J.B. Pardiwala, J.@mdashBy way of filing this petition under Article 226 of the Constitution, the Petitioner seeks to challenge judgment and order passed by the Debt Recovery Appellate Tribunal at Mumbai in Appeal No. 287 of 2010 with N.A No. 1170 of 2010, whereby the Appellate Tribunal allowed the appeal preferred by Respondent No. 1 herein against judgment and order passed by Debt Recovery Tribunal-I, Ahmedabad, in Appeal No. 51 of 2010.
2. The facts relevant for the purpose of deciding this petition can be summarized as under:
2.1 Petitioner is a company registered under the Companies Act. Respondent No. 3 herein had availed of financial assistance from Respondent No. 2 Bank of India. While availing of financial assistance from Respondent No. 2, Respondent No. 3 mortgaged property bearing Plot No. 46/A, Block No. 430, 432 situated at Ashwamegh Industrial Estate, Changodar, Ahmedabad. As Respondent No. 3 was unable to repay the loan amount, Bank initiated proceedings u/s 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act"). On 12th May, 2010, Central Bank of India, through its authorised officer, published auction notice for sale of the property which was mortgaged by Respondent No. 3 with the Bank. The auction notice dated 12th May, 2010 reads as under:
Central Bank of India
Regional Office: Lal Darwaja Ahmedabad - 380001. Ph.25503586/2551466/25511398 Fax:25501464
AUCTION NOTICE
The Authorized Officer of Central Bank of India under the Secularization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) and in exercise of powers contended under the said Act issued demand notices calling upon following borrowers/guarantors to repay the amounts mentioned in the notices with interest.
The amounts mentioned in the notices have not been repaid to the Bank.
Therefore, notice to public is hereby given to the effect that the immovable properties described herein below will be sold by the Authorized Officer by calling tenders cum holding public auction on the dates, place and time mentioned in this notice on "as is where is condition". Persons or organizations interested in buying the said immovable properties may contact the Authorized Officer or the concerned branch for tender documents, which contain all other relevant details.
Sr
No
Name of the Borrower/Mortgagor & Branch
Amount Balance +
interest
Description of Properties
Date
of
inspection
Reserve Price
Date, Time and Place of Auction
1
M/s. Parikh Surgical Disposable Products Mfg. S.M. Road Branch, Ahmedabad
(Contact: Mr. Kiran Palekar- 9909928871)
Rs. 3,19,56,588.19 + Interest
Factory Land & Building at Plot No. 46/A, (Block No. 430, 432) Ashwamegh Industrial Estate, Changodar, Ahmedabad. (Ad-measuring 4856 sq.yds. Of Land with 3790 Sq. Mtrs. Of construction area)
6/6/2010
159.00
14/6/2010 Time: 4.00 P.M. S.M. Road Branch A''bad
Plant & Machinery at Plot No. 46/A, (Block No. 430,432) Ashwamegh Industrial Estate, Changodar, Ahmedabad
6/6/2010
30.00
2.2 Record reveals that in the auction which was held on 14th June, 2010, Respondent No. 1 herein was declared as the highest bidder and was issued a letter by the Bank in this regard dated 14th June, 2010.
The letter reads as under:
"M/s. Ashok Enterprise
10, Chaitanaya Society,
St. Xaviers School Road,
Near Stadium Petrol Pump,
Ahmedabad 14/6/10
Attn: Mr. Ashokkumar Pranjivandas Desai
Dear Sir,
Sub: Auction under SARFAESI Act- Industrial Property at Changodar Ahmedabad A/c Parikh Surgical With reference to the auction held in the branch premises on 14th June, 2010, for sale of plot No. 46/A Block No. 430, 432 Ashwamegh Industrial Estate Changodar, Ahmedabad, your final bid at Rupees Two Crore Eleven Lacs Fifty Thousand (Rs. 2,11,50,000/-) being the highest bid received in the auction has been hereby declared as successful bid.
