AI Structured Summary
Not yet generated for this judgment
Judgment
S. Ravi Kumar, Chairperson
These two Appeals are filed challenging Common Order dated 04.02.2021 of DRT-I, Chennai, in SA 203/2019 and SA 243/2019.
Parties are hereinafter referred to as borrowers, Bank and Auction Purchaser for better understanding.
Brief facts leading to these Appeals are as follows:-
Borrowers filed SA 203/2019 challenging Sale Notice dated 05.07.2019 contending that Demand Notice of Bank is in contravention of Section 13(3) of SARFAESI Act, 2002, Sale Notice dated 05.07.2019 is not served on the borrowers, and same has not been affixed as per Rule 8(6) of Security Interest (Enforcement) Rules, 2002 (hereinafter called the Rules), and that, Sale Notice is not published as required under Rule 8(7) of Rules, 2002.
Bank disputed those contentions, and contended that Sale Notice dated 05.07.2019 is affixed on the premises on 05.07.2019, and photographs were also taken, said Sale Notice was served on borrowers, and was acknowledged on 08.07.2019. Bank also contended that Sale Notice is published in ‘Deccan Chronicle’ English Daily and ‘Dinakaran’ Tamil Daily on 06.07.2019, and thus, there is no contravention of Rule 8(6) and 8(7) of Rules, 2002. Bank also contended that after receiving Demand Notice, borrowers sent Letter dated 25.04.2019 with a request to settle the claim under One Time Settlement (OTS), therefore, the contention that Demand Notice is in violation of Rules, 2002, is not correct.
Borrowers, while reiterating the grounds stated in SA 203/2019, filed SA 243/2019, challenging sale conducted on 16.08.2019 in pursuance of said Sale Notice, and prayed to set aside E-Auction Sale held on 16.08.2019, on the ground that Auction Purchaser has not paid balance bid amount of 75 % as required under Rule 9(4) of Rules, 2002.
Bank filed Counter disputing contentions of borrowers stating that there is no violation of Rule 9(4) of Rules, 2002.
Auction Purchaser also filed Counter disputing contentions raised in Securitisation Application stating that borrowers filed Application on false, flimsy and speculative allegations, therefore, liable to be dismissed.
On a consideration of contentions and rival contentions of both parties, Tribunal below recorded that there is no violation of Section 13(3) of SARFAESI Act, 2002 and Rule 8(6) and 8(7) of Rules, 2002, and steps taken by Bank are in conformity with the provisions of the Act and Rules made there under, and dismissed SA 203/2019; Tribunal below further recorded that Sale held in favour of Auction Purchasers is not in conformity with Sub-rules 4 and 5 of Rule 9 of Rules, 2002, and on that ground, set aside Sale dated 16.08.2019 and allowed Securitisation Application SA 243/2019. Aggrieved by said Order namely setting aside Sale, one of the Auction Purchasers namely M/s. Velammal Chennai Educational Trust filed RA (SA) 16/2021 and Bank filed RA (SA) 17 / 2021, questioning Orders in SA 243/2019.
All parties filed Written Submissions and reiterated the same at the time of oral submissions.
As against dismissal of SA 203/2019, borrowers did not file any Appeal, therefore, findings with regard to Sale Notice dated 05.07.2019 remain unchallenged and became final. Now, only challenge is with regard to compliance of Sub-rules (4) and (5) of Rule 9 of Rules, 2002.
According to borrowers, as per Rules, 25% of bid amount has to be paid on declaring the Auction Purchaser as highest bidder, and remaining balance has to be paid within 15 days from confirmation of Sale. According to borrowers, confirmation of Sale was on 17.08.2019 and balance 75% has to be paid on or before 02.09.2019, but in this case, balance 75% was paid after 02.09.2019, thereby, there is contravention of Rule 9(4) of Rules, 2002, and Tribunal below rightly allowed SA 243/2019, and there are no grounds to interfere with the findings recorded in SA 243/2019.
