S.S. Mishra, J
1. This writ petition has been filed by the petitioners assailing the order dated 15.11.2019 passed by the Debts Recovery Appellate Tribunal, Kolkata (hereinafter referred to as “DRAT”) in Appeal No.42 of 2019, whereby the learned Appellate Tribunal allowed the appeal filed by the State Bank of India (since merged with Union Bank of India) and reversed the order dated 02.04.2019 of the learned Debts Recovery Tribunal, Cuttack (hereinafter referred to as “DRT”). By the said order dated 02.04.2019, the DRT had allowed S.A. No. 1 of 2018 filed by the petitioners under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act”), quashed the demand and possession notices as well as the auction sale and directed refund of the auction purchaser’s money with interest. The petitioners seek quashing of the DRAT order and a declaration that the measures taken by the bank under Sections 13(2), 13(4) and 14 of the SARFAESI Act, including the auction sale and the consequential sale certificate and registered sale deed executed in favour of Opposite Party No.5, are illegal and void.
2. Mr. Ramakanta Mohanty, learned Senior Counsel appearing for the petitioners, Mr. S.P. Mishra, Senior Advocate, for opposite party no. 3 and Mr. D.C. Sabat, Advocate for opposite party no. 5, have been heard in extenso.
3. The facts giving rise to the present writ petition are that the petitioners, a proprietorship concern and its guarantor, had availed a cash credit limit of Rs.10,00,000/- (rupees ten lakh) in 2004, subsequently enhanced to Rs.20,00,000/- (rupees twenty lakh) in 2010, secured by mortgage of immovable properties of the proprietor and guarantor. Upon default, the loan account was classified as Non-Performing Asset (NPA). The bank issued notices under Section 13(2) of the SARFAESI Act on 06.02.2015 and 24.02.2016, followed by possession notices under Section 13(4) on 03.07.2015 and 04.07.2016.
4. The secured asset was brought to auction on 18.04.2017 and sold on 19.05.2017 for Rs. 29,04,000/- to Opposite Party No.5. A sale certificate was issued on 12.06.2017 and pursuant to an order of the District Magistrate under Section 14 of the SARFAESI Act, physical possession was delivered to the auction purchaser on 20.12.2017. A registered sale deed was executed on 22.12.2017.
5. Meanwhile, a civil suit (C.S. No.244/2016) for specific performance had been instituted by one Samarendra Nanda based on an agreement with the guarantor. The Civil Court had passed an interim order of status quo which was later set aside in appeal. In CMP No.586 of 2017, this Court had also directed maintenance of status quo on 12.05.2017, which order was vacated on 01.11.2017.
6. The petitioners filed S.A. No.1 of 2018 before the learned DRT, Cuttack, challenging the measures under Section 13(4) and the subsequent auction sale. By order dated 02.04.2019, the DRT allowed the S.A., quashed the demand and possession notices, the auction notice and the sale certificate and directed refund of the sale consideration to the auction purchaser with FD interest, while requiring the petitioners to deposit Rs.25,00,000/- (rupees twenty five lakhs) and the balance dues within one month.
7. The bank preferred appeal before the DRAT, Kolkata. By judgment dated 15.11.2019, the DRAT allowed the appeal, set aside the order of DRT and upheld the measures taken by the bank. The petitioners have now approached this Court challenging the order of the DRAT.
8. Mr. Ramakanta Mohanty, learned Senior Counsel for the petitioners, submitted that the impugned order of the DRAT is unsustainable in law and on facts. It is contended that the loan account of the petitioners was arbitrarily classified as Non-Performing Asset (NPA) on different dates in different proceedings, which reflects non-application of mind and renders the entire exercise under the SARFAESI Act invalid. It is urged that in the notices under Section 13(2) as well as in the affidavits filed before the District Magistrate, the bank has mentioned contradictory dates of NPA, and such inconsistency goes to the root of the matter.
He further argued that the auction sale held on 19.05.2017 and the issuance of the sale certificate on 12.06.2017 are void, having been conducted during the subsistence of an interim status quo order passed by this Court on 12.05.2017 in CMP No.586 of 2017. According to the petitioners, once this Court had directed maintenance of status quo, the bank could not have proceeded with confirmation of sale and the subsequent transfer in favour of the auction purchaser is a nullity in the eyes of law, irrespective of the bank’s alleged knowledge of the order.
