State Bank Of India vs A.I.P. Rolling Mills Pvt. Ltd. And Ors.

S.N.H. Zaidi, J

Both these appeals have been directed against the judgment and order dated 29.10.2010 of the Presiding Officer of DRT-II, Chandigarh, dismissing S.A. No. 228/2010, M/s A.I.P. Rolling Mills Pvt. Ltd. v. The Authorised Officer of the State Bank of India & Anr., with the direction that the amount deposited by the S.A. applicant would be forfeited and the Bank would not proceed with the property in question until the status quo order of the Punjab and Haryana High Court passed in CWP No. 11019/2010 remained in force and till then the Bank would keep with it the amount deposited by M/s. Knitwell Fashions and to put the property in question again for sale after taking its fresh valuation. The facts giving rise to these appeals, in brief, are that one AMCO Fabrics Pvt. Ltd. had availed certain credit facilities from the respondent Bank and to secure the repayment thereof mortgaged with the Bank its factory, land and building situated at Plot No. B-156, Phase-IV, Focal Point, Dhandari Kalan, Ludhiana, Punjab. As the borrower company failed to repay the loan, the Bank took measures for the enforcement of its security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) by the sale of the aforesaid property. The Bank after taking the possession of the property in question issued notice on 16.5.2010 for its sale at the reserve price of Rs. 2.43 crores through the auction to be conducted on 18.6.2010. As per the terms of the sale notice, sealed bids were to be submitted at the SARC, Civil Lines, Ludhiana Branch of the Bank by 12 noon on 18.6.2010, which were to be opened at 12.30 p.m. on the same day and the intending buyer was to submit his bid along with the demand draft of 10% of the reserved price and the highest/successful bidder was to deposit 25% of the bid amount within 24 hours. Since a lone bid of Rs. 2.44 crores of M/s. Knitwell Fashions was received, it was declared as the successful bidder and it had deposited 25% of the bid amount within the stipulated time.

On 22.6.2010, M/s. A.I.P. Rolling Mills Pvt. Ltd, filed an application (SA No. 228/2010) under Section 17 of the SARFAESI Act before DRT-II, Chandigarh for setting aside the auction sale and restraining the Bank from confirming the sale with the averments; that on getting the information of the sale of the property in question through the publication in the newspaper, it had decided to participate in the auction proceedings and after getting a demand draft (DD) of Rs. 24.30 lacs prepared in favour of the Bank, approached its Authorised Officer on 18.6.2010 at 11 a.m. along with the said DD, but it was informed by the said officer that the property had been withdrawn from the auction due to some stay and direction of the High Court of Punjab and Haryana and did not give any tender documents; that the applicant, however, waited at the premises of the Bank and on being satisfied that no auction had been conducted, left the premises at about 1.30 p.m., but at about 4 p.m. it came to know that the auction was conducted and a single bid of Rs. 2.44 crores of M/s. Knitwell Fashions was received and the said bidder had been declared as the successful bidder; that the applicant had intended to purchase the said property for Rs. 2.70 crores but the Bank in a clandestine manner did not permit it to participate in the bid process.

On 24.6.2010, when the Bank intimated the DRT that though the highest bidder had deposited 25% of his bid amount but the sale had not been confirmed, the Tribunal below directed the S.A. applicant to deposit 25% of its offer of Rs. 2.70 crores and also to submit an undertaking agreeing to the inter se bidding with the highest bidder and restrained the Bank from confirming the sale. On 28.6.2010, the DRT directed to issue summons to the highest bidder to get his version in the matter, as it was not impleaded in the S.A. On 1.7.2010, the S.A. applicant deposited 25% of its offered amount of Rs. 2.7 crores.

In the meanwhile, one Smt. Sunderjit Kaur filed a writ petition (CWP No. 11019/2010) before the Punjab and Haryana High Court claiming that the property in question had fallen to her share under the family arrangement and the Hon'ble Court, while issuing notice on the motion, vide order dated 1.7.2010, directed the parties to maintain the status quo with regard to the property.

On 16.7.2010, the highest bidder (M/s Knitwell Fashions) moved an application before the DRT for the refund of the amount deposited by it towards 25% payment of its bid amount, contending that since the S.A. applicant had already made an offer of Rs. 2.70 crores, it was not interested in purchasing the property in question or in inter se bidding with the S.A. applicant, as suggested by the DRT in its order dated 24.6.2010. Both the S.A. applicant and the Bank opposed that application and it was dismissed by the DRT. The parties were heard on the S.A. and it was dismissed by the order impugned dated 29.10.2010 with the directions, as mentioned above.