On the other hand, Advocate for Auction Purchaser and Advocate for Bank submitted, for item No.2, Mr. Shahul Hameed Haja Mohideen Ahamed Ali, is declared as successful bidder for bid amount of Rs.1.10 Crores, whereas, M/s. Velammal Chennai Educational Trust, is declared as successful bidder for Rs.32.11 Crores for item No.1. It is submitted that both Auction Purchasers deposited 25% of bid amount on 17.08.2019, and they are required to pay balance within 15 days from 17.08.2019. They submitted, Tribunal below passed Interim Order on 19.08.2019, directing borrowers to deposit Rs.10 Crores on or before 26.08.2019 and another Rs.10 Crores on or before 31.08.2019, and on such deposit, Authorised Officer was directed not to proceed further, and in case of default in depositing amount, Authorised Officer is at liberty to proceed, as per law. They submitted that after receiving Interim Order, Bank addressed Letter dated 26.08.2019 to Auction Purchasers requesting them not to deposit 75% of balance purchase money until receipt of further communication. They further submitted as borrowers have not complied with Orders of Tribunal below, and after expiry of date fixed by Tribunal for second instalment, namely 31.08.2019, Bank addressed a Letter to Auction Purchasers on 03.09.2019, asking them to deposit the balance bid amount within 15 days from that date, i.e. on or before 17.09.2019, and as per said Letter, Appellant in RA (SA) 16/2021 deposited balance sale amount on 13.09.2019 and Sale Certificate was issued on 16.09.2019, which was registered on the same date. It is submitted that Bank by issuing Letter dated 26.08.2019, withheld the confirmation of sale, and finally confirmed the Sale on 03.09.2019, therefore,
Auction Purchaser paid the balance within time. It is submitted there is no default on the part of Auction Purchaser, it was ready with money, but as Bank through its communication requested not to pay the balance purchase money, Auction Purchaser did not make payment, and there is absolutely no fault on the part of Auction Purchaser, but Tribunal below, by mis-reading the provisions, recorded a finding, that balance 75% of purchase money is not paid within stipulated time. It is further submitted, Tribunal below went to the extent of forfeiting 25%, which is not vested with such power. They further submitted even assuming for argument sake, confirmation letter dated 17.08.2019 has to be considered, Bank has power to extend time upto three months, provided there is written agreement between Auction Purchaser and Bank, as Bank agreed for extension i.e. within outer limit of three months, there is no violation of any Rules.
It is submitted that, Tribunal below, on a wrong interpretation that when first instalment of Rs.10 Crores payable on 26.08.2019, is not paid, the Interim Order deemed to have been vacated, therefore, Auction Purchaser ought to have paid the amount on or before 02.09.2019, and as the same is not complied with, it is in violation of Rule 9(4) of Rules, 2002. They submitted that DRT coming to such conclusion is nothing but mis-interpretation of Rules, and as there is no default on the part of Auction Purchaser, its rights cannot be infringed.
Main controversy is about compliance of Sub-rule 4 of Rule, 9 of Rules, 2002. It may be relevant to examine both Sub-rules 4 and 5 of Rule 9 of Rules, 2002, which are as under:-
“9. Time of sale, Issue of sale certificate and delivery of possession, etc.-
(1) ……
(2) ……..
(3) ………
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months].
(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited [to the secured creditor] and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
(6) ………………
(7) …………………..
……………………..”
From a plain reading of above Rules, the balance amount of purchase price shall be paid on or before the 15th day of confirmation of sale.
In this case, it is not in dispute that Sale was conducted on 16.08.2019 and Letter was sent to Auction Purchaser informing confirmation of Sale on 17.08.2019. Main contention of borrowers is that 15 days has to be calculated from 17.08.2019, but according to Auction Purchaser and Bank, as there was Interim Order prohibiting Authorised Officer to take further steps from 19.08.2019 to 31.08.2019, and as Bank addressed a Letter on 26.08.2019 to Auction Purchaser not to pay 75% of balance purchase money until they receive further communication, fresh period of calculation has to be made from Letter dated 03.09.2019, through which finally confirmed the Sale. Tribunal below accepted the version of borrowers and held that balance amount is not paid within 15 days. Now, it has to be seen as to whether the contention of borrowers, as to the calculation, is correct or not.
A combined reading of Sub-rules (4) and (5) of Rule 9 of Rules, 2002, indicate that Auction Purchaser has to fulfill certain conditions, and failure to fulfill them, would result in forfeiture of 25% already deposited. That means, it is only to see that Auction Purchaser is not backed out and Bank may not again start the process of Sale. In other words, to save time and money, such a condition is imposed. For applying these conditions, it is incumbent to examine whether Auction Purchaser is at fault in not depositing balance purchase money within stipulated time. Though, it is contended by borrowers that time is extended for payment on an oral request of Auction Purchaser, the material on record is not supporting that version. Record shows, after Sale, borrowers filed Securitisation Application and obtained Interim Orders, wherein Tribunal directed borrowers to deposit Rs.10 Crores on or before 26.08.2019 and another Rs.10 Crores on or before 31.08.2019, and on such deposit, Authorised Officer is prohibited to proceed further. According to Bank, after receiving such prohibitory Order, it addressed a Letter dated 26.08.2019 to Auction Purchaser requesting it not to pay the balance purchase money till receipt of further communication, therefore, balance money is not paid by Auction Purchaser, on account of request made by Bank through Letter dated 26.08.2019, but not as contended by borrowers.