In terms of the tender document, you are required to pay 25% of the bid amount less Rs. 15,90,000/-(EMD amount paid) immediately and the balance and final amount within 15(fifteen) days from the date of receipt of the offer acceptance letter from the Bank by DD/IPO favouring Central Bank of India payable at Ahmedabad.
The above is subject to confirmation of the sale by our higher authorities.
All terms and conditions as per tender document and auction notice published on 12//5/2010 in the Times of India and Divya Bhaskar will apply.
Thanking you,
Yours faithfully,
Chief Manager.
2.3 Simultaneously on 14th June, 2010 itself, Bank addressed a letter to the original borrower i.e. Respondent No. 3 herein, informing that the auction was held on the appointed date at the Branch premises and Messrs Ashok Enterprises i.e. Respondent No. 3 have been declared as the highest bidder at Rs. 2,11,50,000/- for the land and building. Bank also informed in the said letter that however, all the bidders for the machinery preferred to withdraw and hence, the sale of the machinery could not take place. In the said letter, Bank informed Respondent No. 3 borrower that Bank would like to give Respondent No. 3 one last opportunity to settle the Bank''s dues and get the assets released from the charge of the Bank. It would be expedient to reproduce below the entire letter dated 14th June, 2010.
Shri Sailesh Parikh
Parikh Sergical & Disposable Products Pvt. Ltd. 14/6/2010
204, Vaikunth Apartments,
Opp.NABARD Flats,
Navrangpura, Ahmedabad: 380 009.
Dear Sir,
Sub: Auction under SARFEASI Act: Industrial Property at Changodar.
We had, vide our letter dated 5/6/10 informed you that the auction for disposal of the above properties was scheduled to the held on 14/5/10 and copies of the paper publications had also been sent to you.
The auction was held on the appointed date at the branch premises, and M/s. Ashok Enterprise have been declared as the highest bidder at Rs. 2,11,50,000/- for the land and building. However, all the bidders for the machinery preferred to withdraw and hence the sale of the machinery could not take place.
As per extant rules, the highest bider is required to deposit, the balance 15% of the bid amount immediately and the remaining amount within 15 days of sale confirmation. Sale confirmation is subject to approval by our higher authorities. As the entire exercise of conducting auction under SARFAESI Act, is to ensure that the borrower''s liability towards the Bank is reduced to the maximum extent, we are giving you this last opportunity to settle the bank''s dues and release your assets from our charge.
As stated above, the confirmation of the sale to the highest bidder for the land and building is subject to the approval of the same by our higher authorities and as such in case you desire to take advantage of the opportunity now given, you should act without delay.
Yours faithfully,
Chief Manager
2.4 Record further reveals that on 17th June, 2010, Respondent No. 3 - original borrower informed the Bank that he is in receipt of the letter dated 14th June, 2010 of the Bank informing him about the auction, however, he informed the Bank that the Petitioner herein i.e. Messrs Sushen Medicaments Pvt. Ltd. has agreed to buy the entire property i.e. land and buildings as well as plant and machinery and Messrs Sushen Medicaments Pvt. Ltd. is also ready to offer much more higher amount than the amount which has been fetched in the auction proceedings i.e. Rs. 2,11,50,000/-. It would be expedient to quote the letter of Respondent No. 3 addressed to the Bank dated 17th June, 2010.
Date: 17th June, 2010.
The Manager,
Central Bank of India,
Opp. Star Bazar,
Satellite,
Ahmedabad 380 015.
Subject: Receipt of letter regarding auction of my property.
Dear Sir,
I am in receipt of letter dated 14th June, 2010 regarding the auction made by you and the money realised thereof. I understand that the auction of the land and building was awarded at Rs. 2,11,50,000/-while as the machines and equipments could not be auctioned.