He also emphasized that the property was grossly undervalued. The valuation report assessed the property was more than Rs.80 lakhs, whereas it was sold only for Rs. 29.04 lakhs, i.e., at nearly one-third of its real value. Such an arbitrary undervaluation defeats the object of maximizing recovery and shows mala fides in the conduct of the bank. The petitioners further contended that even after the auction sale, the bank offered a One Time Settlement (OTS) proposal on 29.06.2017 without disclosing the fact of the completed sale, which amounts to suppression of material facts and abuse of process.
He further argued that the learned DRT had rightly appreciated these aspects, quashed the measures taken by the bank under Sections 13(2), 13(4) and 14 of the SARFAESI Act, and protected the interest of the petitioners as well as the auction purchaser by directing refund of the amount with interest. The learned DRAT, however, committed serious error in reversing the well-reasoned findings of the learned DRT. It is urged that the order of the DRAT should be set aside and the order of the DRT be restored.
9. Per contra, Mr. S.P. Mishra, learned Senior Counsel for the opposite party no.3 submitted that the writ petition is devoid of merits and deserves to be dismissed. It is argued that the petitioners have themselves been chronic defaulters and have approached the Court only after exhausting all opportunities. The petitioners failed to challenge the demand notices under Section 13(2) and the possession notices under Section 13(4) of the SARFAESI Act within the period of limitation prescribed by law. By not doing so, they waived their right to object and therefore, cannot be permitted to reagitate stale claims after the sale was duly concluded and third-party rights was created.
It is further contended that the allegation regarding different NPA dates is misconceived. The account was rightly classified as NPA on account of persistent defaults and a mere variation in the date of classification in different documents does not invalidate the proceedings, especially when the factum of default is undisputed.
On the issue of the status quo order dated 12.05.2017 passed by this Court, learned Senior Counsel submitted that the bank was not aware of the said order at the time of conducting the auction and issuing the sale certificate. Knowledge of the order was received only after 17.06.2017, by which time the sale had already been confirmed. In any event, once the sale certificate was issued, possession delivered and the sale deed registered, the rights of the auction purchaser stood crystallized and cannot now be unsettled at the instance of the petitioners.
Learned Senior Counsel further argued that the allegation of undervaluation is unfounded. The reserve price was fixed in accordance with the procedure and the property was sold at a fair market rate. In fact, the guarantor himself had earlier agreed to sell the same property to one Samarendra Nanda for a nominal consideration of Rs.3 lakhs, which belies the allegation of undervaluation. As regards the OTS proposal dated 29.06.2017, it is submitted that such proposal has no effect once the sale had already been completed and no right accrued to the petitioners thereby.
It is lastly contended that the learned DRAT, being the Appellate Authority, has examined the entire matter and passed a reasoned order. There is no perversity or jurisdictional error in the order of the learned DRAT warranting interference in writ jurisdiction and thus, the writ petition is liable to be dismissed.
10. From the pleadings, documents placed on record and the contentions raised by the parties through their counsel before the forum below and this Court, the following admitted facts has borne on record:
• M/s Jagannath Cashew Processing Unit (Loanee) is a proprietorship concern of Sri Deba Dash, son of Late Radha Krushna Dash of Ashok Nagar, Dist-Athagarh, Cuttack;
• Ashok Kumar Dash, is the brother of Deba Dash, stood as the guarantor to the loan and mortgaged the property in subject;
• M/s Jagannath Cashew Processing Unit availed cash credit limit of Rs.10,00,000/- in 2004, which was enhanced to Rs.20,00,000/- in 2010;
• Upon default, the loan account was classified as Non-Performing Asset (NPA);
• The bank issued notices under Section 13(2) of the SARFAESI Act on 06.02.2015 and 24.02.2016, followed by possession notices under Section 13(4) of the SARFAESI Act on 03.07.2015 and 04.07.2016;
• The secured asset was brought to the auction and sold on 19.05.2017 for Rs.29,04,000/- to opposite party no.5 Banoj Kumar Dash;
• By resorting to Section 14 of SARFAESI Act, physical possession was taken over and delivered to the auction purchaser on 20.12.2017 and subsequently sale deed was executed on 22.12.2017.
