copy of which has been appended as annexure no. 7 to the appeal. The Tribunal below vide impugned order and judgment dismissed the S.A. of the appellant. Being aggrieved by the said order, the present appeal has been filed.
No one has appeared on behalf of the respondents despite service through paper publication. Therefore, the respondents were directed to be proceeded ex-parte vide order dated 26.11.2021.
Learned counsel for the appellant has argued that the Tribunal below dismissed the S.A. vide impugned order on the ground that the appellants being one of the bidders do not have any locus on the immovable property in question after confirmation of sale by the secured creditor in favour of the auction purchaser i.e. respondent no. 9. Emphasis has been laid down by the counsel on the fact that the entire litigation in the present matter is based on paragraph 7 of the E-auction sale notice dated 26.08.2020, wherein preference has been given to those, who purchase the factory and building as well as plant and machinery in the NCLT proceedings. It is thus argued that the secured creditor had no right to sell the disputed immovable property to the respondent no. 9 for sale consideration of Rs. 22.05 lacs only, whereas the bid of Rs. 1.25 crores was rejected and the lowest bid of respondent no. 9 has been accepted, which is violative of Article 14 of the Constitution of India, as the same demand fairness in state action. In support of his contentions, the learned counsel for the appellant has relied upon the several judgments, which are as under:-
(A) The Hon’ble Supreme Court in Civil Appeal No. 6204 of 2009-Ram Kishun and others Vs. State of U.P. and others reported as MANU/SC/0494/2012 has held in paragraphs no. 8, 11, 12 and 21, which are quoted herein below for ready reference:
“8. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financed institutions which are concerned only with the recovery of their loans may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of statutory provisions.
In Haryana Financial Corporation and Anr. V. Jagdamba Oil Mills and Anr. MANU/SC/0056/2002 : AIR 2002 SC 834, this Court considered this aspect and while placing reliance upon its earlier judgment in Chairperson and Managing Director, SIPCOT Madras and Ors. V. Contromix Pvtg. Ltd. by its Director (Finance) Seetharaman, madras and Anr. MANU/SC/0313/1995 : AIR 1995 SC 1632 held that in the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer.
Therefore, it become a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. Thus, essential ingredients of such sale remain a correct valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the in accurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them, as a moneyed person or a big businessman may not like to involve himself a small sales/deals.
In Divya Manufacturing Company (P) Ltd. and Anr. Vs. Union Bank of India and Ors. MANU/SC/0427/2000 : AIR 2000 SC 2346, this Court held that a confirmed sale can be set aside on the ground of material irregularity of fraud. The court does not become functus officio after the sale is confirmed. In Valji Khimji and Company V. Official Liquidator of Hindustan Nitro Product (Gujrat) Ltd. and Ors. MANU/SC/3408/2008 : (2008) 9 SCC 299, the court held that auction sale should be set aside only if there is a fundamental error in the procedure of auction e.g. not giving wide publication or on evidence that property could have fetched more value or there is somebody to offer substantially increased amount and not only a little over the auction price. Involvement of any kind of fraud would vitiate the auction sale.”
(B) Learned counsel has also produced a copy of the judgment of Hon’ble Supreme Court in the matter of State of Punjab Vs. M/s Bandeep Singh and others (Civil Appeal No. 629 of 2006), wherein the Hon’ble Apex Court has held in para 5, which is being quoted herein below:-
“5. As we have already mentioned, the auction notice itself stated that it is the Government and not any other person, including the Managing Director of the Punjab State Leather Development Corporation Ltd., which was to approve the bid. Any challenge to the position that it is the Government on whom is reposed the final decision, is devoid of substance. It is pertinent to note the judgement of this Court in Anil Kumar Srivastava Vs. State of U.P. (2004) 8 SSC 671, wherein it was held that the reserve price merely limits the power of the Auctioneer by preventing a bid below this price from being accepted. This Court approved the view taken in B. Susila Vs. Saraswathi Ammal AIR 1970 Mad 257, which held that “notwithstanding the fixation of upset price and notwithstanding the fact that a bidder has offered an amount higher than the reserve/upset price, the sale is still open to challenge on the ground that the property has not fetched the proper price and that the sale be set aside.” The same principle was upheld more recently in Ram Kishun Vs. State of U.P. (2012) 11 SCC 511. However, we must hasten to clarify that the Government does not have a carte blanche to take any decision it chooses to; it cannot take a capricious, arbitrary or prejudiced decision. Its decision must be informed and impregnated with reasons. This has already been discussed threadbare in several decisions of this Court, including in Sterling Computers Ltd. v. M & N Publications Ltd. (1993) 1 SCC 445, Tata Cellular v. Union of India (1994) 6 SCC 651, Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617, B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. (2006) 11 SCC 548, Jagdish Mandal v. State of Orissa (2007) 14 SCC 517.”
(C) In the matter of Avshesh Jaiswal Vs. Branch Manager, Allahabad Bank, AIR 2019 ALD 201, the Hon’ble High Court, Allahabad has held that “it is expected that all the Banks and financial institution, which resort to the extreme measure under the SARFAESI Act to ensure that such sale of the assets provide maximum benefit, therefore, the secured creditors are expected to take bonafide measure to ensure that there is maximum yield from such secured asset”.
(D) The Hon’ble Bombay High Court in the matter of Radhika Rajesh Agrawal Vs. Union of India (Writ Petition L No. 3880 of 2020) decided on , wherein it was held that “there was a statutory duty and responsibility cast upon the Banks and financial institutions to conduct the public auction in terms of the rules and ensure fairness in action, act objectively, realize the maximum price free from suspicion, nepotism and favoritism”.
It is thus argued that the sale and its confirmation in favour of respondent no. 9, who is lowest bidder, is clearly illegal, arbitrary, irregular and against all the economy norm and will frustrate the basic purpose to be achieved by way of public auction i.e. yielding of maximum price of the asset to be auctioned.
Learned counsel for the appellants has vehemently argued that preference was given to the respondent no. 9 on the basis of contents of clause-7 of ‘e-auction notice dated 26.08.2020, which does not have any statutory force and it is against the norms of public auction. The purpose of public auction is to fetch the maximum price of the asset/property to be auctioned and to liquidate the dues. Addition of such clause in the ‘e’ auction notice debars the other bidders and preference was given to a party, who had earlier purchased the plant and machinery under the proceedings of auction held by the NCLT, meaning thereby that prior to publication of e-auction sale notice, the match was already fixed. Such proceedings cannot be held to be just and fair. Such condition will only amount to prefixing the auction in favour of that particular purchaser, who may be the lowest bidder in a public auction and the bid of the highest bidder is rejected and issuance of such notice is only an eye wash, therefore, the entire proceedings in pursuance thereto cannot be sustained in the eye of law.
Since no one has appeared on behalf of the respondents in spite of repeated notices, the matter was proceeded ex-parte. Hence in all fairness, it would only be appropriate to remand the matter back to the DRT, Dehradun for reconsideration in accordance with law.
In view of the aforesaid, the impugned order dated 12.02.2021 is set aside and the appeal is allowed. The matter is remanded back to the Tribunal below for reconsideration in accordance with law.
A copy of this judgment be forwarded to the parties as well as to the DRT concerned and also be uploaded on the e-DRT portal.