I am grateful to the Bank for providing me the last opportunity. Infact since I am a borrower that I would also like to secure my future life and lively hood, I say that I have negotiated with M/s. Sushen Medic mentors Pvt. Ltd. Ahmedabad after the auction was over. I am happy to inform you that they are ready and willing to purchase my entire property i.e. land and building as well as plant and machinery which nobody have been opted for. Plus they are ready to give the offer of higher amount that the amount fetched in the auction plus amount for plant and machinery. This is to inform you that as per our settlement M/s. Sushen will pay the dues of Parikh Surgical directly to the bank on our behalf and the Bank may accept the same from them considering the same as paid by us.
You are also requested to handover the possession and documents of the property directly to Sushen once the payment is made. Thereafter Parikh will directly execute a sale deed in their favour as per our terms and condition for settlement.
We accept the same and have no objection for it.
Thanking you,
Yours faithfully,
For Prikh Surgical Disposable Products Mfg.
Partner.
2.5 On 19th June, 2010, Respondent No. 3 - original borrower once again informed the Bank that the transaction with the Petitioner has been finalised and that the Petitioner herein is willing to purchase the entire assets of the borrower for Rs. 2,50,00,000/- and further the borrower will be associated with the Petitioner in the business which would also take care of the borrower''s livelihood. In the said letter dated 19th June, 2010, Respondent No. 3 the borrower also informed the Bank that this arrangement will enable the Bank to dispose of the machines and equipments also which could not be auctioned as all bidders withdrew themselves earlier so far as machines and equipments are concerned.
2.6 On 1st July, 2010, Respondent No. 3 Bank informed Respondent No. 1 that though in the auction proceedings dated 14th June, 2010, Respondent No. 1 was the highest bidder at Rs. 2,11,50,000/-, the Bank is refunding 25% of the Earnest Money Deposit and Security Deposit to Respondent No. 1 as the higher authorities of the Bank, after taking into consideration some legal issues involved and the representation of the borrower, have thought fit to reject the confirmation of sale of land and building to Respondent No. 1. With the letter dated 1st July, 2010, Bank enclosed a Demand Draft No. 33/126 dated 1.7.2010 for Rs. 52,87,500/- deposited by Respondent No. 1 towards 25% of the bid amount Record reveals that Respondent No. 1 accepted the refund amount in protest keeping the option to challenge the decision of the Bank to reject the highest bid of Respondent No. 1.
2.7 It appears that Respondent No. 1 being aggrieved by the decision of the Bank rejecting his offer, addressed a letter dated 14th July, 2010 to the Bank, informing that the authorities of the Bank though have a right to reject the bid, but have no right to give the property to any other party. Respondent No. 1 also informed the Bank that he was offering additional amount of Rs. 5 lakhs more than what the Petitioner offered and that the Bank should not transfer or execute sale deed in favour of the Petitioner.
2.8 Record reveals that on 17th August, 2010, sale-deed was executed by Respondent No. 3, the original borrower in favour of the Petitioner herein for the immovable property as described above.
2.9 Since the mortgaged assets came to be transferred by the original borrower to the Petitioner after seeking necessary approval in this regard from the Bank, Respondent No. 1 preferred Securitization Application No. 51 of 2010 before the Debt Recovery Tribunal-I, Ahmedabad u/s 17 of the SARFAESI Act, and prayed for quashing and setting aside the action of the Bank rejecting the confirmation of sale in favour of Respondent No. 1 and also further prayed for appropriate direction to the Bank to confirm the sale in favour of Respondent No. 1 by accepting the highest bid for Rs. 2,11,50,000/-.
2.10 Record further reveals that the Presiding Officer, DRT-I, Ahmedabad, adjudicated the application u/s 17 of the SARFAESI Act and thought fit to reject the application preferred by Respondent No. 1 holding that no legal right can be said to have accrued in favour of Respondent No. 1 only because he was the highest bidder in the auction proceedings, before the sale is actually confirmed by the Bank authorities. Debt Recovery Tribunal, Ahmedabad also held that it is only after confirmation of the sale that some rights accrue in favour of the auction purchaser. Debt Recovery Tribunal also held that a secured creditor cannot be asked or forced that they should not settle the matter with the borrower.