11. On the basis of the aforementioned admitted factual background, the petitioners herein have highlighted primarily three points:-
(I) The auction sale was carried out by the bank during the subsistence of the status quo order dated 12.05.2017 passed by this Court;
(II) The secured asset was auctioned by undervaluing the property; and
(III) Even after the property was auctioned and sale was confirmed, the bank proposed for settlement of the account on 29.06.2017 without disclosing the sale proceeding, which is misleading and goes to show that the auction was hurriedly done knowing fully well that there is a status quo order operating.
12. To address the aforementioned three points and to put the record straight on facts, it would be relevant to reproduce the proceedings dated 27.02.2023 and 19.07.2023 in the present case:
“08. 27.02.2023: This matter is taken up through hybrid mode.
2. Heard Mr. R. Mohanty, learned Senior Counsel appearing along with Mr. S.K. Pattnaik, learned counsel for the petitioners and Mr. B.N. Udgata, learned counsel for opposite party-bank.
3. Mr. R. Mohanty, learned Senior Counsel appearing along with Mr. S.K. Pattnaik, learned counsel for the petitioners contended that the petitioners had availed a loan and there is outstanding of rupees twenty four lakhs and some odd, against which a Debt Recovery proceeding was initiated. It is contended that for the selfsame property, a suit is pending before the appropriate forum. But when the status quo order is continuing, the property in question was sold by the bank and realized an amount of rupees twenty nine lakhs. Therefore, balance amount of rupees five and some odd has to be returned to the petitioners. But instead of doing so, the petitioners were called upon to deposit a sum of Rs.25,00,000/-, which was deposited by the petitioners before the bank. Thereby, the petitioners are grossly prejudice by the arbitrary action of the opposite party-bank.
4. Mr. B.N. Udgata, learned counsel for opposite party-bank contended that there is an outstanding of rupees twenty four lakhs and some odd against the petitioners. It is contended that though the civil suit is pending before the appropriate forum and status quo order is operating, but the same has not been brought to the notice of the bank at any point of time and, as such, the property was sold and an amount of Rs.29,00,000/- was realized, which was kept in a separate account of the bank. So far as deposit of Rs.25,00,000/- by the petitioner as per the direction of the Debts Recovery Tribunal is concerned, the same was also kept in a separate account. Therefore, if the petitioners so like, they may get refund of the said amount. However, in the meantime, third party interest has been created by putting the property in auction. It is further contended that bank has not aware of the position with regard to the order passed by the civil court and, therefore, such things were happened.
5. But fact remains, the property in question has already been sold and an amount of Rs.29,00,000/- has already been realized by the bank. Therefore, adjusting the loan amount, balance amount should have been refunded to the petitioners. Instead of doing so, the petitioners have been called upon to deposit Rs.25,00,000/-, which they deposited before the bank and ultimately the same was deposited by the bank before the Debts Recovery Tribunal.
6. List this matter after one week along with the records of C.M.P. No. 586 of 2017 disposed of on 01.11.2017.
9. 19.07.2023: This matter is taken up through hybrid mode.
2. Mr. S.P. Mishra, learned Senior Advocate appearing for the opposite party-Bank contended that so far as the demand raised by the Bank on the petitioners for an amount of Rs.25.00 lakhs, the same has already been realized from the sale proceeds of the property of the petitioners at Rs.29.00 lakhs and therefore, the bank will refund the balance amount of Rs.4.00 lakhs to the petitioner. So far as demand raised by the bank on the petitioners for Rs.25.00 lakhs, the same will be refunded to him. The entire exercise shall be completed within a week.
3. Call this matter after one week.”
13. It appears that pursuant to the aforementioned orders, the bank has not only refunded Rs.25,00,000/- (rupees twenty five lakhs only) deposited by the petitioners but also the differential amount of Rs.4,00,000/- (rupees four lakhs only) from that of the auction sale price after deducting the defaulted amount.