Feeling aggrieved with the aforesaid order, the S.A. applicant as well as the Bank and the highest bidder have filed three separate appeals before this Tribunal. The appeal (No. 421/2010) filed by the S.A. applicant has already been disposed of by this Tribunal, vide order dated 5.10.2012.

I have heard Mr. S.L. Gupta, learned Counsel appearing for the Bank as well as Mr. Himanshu Gupta, learned Counsel for the highest bidder, as after the disposal of its appeal the S.A. applicant, who is also one of the respondents in these appeals, stopped appearing.

The contention of the Bank's Counsel is that while disposing of the S.A. the learned Tribunal below had made some unwarranted and baseless observations in respect of the officers of the Bank, which require to be expunged. He pointed out that in paragraph 24 of the judgment the Tribunal below has made the following observations:

Before concluding this S.A. it is also proper if the whole process of the auction by the Banks through Authorised Officer is being discussed now. It has been observed by this Court that nexus and a lobby of land mafia with the help of borrowers, officers of the Bank or with the recovery agents has made these auctions a platform for misusing powers conferred by law to the Banks. Huge public money or public property is either put at stake or being hold on contracting one or the other to save the interest of defendants, or taking undue advance from these auctions thereby filing false and fictitious applications, wasting the time of the Tribunal and giving further bad name by making the Tribunal a platform for their own interests. At this instance, this Court is of the view that such racket has being going on for a long time not only before Bank and Authorised Officer but even before this Tribunal. Now, the time has come that such a nexus and a lobby of land mafia should be dealt with firmly so that it should be an example and the time of the Court should not be wasted and such practice should come to an end and the parties along with officials responsible for these vicious and mala fide litigations should be brought to book accordingly.

According to him the above remarks are totally out of contest and against the facts of the case as it is nobody's case that there was any nexus between the Authorised Officer of the Bank and the alleged land mafia. He further contended that the Tribunal below had also erred in directing the re-sale of the property in question and thereby virtually set aside the sale without compensating the Bank for the expenses incurred by it in conducting the auction. He also contended that the Bank is aggrieved only with that portion of the order impugned whereby the Bank had been directed to put the property in question on sale after obtaining its fresh valuation.

He also pointed out that this Tribunal, while dismissing the appeal filed by the S.A. applicant, had modified the order impugned to the extent that instead of the forfeiture of entire Rs. 67.5 lacs amount deposited by it, only an amount of Rs. 1 lac had to be forfeited and the balance amount had to be returned to the S.A. applicant.

Mr. Himanshu Gupta, the learned Counsel for the appellant/highest bidder, however, contended that the highest bidder had no objection in expunction of the remarks made by the Tribunal below qua the Bank officers. According to him, the appellant/highest bidder is aggrieved only with that portion of the order impugned whereby the Bank has been directed to keep the amount deposited by the highest bidder towards 25% of the bid amount with it until the final adjudication by the Courts. His contention is that when M/s. A.I.P. Rolling Mills Pvt. Ltd., had filed the S.A. offering an amount of Rs. 2.7 crores for the property in question and the Tribunal below had showed an intention for inter se bidding in its order dated 24.6.2010, the appellant/highest bidder had filed an application for the refund of its amount stating that it was not interested in the inter se bidding with the S.A. applicant. Mr. Himanshu Gupta contended that appellant/highest bidder had to see its own pocket and it was not ready to purchase that property even at the price of Rs. 2.7 crores. He further contended that the DRT had wrongly dismissed that application by giving unacceptable reason and the appellant/highest bidder is entitled to get back its deposited amount.

So far as the observations made in paragraph 24 of the impugned judgment, as quoted above, in respect of the alleged nexus amongst the land mafia, the borrowers and the officers of the Bank is concerned, I am in agreement with the contention of the Bank's Counsel that the said observations are unwarranted and without any support of evidence on record. It is also correct to say that, as per the pleadings of the parties, it was nobody's case that there was any such nexus. The observations in question, made in paragraph 24, are also contrary to the Tribunal's own views expressed in paragraph 26, wherein it has observed that: "....During the arguments, the Counsel for the applicant failed to prove any evidence/documents to corroborate the fact that the applicant was mislead/cheated by the Authorised Officer.... On the other hand, the respondent Bank proved that it has preceded as per the provisions of SARFAESI Act, 2002 and the rules made thereunder. I do not find any illegality and unlawful intention in the actions/steps taken by the Respondent Bank at this stage which can make way for allowing of this S.A. Thus the SA is liable to be dismissed."