2.11 Record reveals that aggrieved by the said judgment and order passed by Debt Recovery Tribunal-I, Ahmedabad, rejecting the application preferred by Respondent No. 1 u/s 17 of the SARFAESI Act, thought fit to prefer an appeal before the Debts Recovery Appellate Tribunal at Bombay, u/s 18 of the SARFAESI Act. The Appellate Tribunal disturbed the order passed by the Debt Recovery Tribunal-I, Ahmedabad on the premise that Bank could not have released the property taking into consideration the provision of Section 13(8) of the SARFAESI Act, if its dues together with all costs, charges and expenses were not paid before the date fixed for sale or transfer.The Appellate Tribunal seems to have taken the view that even as on today all the dues of the Respondent Bank have not been paid by the borrower (Respondent No. 3 herein). The sale have taken place on 14th June, 2010 while the Respondent Bank released the secured assets at a subsequent date.This, according to the Appellate Tribunal, is in breach of the provisions of Section 13(8) of the SARFAESI Act. The Appellate Tribunal also seems to have taken the view that once the highest bid was accepted by the Bank, the only course open was to follow the provisions of Rule 9, Clause 2 of the Security Interest (Enforcement) Rules, 2002 (for short '' the Rules, 2002''), which provides that the sale shall be confirmed in favour of the purchaser who offer the highest sale price in his bid. The Appellate Tribunal took the view that the entire deal was shady and it ought to have been transparent.
2.12 The Petitioner, being aggrieved by the judgment and order passed by the Appellate Tribunal, is therefore here before this Court by way of this petition.
3. We have heard learned Senior Counsel Mr. Mihir Joshi, appearing with learned Advocate Mr. M.B. Gohil for the Petitioner, learned Advocate Mr. Rashesh S. Sanjanwala appearing for Respondent No. 1, learned Advocate Mr. Siddhartha Samal, appearing for Respondent No. 2 Bank and learned Advocate Mr. Udayan P. Vyas, appearing for Respondent No. 3, the original borrower.
3.1 Learned Senior Counsel Mr. Joshi would submit that the impugned judgment and order passed by the Debts Recovery Appellate Tribunal, allowing the appeal of Respondent No. 1 is illegal and contrary to the well settled position of law. He would submit that Respondent No. 1 claiming to be the highest bidder in the auction proceedings does not have any legal right to say that the Bank ought not to have entered into a settlement with the borrower subsequent to the auction proceedings and the Bank ought not to have allowed the borrower to transfer the mortgaged assets in favour of the Petitioner and thereafter pay the dues to the Bank.
3.2 Learned Counsel would further submit that no legal right can be said to have accrued in favour of Respondent No. 1 to claim the secured asset only on the ground that they are the highest bidder and their bid ought to have been accepted by the Bank. Learned Counsel would further submit that as a matter of fact, no application u/s 17 of the SARFAESI Act could have been preferred by Respondent No. 1 before the Debt Recovery Tribunal, Ahmedabad, challenging the so-called illegal action on the part of the Bank and Respondent No. 3, the original borrower. He would submit that Section 17 of the SARFAESI Act gives right of appeal to any person (including borrower) aggrieved by any of the measures referred to in Sub-section (4) of Section 13 of the SARFAESI Act taken by the secured creditor or his authorised officer. He would submit that since there were no measures taken u/s 13(4) of the SARFAESI Act, there was no cause of action for Respondent No. 1 to prefer an application u/s 17 of the SARFAESI Act. He would elaborately submit that it is only if some measures u/s 13(4) of the SARFAESI Act are taken by the Bank, only then Section 17 would come into play.
