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Judgment
R. S. Kulhari, Chairperson
This appeal has been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") challenging the order dated 29.12.2020 passed by the Tribunal below, whereby the securitization application (S.A.) filed by the respondents no. 1 to 11 was disposed off with certain directions.
The relevant facts for disposal of this appeal are, that the respondent no. 1-a private limited company availed certain credit facilities from the consortium of six Banks. The respondent no. 12-Union Bank of India was the lead Bank of the consortium. The borrower-company failed to maintain financial discipline, therefore, demand notice was issued under section 13(2) of the SARFAESI Act for Rs. 350.00 crores and odd. Thereafter, the symbolic possession of the property in question situated at Hare Krishna Vihar Colony, Indore was taken by the Union Bank of India. Since no heed was paid by the borrowers, therefore, the sale notice dated 17.09.2019 was issued and the property was auctioned on 24.10.2019 in favour of the appellants for a sum of Rs. 12.84 crores. The record reveals that the auction purchasers were declared as highest bidder on 24.10.2019 and they deposited 25% of the sale price on the same day. Thereafter, the Bank vide letter dated 25.10.2019 confirmed the receipt of the said amount. The auction purchasers vide letter dated 25.10.2019 requested for extension of time to deposit the remaining 75% amount of the sale price. In response to that letter, the Bank vide its letter dated 31.10.2019 extended the period for deposit of remaining amount of Rs. 9.63 crores till 23.12.2019.
In the meantime, the respondents no. 1 to 11 filed the S.A. No. 14/2019 challenging the proceedings of the Bank. The Tribuanl below vide order dated 30.10.2019 directed that the respondents-Bank shall not proceed further with the sale. Simultaneously, the consortium of the Banks also filed an original application for recovery of Rs. 401,06,53,622.02. The auction purchasers filed an intervention application on 30.11.2019 to participate in the proceedings of the S.A., which remained pending. However on 31.07.2020, the consortium of the Banks and the borrowers arrived at one time settlement, according to which, the borrowers were to deposit a total amount of Rs. 91.00 crores and "realization proceeds of Rs. 12.84 crores was shown over and above the amount of settlement and to be distributed amongst the consortium members in their proportionate share". The borrowers were to withdraw all the pending litigations before implementation of the OTS. Thereafter, the borrower-company filed IA No. 127/2020 in the month of October, 2020 with a prayer that it is ready to pay 5% more than the bid amount to the Bank, so the auction dated 24.10.2019 be set aside and the Bank be directed to return the possession of the secured asset after receipt of Rs. 13.48 crores inclusive of 5% enhanced amount. The auction purchasers being intervener opposed the interim application and filed a detailed reply on 9.11.2020. However, no reply was filed by the Banks.
The Tribuanl below after hearing the parties including the counsel for the auction purchasers allowed the interim application of the borrowers and disposed off the S.A. with direction that the borrowers will deposit Rs. 13.48 crores with the Bank and pay 6% per annum interest on the deposited amount of the auction purchasers. In compliance of the order, the Bank has handed over two DDs for Rs. 3,46,05,111/- on 12.01.2021 to the representative of the auction purchasers. Being aggrieved by the said order, the auction purchasers have challenged the impugned order by filing the present appeal.
Learned counsel for the appellants submitted that after deposit of 25% of the sale price, the sale was confirmed by the respondent-Bank and thereafter, time to deposit 75% of the sale price was also extended upto 23.12.2019 vide letter dated 31.10.2019. The appellants have got prepared the draft of Rs. 9.63 crores on 19.12.2019, but the Bank refused to receive the same stating that there was an interim stay of the DRT. Thus, the auction purchasers are necessary party in the S.A. after confirmation of the sale and they should have arrayed as respondents, but neither the Tribunal directed so nor the SA-applicants filed any application, therefore, the auction purchasers filed an intervention application on 29.11.2019. However, no specific order was passed on the said application.
The next contention was that as per the OTS proposal, the amount of auction was specifically stated to be over and above the settled amount of Rs. 91.00 crores and all the pending litigations were required to be withdrawn. Thus, the S.A. filed by the borrowers should have been withdrawn before implementation of OTS. This way, the Tribuanl below should not have decided the S.A. on merits.