14. The main thrust of argument of the learned Senior Counsel appearing for the petitioners appears to be that the entire auction process carried out by the respondent-Bank is vitiated because on the face of the status quo order being in force, the auction process should not have been carried out and even if it is carried out, it is against the injunction order passed by this Court.
15. In this regard, it is relevant to mention that the guarantor, being the mortgager of the property, who is the brother of the proprietor, the loanee, conspicuously entered into an agreement to sale of the property in subject on 28.06.2016 after the notice under Section 13(2) of the SARFAESI Act was issued on 06.02.2015 and 24.02.2016. The guarantor Ashok Dash entered into the agreement with one Samarendra Nanda for sale of the property valued at Rs.3,00,000/-. The very fact that the guarantor entered into an agreement with Samarendra Nanda for sale of the property in subject at Rs.3,00,000/- goes to answer the second point raised by the petitioners that the property was auctioned by undervaluing the market price. It is pertinent to mention that the property has been auctioned at Rs.29,04,000/- (rupees twenty nine lakh four thousand). Therefore, it could be safely concluded that the contention raised by the petitioners is baseless. Accordingly, point no.2 is answered.
16. It appears that Samarendra Nanda filed a specific performance suit numbered as C.S. No.244 of 2016 before the learned Civil Judge (Junior Division), Athagarh against Ashok Dash, the guarantor/mortgager. The said suit appears to be a collusive one.
17. The plaintiff Samarendra Nanda by highlighting the notice under Section 13(4) of the SARFAESI Act issued by the bank and published in the daily newspaper “Sambad” on 10.07.2016, sought a status quo order. The learned Civil Judge (Junior Division), Athagarh issued a status quo order. The defendant-Bank filed FAO No.1 of 2017 before the learned Additional District Judge, Athagarh challenging the interim status quo order. The learned Additional District Judge, Athagarh vide order dated 23.02.2017 vacated the status quo order passed by the learned Civil Judge (Junior Division), Athagarh on 06.02.2016 in C.S. No. 244 of 2016. The said plaintiff-Samarendra Nanda filed CMP No. 586 of 2017 before this Court assailing the order dated 23.02.2017 passed by the learned Additional District Judge, Athagarh. This Court vide order dated 12.05.2017 passed the following orders:
“C.M.P. No. 586 of 2017
3. 12.05.2017 Registry is directed to assign the number.
A copy of the petition be served on Mr. P.V. Balkrishnan, who usually appears on behalf of State Bank of India in course of the day.
Issue notice to the opposite party no.2 by registered post with A.D. indicating therein that the matter is likely to be disposed of at the stage of admission. Requisites shall be filed in course of the day. Failure to file requisites within the stipulated time, the interim order shall stand automatically vacated.
List the C.M.P. on 28th June, 2017 indicating the name of Mr. P.V. Balkrishnan in the cause list.
Misc. Case No. 14 of 2017
04. 12.05.2017 As an interim, parties are directed to maintain status quo over the suit property till the next date.”
18. Perusal of the aforementioned orders indicates that the orders were passed ex-parte. This Court has directed to serve the copy of the petition on Mr. P.V. Balkrishna, learned counsel who usually appears for the bank. There is nothing on record to suggest that the copy of the petition and the order dated 12.05.2017 passed by this Court in CMP No.586 of 2017 was communicated either to the bank or served on the counsel for the bank before the property was put to auction sale and issuance of sale certificate on 12.06.2017. On the contrary, a letter dated 17.06.2017 is found on record demonstrating that the bank was informed about the pendency of the proceeding before this Court in CMP No.586 of 2017, which was written by the bank counsel to the Assistant General Manager of the bank. Therefore, prima facie it appears that there was no information available with the bank regarding existence of the status quo order passed by this Court in CMP No.586 of 2017 before 17.06.2017 and obviously before the sale certificate was issued on 12.06.2017.