3.3 Learned Counsel would further submit that the decision of the bank to settle the matter with the borrower and not proceed ahead with the auction could not be faulted in the facts and circumstances of the case particularly since no offer had been received for plant and machinery situated on the subject land even pursuant to the present notice, which was the 3rd attempt of sale of assets of the borrower, which would therefore have resulted in legal complications and delay and further that the bank was getting a higher amount than that likely to be received by it even if the auction was proceeded with. He would further submit that Respondent No1 is estopped and precluded from challenging the permission of the bank for the sale of the property by the borrower to the Petitioner since the Respondent No. 1 had deliberately not taken any action pursuant to return of the amount deposited by him on 7.7.2010 despite endorsing that it was received under protest. He submitted that Respondent No. 1 did not take any action and thereby allowed the sale to take place on 17.8.2010 between the borrower and the Petitioner. The Respondent No. 1 therefore permitted creation of 3rd party rights without challenging the action of the bank and is therefore precluded from challenging the same on account of his conduct. He lastly submitted that the Appellate Tribunal has over looked the fact that Respondent No. 1 was objecting to the purported release of the property by the Bank. Even assuming that such a challenge was maintainable, the same would be rendered academic once a sale took place between the borrower and the purchaser, which action is clearly outside the purview of SARFASIE Act. Therefore once the sale deed had been executed, the challenge by the Respondent No. 1 could not have been entertained at all and the learned Appellate Tribunal had no jurisdiction to decide the issue of the validity of a sale deed between two private parties, being an independent transaction dehors the provisions of SARFASIE Act.
3.5 Learned Counsel has relied upon the following case law of the Supreme Court:
(i) Haryana State Agricultural Marketing Board v. Sadhu Ram (2008) 16 SCC 405, para 16;
(ii)
(iii) A judgment rendered by the Division Bench of this High Court in the case of Electrotherm India Ltd. v. Asset Reconstruction Company (India) Ltd. - 2011 Part-III GLR 1133, para 13.
4. Learned Counsel appearing for Respondents Nos. 2 and 3 supported the Petitioner and they adopted the contentions put-forward by learned Counsel for the Petitioner.
5. Per contra, learned Counsel appearing for Respondent No. 1 opposed this petition vehemently, submitting that no error much less an error of law is said to have been committed by the Appellate Tribunal in allowing the appeal of Respondent No. 1. Learned Counsel for Respondent No. 1 would submit that the application u/s 17 of the SARFAESI Act was maintainable before the Debt Recovery Tribunal as Respondent No. 1 can be said to be a person aggrieved by the action of the Respondent Bank. He relied upon a decision of the Supreme Court in the case of
He submitted that the avowed object sought to be achieved by writing the letter dated 14th June, 2010 was merely a protest for creating an opportunity for the present Petitioner to submit a fresh offer and purchase the property. He submitted that the fact that no effort was made by the Bank by inviting the other bidders to submit a higher offer and/or a composite offer and the fact that the offer of Respondent No. 1 of Rs. 2,50,00,000/- was not considered belies the reason given by the Bank for writing letter dated 14th June, 2010 and subsequently releasing the property in favour of the borrower for sale in favour of the purchaser. He alleged that on 19th June, 2010, for the first time, the borrower offered an amount of Rs. 2,45,00,000/- and a Demand Draft in the sum of Rs. 2,45,00,000/- dated 19.6.2010 was handed over to the Bank even before the offer was accepted by the Bank and therefore, the entire exercise was pre-conceived and executed to facilitate the sale in favour of the Petitioner.
Lastly, he submitted that the release of the mortgaged property can be said to be a measure undertaken by the Bank to recover the secured debt u/s 13(4) of the SARFAESI Act and therefore, an appeal would lie u/s 17 of the SARFAESI Act. He prayed that the petition is devoid of any merits and deserves to be rejected with costs.
6. We have given our anxious thoughts and considerations to the contentions put forward by the respective parties. We are of the view that the following questions fall for our consideration in the above conspectus of the matter.
(a) What legal right can be said to have accrued in favour of Respondent No. 1 claiming to be the highest bidder in the auction proceedings conducted by the Bank to claim the secured asset and challenge the action of the Bank in releasing the property from mortgage, granting permission to the original borrower to sell the mortgaged assets and pay the dues of the Bank from the sale proceeds?