It was further contended that the borrowers filed an application with a prayer to pay 5% extra of bid amount and for withdrawal of the S.A. on that condition. The reply of the said application was also filed by the auction purchasers on 09.11.2020, but the same was not considered. The arguments of the auction purchasers were heard, but no finding has been recorded and the redemption was allowed in arbitrary manner. Thus, the order impugned be set aside.
Per contra, the learned counsel for the borrowers raised a preliminary objection that the auction purchasers have received the demand drafts of the deposited amount with interest, therefore, they are not entitled to challenge the order in the present appeal. Further they have not stated the factum of refund of amount in the appeal. Therefore, the appeal is liable to be dismissed on this ground.
On the merit, it was submitted that the Tribuanl below has allowed the borrowers to redeem the property by paying 5% over the bid amount considering the special circumstances of the case, in which the matter was settled through OTS and the Banks had to receive Rs. 60.00 lacs extra beyond the settlement amount, therefore, which was in the public interest. So the order impugned was passed on the basis of principle of equity and natural justice. Further, no loss was caused to the appellants, because they have been paid the interest at the rate of FDR, which was also borne by the borrowers.
Learned counsel for the Bank, while supporting the contentions of the learned counsel for the borrowers, argued that since the matter was settled through OTS, therefore, considering the facts of the case, a just and proper order was passed, whereby the Banks had received 5% extra money. After deposit of the settled amount, the accounts of the borrowers had been closed and the O.A. filed by the Banks has also been withdrawn on the basis of such compromise, therefore, this appeal has become infructuous.
I have given my thoughtful consideration to the rival contentions of the learned counsels for the parties and perused the record.
At the outset, the preliminary objection requires to be answered. Though, it is true that the total amount of Rs. 3,46,05,111/- has been returned by the Bank by way of two demand drafts in the name of the auction purchasers, but mere refund of the amount cannot preclude the auction purchasers to exercise the legal rights accrued in their favour. The amount was returned in compliance of the impugned order of the Tribunal below, which was not stayed by the appellate court, therefore, the Bank was required to return the same and the auction purchasers by receiving such amount have not waived their rights to challenge the order and get the issue adjudicated on merits. Considering all the facts of the case in its entirety, the appellants cannot be non-suited merely on the basis of the receipt of the deposited amount.
It is also true that the factum of return of amount has not been mentioned in the appeal, but the learned counsel for the appellants has stated that the draft of refund was obtained on 12.01.2021 by the representative of the appellants-auction purchasers, which was not within the knowledge, when the appeal was drafted and they are ready to return the amount to the bank, if this Tribunal so directs. Although, the appeal was filed on 27.01.2021 before this Tribunal, but the contention advanced by the learned counsel for the appellants cannot be said to be unreasonable. Even otherwise, non-mentioning of this aspect is not an intentional concealment of any material fact. Thus, the appellants cannot be denied to decide this appeal on merit.
Now coming to the scrutiny of impugned order, there is no dispute on the points that the subject property was auctioned in favour of the appellants for Rs. 12.84 crores and they have deposited 25% of the same within prescribed period. Thereafter, the bank has issued letters dated 25.10.2019 and 31.10.2019, whereby the time to deposit 75% i.e. Rs. 9.63 crores was extended till 23.12.2019 on the request of the appellants. Before that, the Tribunal below restrained the bank from proceeding further with the sale vide order dated 30.10.2019.
It is also not in dispute that the appellants filed an intervention application on 30.11.2019. Reply to the said application was also filed by the S.A.-applicants-Borrowers on 13.01.2020 and the same were taken on record vide order dated 13.01.2020 of the Tribunal below, but no final order has been passed on this application neither before the arguments nor in the impugned order by recording any specific findings. However, the learned counsel for the appellants-interveners was allowed to participate in the proceedings all through including final arguments of the S.A., but at page 10 of the judgment, only one sentence has been stated that "intervener also filed application on 09.11.2020. Application of the intervener is not allowed by this Tribunal". Thus, it is not clear, whether the same was declined by the impugned order or by any other order, which is not there on record. Further, the arguments as advanced on behalf of the auction purchasers were not considered mentioning that "the auction purchaser is not added as party, hence the submission of the auction purchaser is not taken into consideration".
Thus, it is apparent from the above that despite there being intervention application and its reply on record, as also the reply filed by the auction purchasers to the application of the S.A.-Applicants filed for enhancement of the bid amount and withdrawal of the S.A., the Tribunal below has not considered the averments and the arguments advanced on behalf of the auction purchasers. Such type of the findings cannot be said to be justified and is completely arbitrary in nature. Once the advocate on behalf of the auction purchasers was allowed to participate in the proceedings, their application and reply were taken on record and allowed to argue the case till final arguments, may lead to a conclusion that the intervention application was acted upon and given effect to, otherwise, it would have been rejected by a specific order specifying the reason thereof.