In view of above, the observations in question are, therefore, liable to be expunged and the appeal filed by the Bank is entitled to be allowed only to that extent.

The Bank's further prayer that it be allowed to confirm the sale of the property in question in favour of the highest bidder (M/s. Knitwell Fashions) and to set aside the direction made in the order impugned for putting the property for sale after obtaining fresh valuation report, on the ground that it had acted in accordance with the provisions of the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002 in conducting the auction, however, does not appear to be tenable. It is undisputed that when M/s. A.I.P. Rolling Mills Pvt. Ltd. had filed the S.A. and offered a price of Rs. 2.7 crores for the property in question and the Tribunal below, while directing the S.A. applicant to deposit 25% of its offered amount, had asked it to file an undertaking for the inter se bidding with the highest bidder, the appellant highest bidder had filed an application (IA No. 293/2010) stating that it was not interested in purchasing the property and entering into the inter se bidding with the S.A. applicant, and prayed for the refund of its deposited amount of Rs. 61,00,000/-. I agree with the contention of Mr. Himanshu Gupta that participation in the auction of the property put up for sale on "as is where is basis" or "as is what is basis" as per sale notice, cannot be said to be a sufficient reason for allowing the amount of the appellant/highest bidder to remain deposited until the question relating to the property is finally adjudicated by the Courts as it is not certain as to when that question would be finally decided. The record does not show that the interim order passed by the Hon'ble Punjab and Haryana High Court in the writ petition filed by Smt. Sunderjit Kaur has been vacated. Mr. Himanshu Gupta was right in contending that the appellant/highest bidder was not inclined to enter into the inter se bidding with the S.A. applicant as it was looking to its own pocket as well as to the feasibility of purchasing that property at a particular price, in my opinion, the highest bidder could not be compelled to participate in the inter se bidding with the S.A. applicant as there was a marked difference in Rs. 2.70 crores offered by the S.A. applicant and the highest bid of Rs. 2.44 crores made by it. I am also of the view that since the sale was not confirmed because of the restraint order of the DRT and the highest bidder was not interested in purchasing the property or to participate in the inter se bidding with the S.A. applicant, therefore, the Tribunal below should have accepted the offered amount of the S.A. applicant so that the property in question would have got the best price and 25% of the bid amount deposited by the highest bidder should have been returned to it and its application (I.A. No. 293/2010) should not have been dismissed. The Tribunal below has thus committed error in not appreciating the facts and circumstance of the case in its right perspective and as such the direction for keeping the amount of the highest bidder deposited until the final adjudication of the question relating to the property cannot be sustained and the appeal filed by the highest bidder is accordingly entitled to be allowed to that extent.

The contention of Mr. S.L. Gupta that the order impugned was also bad in law insofar as it directed the Bank to put the property in question again for sale after obtaining its fresh valuation report, has no force in view of the fact that the sale of the property in favour of the highest bidder could not be confirmed due to the order dated 1.7.2010 of the Hon'ble Punjab and Haryana High Court for maintaining the status quo of the property and the highest bidder had already showed its intention not to purchase the property and declined to enter into the inter se bidding in pursuance of the DRT's order dated 24.6.2010 and had moved the application for the refund of its amount, which in my opinion was to be allowed, therefore, there was no other option available, except to re-sell the secured asset afresh. Since the valuation report of the property in question was obtained in 2010 and much water has flown down Yamuna since then, therefore, the direction of the Tribunal below for putting the property in question for sale again after obtaining fresh valuation report is in accordance with the facts and circumstances of the case and does not require any interference. In view of the above discussion, both the appeals are partly allowed. The observations made by the learned Presiding Officer in paragraph 24 of the judgment impugned, as quoted above, are accordingly expunged. The direction to the Bank to keep the amount deposited by the appellant/highest bidder towards 25% of the bid amount with it until the final adjudication by the Courts, is set aside and the said amount is directed to be returned to the appellant/highest bidder. Rests of the reliefs claimed by the appellants in both the appeals are declined. The parties shall bear its own cost of these appeals.