(b) Can it be said that by releasing the property and permitting the borrower to dispose of the secured assets for the purpose of payment of the entire dues of the Bank can be said to be a measure or a step taken u/s 13(4) of the of the SARFAESI Act?
(c) If no steps or measures are taken by the secured creditor u/s 13(4) of the SARFAESI Act,s then in that case whether an appeal u/s 17 of the of the SARFAESI Act is maintainable by person claiming to be the highest bidder and is an aggrieved person?
7. We are of the view that no legal right can be said to have been accrued in favour of Respondent No. 1 to claim the secured asset only on the ground that they are the highest bidder and that their bid should have been accepted by the Bank. It is evident from the record that Respondent No. 1, after participating in the auction dated 14.6.2010, was specifically informed that though he has been declared as the highest bidder, still it would be subject to confirmation of the sale by the higher authorities of the Respondent Bank. Besides this, what is most important is that the auction notice dated 12th May, 2010 was a composite notice i.e. the action was for factory, land and buildings as well as plant and machinery. It is not disputed that on 14th June, 2010, Respondent No. 1 herein did not bid for plant and machinery and he only bidded for the factory, land and buildings. This is precisely the reason why Bank thought fit to give one opportunity to the original borrower - Respondent No. 3 to settle the dues of the Bank and get the assets released. In the letter dated 14th June, 2010, Bank has categorically stated and informed Respondent No. 3 - original borrower that though Respondent No. 1 Ashok Enterprise has been declared as the highest bidder for Rs. 2,11,50,000/- for the land and buildings, all bidders for the machinery and plant preferred to withdrew and therefore the sale of machinery could not take place.
8. We are of the view that at the most Respondent No. 1 being the highest bidder, may be entitled to refund of the amount offered and deposited by him, but he cannot claim the right to get the property, if there has been a compromise between the borrower and the secured creditor even after the auction sale.
This position of law seems to be very clear. In the case law which has been relied upon by the learned Counsel for the Petitioner, this position is clear.
8.1 In Haryana State Agricultural Marketing Board and Ors. v. Sadhu Ram (supra), the Supreme Court in paragraph 16 observed as under:
16. That apart, in view of the decision of this Court in Rajasthan Housing Board and Anr. v. G.S. Investments and another [supra],since the final authority to approve the bids was with the Chief Administrator, it is obvious that a person who had made the highest bid in the auction did not acquire any right to have the auction concluded in his favour until the Chief Administrator had passed an order to that effect and the auction proceedings could always be cancelled. It is on record that the offers made by the Respondents in the auction dated 8th of July, 2004 could not fetch the amount expected from the said plots and that is the reason a fresh Public Notice was issued by the Appellants for a subsequent auction. The said auction was held and as noted herein earlier, from the said auction, the price fetched was much higher than the offers made by the Respondents. That being the position and considering the fact that a subsequent auction was held and concluded, it was not open to the High Court to direct the allotment of alternative plots at the rate offered by the Respondents treating the auction held on 8th of July, 2004 to be valid.