19. During hearing of the present writ petition, a specific query was put to the learned Senior Counsel appearing for the petitioners to show any document, which would demonstrate that the order dated 12.05.2017 passed by this Court was even communicated to Mr. P.V. Balkrishna, Advocate for the bank before the sale certificate was issued. The learned Senior Counsel could not affirmatively submit anything contrary or could produce any document. Therefore, the very ground of attack to the impugned order that the auction was carried out during the subsistence of the status quo order falls flat.
20. Regarding the third point raised by the learned counsel for the petitioners that even after the auction sale, the OTS proposal dated 29.06.2017 was given to the petitioners is also of no consequence inasmuch as in the counter affidavit, the respondent-Bank in paragraph-10 has specifically averred that there was an One Time Settlement (OTS) Scheme, namely RINN Samadhan Scheme was floated by the bank during that period and routinely the OTS proposal was sent to all the defaulters. Since the petitioner was one of the defaulters shown in the bank ledger, the proposal was also given to the petitioner.
21. Mr. S.P. Mishra, learned Senior Counsel appearing for the bank has contended that the OTS proposal given after the sale confirmation was an inadvertent error, but that would in no way affect the auction process carried out by the bank by following due process of law. We agree with the contention raised by the bank regarding the same.
22. It is also noteworthy to mention here that after the confirmation of the sale, the sale deed has already been executed and possession of the auction property has been handed over on 20.12.2017 to the opposite party no.5 and the sale became absolute. Much water has flown under the bridge by now. Therefore, at this belated stage, upsetting the auction sale, which was carried out by following due process of law will not only be prejudicial to the bank but also to the opposite party no.5 who cannot be made to suffer for no fault on his part.
23. By taking into account the aforementioned, the Debts Recovery Appellate Tribunal, Kolkata in the impugned order dated 15.11.2019 has observed as under:
“18. It is worthwhile to mention that after confirmation of sale, sale deed has been executed and possession of the property has also been handed over on 20.12.2017. Thus, the sale became absolute. The borrower/guarantor had never appeared before the bank to redeem the property before publication of sale notice. Therefore, the right to redeem the property has been extinguished and the valuable right has been created in favour of the auction purchaser. Thus, the Tribunal below has erred in allowing redemption of the property. Further, the Tribunal below has directed to calculate the interest at 10% simple from the date of demand notice. It is apparently against the provisions of the Act because while deciding the S.A., the Tribunal has to analyze the steps taken by the bank and cannot quantify the amount much less the issue of applicability of rate of interest. This way also the order impugned is not sustainable.
19. As observed above, although the issue of taking possession of the property on 20.12.2017 in compliance of District Magistrate order was within limitation, but firstly the respondent has not pleaded in any of the grounds to challenge the order of the District Magistrate and no relief was sought for quashing the said order or restoring back the possession of the secured assets. Thus, the relief which was not pleaded cannot be granted. Secondly, this issue was not argued before the Tribunal below and no finding has been recorded in the impugned order on this aspect so this cannot be entertained at the appellate stage. If the respondent was having any grievance with regard to such non-recording of finding, he was free to challenge the order to this extent but no such appeal was filed. Thirdly, the only objection is with regard to date of N.P.A. as mentioned in affidavit filed before the District Magistrate to be 30.11.2013, whereas the bank has mentioned the date of N.P.A. as 28.12.2015 in subsequent demand notice. So, this way there is variance in the dates but the District Magistrate is not required to make any enquiry about the contents mentioned in the affidavit. He has to satisfy as to whether all the points required under Sec.14(1) of the SARFAESI Act were covered in affidavit or not.
The District Magistrate cannot go into the niceties of the contents. So, it cannot be said that there is any irregularity in the order of the District Magistrate. Further, possession of the property has already been delivered to the auction purchaser on 20.12.2017. Therefore, the same cannot be restored back on the ground of redemption of the property at this belated stage.
20. In view of the aforesaid, the impugned order dated 02.04.2019 is liable to be quashed.
Hence, the appeal is allowed and the order dated 02.04.2019 is set aside. No order as to costs.”
24. In view of the foregoing discussions, we find no infirmity, perversity in the impugned order dated 15.11.2019 of the learned Debts Recovery Appellate Tribunal which necessitated for interference by us in this writ petition.
25. Accordingly, the writ petition fails and dismissed. No costs.