From the record, it is clear that borrowers have not complied with the conditional Order dated 19.08.2019, and not paid any single instalement, therefore, Bank by Letter dated 03.09.2019, called on Auction Purchaser to remit the balance purchase price within 15 days from that date. Admittedly, both purchasers paid the balance 75% purchase money within 15 days from 03.09.2019, so, there is absolutely no default on the part of Auction Purchaser in paying 75% of balance purchase money, but, Tribunal below under a wrong impression that Auction Purchaser made a request for extension of time, and as there was no Letter in writing from Auction Purchaser, it held that conditions for extension of time are not complied with, holding that there is no written agreement. As rightly pointed out by Advocates for Auction Purchaser and Bank, said finding of Tribunal below is completely erroneous when record shows that balance money was not paid on account of Letter dated 26.08.2019 from Bank, but not for any other reason.
As rightly pointed out by Advocate for Bank confirmation for Sale on 17.08.2019 was withheld by Bank through Letter dated 26.08.2019 and reconfirmation was given only through Letter dated 03.09.2019, and 15 days has to be calculated from that date, but, Tribunal below completely lost sight of Letter dated 26.08.2019 of Bank, and carried away with submissions of Advocate for borrowers that time is extended on the oral request of Auction Purchaser, which was not supported by any material.
Advocate for Auction Purchaser relied on the decision of Hon’ble Supreme Court in Varimadugu Obi Reddy Vs. B. Sreenivasulu and Ors., reported in 2022 SCC online SC 1593, to support their arguments that Authorised Officer has power to extend time; in that Hon’ble Supreme Court case, E – Auction Sale Notice was challenged before DRT, and DRT passed an Interim Order directing Bank to proceed with sale, but not to issue Sale Certificate provided borrowers deposits Rs.6 Lakhs within 15 days from the date of said Order.
Tribunal’s Order made it clear that if borrowers fail to pay said amount, Bank is at liberty to issue Sale Certificate in favour of the highest bidder; borrowers, had not deposited Rs.6 Lakhs, but, filed an Application seeking extension of time, and DRT extended time, but, within extended time also, money was not deposited; auction Purchaser in that case, deposited 25%, but, 75% of balance purchase money was deposited on 19th day, and borrowers contended that as 75% of balance purchase money is not deposited as per Rule 9(4) of Rules, 2002, Sale has to be declared as null and void; DRT dismissed Securitisation Application, and as against that Order, borrowers approached Hon’ble High Court invoking Article 226 of the Constitution; Hon’ble High Court reversed the findings of DRT holding that Auction Purchaser failed to deposit 75% of balance purchase money within stipulated time; challenging that Order, Auction Purchaser moved Hon’ble Supreme Court; Hon’ble Supreme Court, on a consideration of facts of that case, observed that four days’ delay was caused due to Interim Order, and it in no way frustrate or annul the auction proceedings, and DRT was right in dismissing Securitisation Application; In that case also, Bank requested Auction Purchaser to wait for sometime because borrowers were negotiating with Bank in the light of Interim Order, and considering that aspect, Hon’ble Supreme Court held that, Hon’ble High Court was wrong in setting aside Sale. The facts of above case are almost similar to the case on hand, therefore, as rightly pointed out by Advocate for Auction Purchaser, there is no default on the part of Auction Purchaser, and balance purchase money was not paid only due to request from Bank, and Tribunal below was wrong in recording the finding that there was delay in payment of balance amount.
Hon’ble Supreme Court in Gurjoginder Singh Vs. Jaswant Kaur reported in (1994) 2 SCC 368, held that it is an established principle of law that a third party Auction Purchaser’s interest, in the auctioned property continues to be protected, notwithstanding that the underlying decree is subsequently set aside or otherwise. In that case, Hon’ble Supreme Court observed as under;
“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.”
Hon’ble Supreme Court also observed as under ;
“It is, therefore, apparent that the rights of an auction-purchaser in the property purchased by him cannot be extinguished except in cases where the said purchase can be assailed on grounds of fraud or collusion.”
When such principle is formulated by Hon’ble Supreme Court to protect the interest of Auction Purchaser, setting aside the Sale on the basis of contentions of borrowers, which are not even established, in my view, is nothing but, wrong exercise of judicial discretion. Unfortunately, Tribunal below went to an extent of forfeiting 25% amount deposited by Auction Purchaser, which is not the power vested with Tribunal, and it is the power vested with Authorised Officer.
On an overall scrutiny of entire material, I am of the considered view that Learned Presiding Officer committed error in allowing Securitisation Application SA 243/2019 and that Order cannot be sustained.
For the reasons stated above, both Appeals RA (SA) 16/2021 and RA (SA) 17/2021 are allowed and impugned Common Order dated 04.02.2021 confining to SA 243/2019 is set aside. Parties shall bear their own costs. All pending IAs, if any, stand closed.