8.2 In Rajasthan Housing Board and Anr. v. G.S. Investments and Anr.(supra), the Supreme Court in paragraphs 8 and 9 held as under:
8. The auction notice dated 3.2.2002 contained a condition to the effect that the Chairman of the Housing Board shall have the final authority regarding acceptance of the bid. The second auction notice issued on 19.2.2002 mentioned that the conditions of the auction will be same as mentioned in the earlier auction notice. In view of this condition in auction notice it is obvious that a person who had made the highest bid in the auction did not acquire any right to have the auction concluded in his favour until the Chairman of the Housing Board had passed an order to that effect. Of course the Chairman of the Housing Board could not exercise his power in an arbitrary manner but so long as an order regarding final acceptance of the bid had not been passed by the Chairman, the highest bidder acquired no vested right to have the auction concluded in his favour and the auction proceedings could always be cancelled. What are the rights of an auction bidder has been considered in several decisions of this Court. However, we will refer to only one such decision, viz.,
From a bare reference to the aforesaid conditions, it is apparent and explicit that even if the public auction had been completed and the Respondent was the highest bidder, no right had accrued to him till the confirmation letter had been issued to him. The conditions of the auction clearly conceived and contemplated that the acceptance of the highest bid by the Board of Trustees was a must and the Trust reserved the right to itself to reject the highest or any bid. This Court has examined the right of the highest bidder at public auctions in the cases of
9. This being the settled legal position, the Respondent acquired no right to claim that the auction be concluded in its favour and the High Court clearly erred in entertaining the writ petition and in not only issuing a direction for consideration of the representation but also issuing a further direction to the Appellant to issue a demand note of the balance amount. The direction relating to issuance of the demand note for balance amount virtually amounted to confirmation of the auction in favour of the Respondent which was not the function of the High Court.
8.3 In the case of Electrotherm India Ltd. v. Asset Reconstruction Company (India) Ltd. (supra), the Division Bench of this High Court held in paragraph 13 as under:
13. The question which now falls for our consideration is as to whether any legal right has accrued in favour of the Petitioner company to claim the secured asset only on the ground that they are the highest bidder and their bid should be accepted by the Respondent-ARCIL. We are of the view that the law in this regard is very well settled. In the case of
Before putting the assets for sale the Financial Corporation must ascertain the market value of the property, assets should be sold on itemized basis or as a whole, whichever found to be more profitable, and bidders should know the details of the assets or itemized value. Property is to be sold for obtaining the market price and not merely for recovering the dues of the Corporation or any other subsequent charge-holder. In such a case auction is to be held to obtain the best possible price for the mortgaged assets and the best possible price must, in the context, mean the fair market price. The authority, while assessing the fair market price, must act in accordance with the statutory rules and cannot be permitted to act unreasonably. The reasonableness is to be tested against the dominant consideration to secure the best price.
Thus, in view of the above, it is evident that law requires a proper valuation report, its acceptance by the authority concerned by application of mind and then fixing the reserve price accordingly and accept the auction bid taking into consideration that there was no possibility of collusion of the bidders. The authority is duty bound to decide whether the assets should be sold on itemized basis or as a whole, whichever found to be more profitable. The valuation of the property is required to be determined fairly and reasonably. Respondent-ARCIL is under a legal obligation to be satisfied itself whether the price fetched is reasonable and the sale has been conducted giving strict adherence to the procedure prescribed by the Statute. Auction sale can be set aside even after confirmation.
In the case of
A similar view has been reiterated by the Apex Court in
In M/s Seth Kashi Ram Chemical (supra), the Apex Court has further held that highest bidder in an auction does not acquire any right, at the most he can claim refund of the deposit made by him."
9. The second contention of the learned Counsel for the Petitioner as regards maintainability of appeal u/s 17 of the SARFAESI Act before the Debt Recovery Tribunal also merits consideration.In the facts and circumstances of the case, it cannot be said that any steps or measures were undertaken by the Bank, which would give a right of appeal to Respondent No. 1 as one of the aggrieved persons claiming to be the highest bidder. The language employed by the statute u/s 17 of the of the SARFAESI Act is plain and clear. Section 17 of the SARFAESI Act says that any person (including borrower) aggrieved by any of the measures referred to in Sub-section (4) of Section 13 of the SARFAESI Act taken by the secured creditor or his authorised officer may make an application to the Debts Recovery Tribunal. It is evident on plain reading that only if some steps or measures are taken by the secured creditor under Sub-section (4) of Section 13 of the SARFAESI Act, it would give a right of appeal u/s 17 of the SARFAESI Act. In the present case, as a matter of fact, before the steps u/s 13(4) of the SARFAESI Act could be taken, Bank thought fit to give an opportunity to the borrower to clear his dues and get the assets released. Having given this opportunity, the original borrower - Respondent No. 3 entered into a transaction with the Petitioner herein and disposed of the assets with the permission of the Bank and from the sale proceeds of the same, paid the dues of the Bank. We are of the view that the finding and reasoning of the Appellate Tribunal as regards Section 13(8) of the SARFAESI Act is also not tenable in law. Section 13(8) of the SARFAESI Act would also come into picture only if steps u/s 13(4) of the SARFAESI Act are undertaken. Besides this, the objection as regards Section 13(8) of the SARFAESI Act cannot come from the mouth of Respondent No. 1 as the highest bidder in the auction. This provision in the Act is for the interest of the borrower. It gives an opportunity to the borrower to clear all the dues of the secured creditor with all costs, charges and expenses before the date fixed for sale or transfer and if the borrower is able to clear all the dues, then in that case, the law prohibits selling of the secured asset or transfer by the secured creditor.