With regard to the rights of the auction purchasers for impleadment, it is admitted position that they have deposited 25% amount of the sale price and thereafter, they were asked to deposit the remaining 75% amount and the time for such deposit was also extended till 23.12.2019. Photocopy of demand draft dated 19.12.2019 for Rs. 9.63 crores is also on record. In the letters dated 25.10.2019 and 31.10.2019, the term "confirming the bid in your favour" is also used. All such letters were required to be considered in the S.A. It cannot be said that after depositing 25% amount and giving extension for deposit of 75% amount, no right has been accrued in favour of the auction purchaser. Moreover, the amount of auction Rs. 12.84 crores was taken as part of the OTS. The other condition was only to withdraw the cases filed by the party concerned, which includes the S.A. of the borrowers and OA of the consortium of the Bank. Thus, these aspects were also required to be considered by the Tribunal below before allowing the application of the borrower for payment of 5% over the bid amount and thereafter to withdraw the S.A. This way the rights of the appellants-auction purchasers have been prejudicially affected without giving them an opportunity of hearing.
The Tribunal below by allowing the borrowers to deposit 5% over the bid amount has not assigned any reason except public interest. This way the Tribunal below has allowed the redemption of the property without considering the stage of proceedings and right of redemption of the borrower. Further, no specific infirmity as such was pointed out in the proceedings of the bank except mentioning that there are various other infirmities in the auction. Even the reply of the Bank to the S.A. was not there on record.
The argument that the order was passed on the basis of the equity considering the facts of the matter in the public interest, is also devoid of force. No doubt the court or the Tribunal may pass the order following the principle of equity and natural justice, but it is settled proposition of law that when the equity and law are pitted with each other, then the law prevails over the equity. Further, even for exercise of the discretion, the Tribunal below is required to exercise the same judicially and the order cannot be passed in arbitrarily manner curtailing the rights of the deserving litigants. In the instant case as stated above, the auction purchasers have got right to intervene in the proceedings and such right has been accrued in their favour after deposit of the amount, extension for deposit of 75% amount and also by inclusion of the auction money in OTS. Therefore, the impugned order passed on the basis of equity is not sustainable being perverse and arbitrary in nature.
In view of the above discussions, the impugned order dated 29.12.2020 passed by the Tribunal below is set aside. The intervention application dated 30.11.2019 filed by the appellants is allowed subject to deposit of Rs. 3,46,05,111/-with the Bank on or before the next date of hearing before the DRT. The Bank shall keep this amount in the shape of FDR in the joint name of the appellants and the Bank, fate of which shall be decided by the Tribunal below at the time of final decision of the case. The Tribunal below is directed to decide the case afresh after affording opportunity of hearing to all the parties in accordance with law, but without being influenced in any manner by any of the observations made hereinabove by this Tribunal in this order. No order as to costs.
Before parting with, it is apt to observe that though this Tribunal is conscious of the fact that the validity of OTS is not the subject matter of this appeal and also that to arrive at the OTS is the sweet-will of the secured creditor and the borrower, but of-course, it should be arrived at by following the guidelines of the RBI as well as the policies of the secured creditors in this behalf. The copy filed by the borrowers indicates that the O.A. No. 1426 of 2018 filed by the Banks for recovery of Rs. 401.00 crores and odd plus interest was settled for Rs. 104.00 crores (Rs. 91.00 crores plus Rs. 12.84 crores or Rs. 13.48 crores), which is around ¼th of the outstanding amount. This gives some impression of the abnormality, particularly in view of the fact that the borrower was having extra money in his hand just during the implementation of the OTS to repurchase/redeem the property by paying Rs. 13.48 crores plus interest to the auction purchasers' amount and that was immediately paid after decision of the Tribunal below and ultimately, the OA was withdrawn by the Bank on 11.09.2021 on the basis of the said settlement. Therefore, a copy of this judgment be also sent to the Joint Secretary, Department of the Financial Services, Ministry of Finance, New Delhi for information.
A copy of this judgment be sent to the parties as well as the DRT concerned and be also uploaded on the e-DRT portal.