10. Now so far as the case law which has been relied upon by Respondent No. 1 is concerned, the same would not be applicable in the present case. In the case of Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill (supra), the Supreme Court in paragraphs 37, 38 and 39 has observed as under:
37. The consequences of the authority vested in DRT under Sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The Legislature by including Sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Altaf Ahmed that the DRT has no jurisdiction to deal with a post 13(4) situation, cannot be accepted.
38. The dichotomy in the views expressed by the Bombay High Court and the Madras high Court has, in fact, been resolved to some extent in the Mardia Chemicals Ltd.''s case (supra) itself and also by virtue of the amendments effected to Sections 13 and 17 of the principal Act. The liberty given by the learned Single Judge to the Appellants to resist S.A No. 104 of 2007 preferred by the Respondents before the DRT on all aspects was duly upheld by the Division Bench of the High Court and there is no reason for this Court to interfere with the same.
39. We are unable to agree with or accept the submissions made on behalf of the Appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated u/s 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.
A plain reading of these three paragraphs would suggest that what the Supreme Court has conveyed is that the jurisdiction of Debt Recovery Tribunal u/s 17 of the SARFAESI Act is not just confined only to the stage contemplated u/s 13(4) of the SARFAESI Act, they also extends to post Section 13(4) situation/events. There cannot be any dispute in this regard, but we fail to understand how this proposition of law is helpful to Respondent No. 1. We have already explained that in the present case no measures or steps are taken u/s 13(4) of the SARFAESI Act and therefore, there is no question of adjudicating whether any post-Section 13(4) situation or events entitles Respondent No. 1 to approach Debt Recovery Tribunal u/s 17 of the SARFAESI Act. In the above referred case also, Supreme Court has made it very clear that Section 17 of the SARFAESI Act will come into play only if some steps or measures are taken u/s 13(4) of the SARFAESI Act. So far as Section 17, Clause 3 is concerned, the same once again, in our opinion, is to protect the interest of the borrower whose assets are being disposed of by the Bank as a secured creditor. Statute has provided a protection that even a transaction including sale can be set aside and the possession can be restored to the borrower. In the present case, we have already held that Respondent No. 1 claiming to be the highest bidder in the auction proceedings which were never made final or concluded, has no legal right to claim the secured asset.
11. In the above view of the matter, we are of the opinion that the Debts Recovery Appellate Tribunal, Mumbai has committed gross error in allowing Appeal No. 287 of 2010 with N.A No. 1170 of 2010, preferred by Respondent No. 1 herein. For the reasons recorded in the judgment, we are left with no other option but to quash and set aside judgment and order passed by the Debt Recovery Appellate Tribunal, Bombay dated 8th April, 2011.
12. In the result, the petition succeeds. Special Civil Application No. 5622 of 2011 is allowed. Judgment and order passed by Debt Recovery Appellate Tribunal, Bombay dated 8th April, 2011 in Appeal No. 287 of 2010 with N.A No. 1170 of 2010 is hereby quashed and set aside. Rule is made absolute.
