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Rules 8 and 9 of SARFAESI Act – between public notice and sale there must be gap of 30 days – Mandatory one – DRT – single judge High court not upheld – D.B. set aside the sale – Apex court confirmed the same and further directed the borrower to make the loss good with in two months failing which Bank at liberty to proceed with sale as per law =Vasu P. Shetty …. Appellant (s) Versus M/s Hotel Vandana Palace & Ors. …. Respondent (s)= 2014 ( April.Part ) judis.nic.in/supremecourt/filename=41445

Rules 8 and 9 of SARFAESI Act – between public notice and sale there must  be gap of 30 days – Mandatory one – DRT – single judge High court not upheld – D.B. set aside the sale – Apex court confirmed the same and further directed the borrower to make the loss good with in two months failing which Bank at liberty to proceed with sale as per law =

 Respondent No. 1 herein had taken loan from Syndicate Bank (hereinafter

     to be referred as the ‘Bank’). Because of its default in  repaying  the

     said  loan,  the  bank  took  action  under  the  provisions   of   the

     Securitization and Re-construction of Financial Asset  and  Enforcement

     of Security Interest Act, 2002  (SARFAESI  Act). =

 the Division Bench has set aside the sale of the property

     in favour of the appellant. The reason given is that the public  notice

     issued for the said sale  was  defective  as  30  days  time  which  is

     mandatorily required under Rules 8 and 9 of SARFAESI Act was not given.

     Concededly  the  public  notice  was  published  in  the  newspaper  on

     28.4.2006, fixing the date for sale as 8.5.2006, inviting tenders  from

     prospective buyers at 2.00 p.m. on 6.5.2006.=

  3. This fact that insufficient notice was given,  is,  therefore,  not  in

     dispute. Legal position about the mandatory nature of Rule  8  &  9  is

     also  not  agitated.  Notwithstanding  this   legal   possession,   the

     appellants viz auction purchaser as well as the Bank maintain that  the

     sale  was  valid  because  of  the  reason  that  delay  was   entirely

     attributable to the  borrower  who  by  its  conduct  waived  the  said

     mandatory requirement of the Rules. In this backdrop, the question that

     arises for consideration is as to whether there could be  a  waiver  of

     the aforesaid mandatory condition?  If so, whether this waiver  can  be

     discerned in the present case? 

whether  by

     implied or express actions,  the  borrower  has  waived  the  aforesaid

     mandatory requirement when the property was put  to  sale.  We  do  not

     find, nor it is suggested, even the slightest move on the part  of  the

     borrower in this regard which may amount to waiver  either  express  or

     implied. On the contrary, when notice dated  27.4.2006  was  published,

     the  borrower  immediately  filed  the  Writ  Petition  6471  of   2006

     challenging the auction notice. Thus, its conduct, far from waiving the

     aforesaid requirement, was to confront  the  bank  by  questioning  its

     validity. It is a different matter that it had  to  withdraw  the  said

     writ petition in view of availability of alternate remedy. Immediately,

     it filed application under Section 18 of the SARFAESI  Act.  There  is,

     thus, not even an iota of material suggesting any waiver on the part of

     the borrower.

     26.    The moment we find that the mandatory requirement of  the  Rules

     had not been waived by  the  borrower,  consequences  in  law  have  to

     follow. As held in Mathew Varghese’s case, when there is  a  breach  of

     the said mandatory requirement the sale is to be treated  as  null  and

     void. Moreover, the appellant have no answer to many other  infirmities

     pointed out by the High Court. We, therefore, are of the  opinion  that

     present appeals lack merit.=

 

Before we part with,  it  is  imperative  to  mention  that  the

     purchaser has paid a sum of Rs.1.86 crores towards purchase of property

     and Rs.30 lakh towards moveable items to the Bank. He  has  also  spent

     Rs.1,86,335/- towards registration fee and Rs.15,62,400/- towards stamp

     duty. In addition, dues towards municipal  tax,  Sales  Tax  liability,

     dues of Employees State Insurance Corporation, Employees Provident Fund

     and Belgaum Industrial Cooperative Bank have also been  paid.  A  total

     whereof comes to Rs. 49,91,000/-. These were  the  liabilities  of  the

     borrower.  In this way, total amount of Rs. 2,83,39,735/-  is  paid  by

     the purchaser. He has also discharged municipal tax  liability  in  the

     sum of Rs.2,86,078/- for the period 1.4.2007 to 31.3.2009. As  we  have

     affirmed the order of the High Court setting aside the sale,  we  grant

     two months time to the borrower to discharge the  entire  liability  of

     the Bank. The borrower shall also reimburse the amount of  registration

     fee and stamp duty to the purchaser. The direction to pay  this  amount

     is given having regard to  the  conduct  of  the  borrower  on  earlier

     occasions.  If  the  borrower  pays  the  amount  due  to   the   Bank,

     registration charges, stamp duty as well as amount of encumbrances paid

     by the purchaser, which was the liability of the borrower i.e. a sum of

     Rs.49,91,000/- + 2,86,078/-, the property shall  revert   back  to  the

     borrower. If the aforesaid amounts are not paid  within  the  aforesaid

     two months, the Bank shall be at liberty to proceed with  the  sale  of

     the property following due procedure under the law. In so  far  as  the

     purchaser is concerned, he shall be refunded entire amount spent by the

     purchaser, as mentioned above. We have consciously not granted interest

     to the purchaser on the aforesaid amount, as the purchaser has, in  the

     meantime, utilized the property in question.

 28. Subject to the above, the appeals are dismissed.

 
2014 ( April.Part ) judis.nic.in/supremecourt/filename=41445
SURINDER SINGH NIJJAR, A.K. SIKRI

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4679 OF 2014
[Arising out of Special Leave Petition (CIVIL) No. 35168 OF 2011]

 
Vasu P. Shetty …. Appellant (s)
Versus
M/s Hotel Vandana Palace & Ors. …. Respondent (s)
With
C.A.No.4680/2014
(@ SLP(C) No. 6226 of 2012)

 
J U D G M E N T

 
A.K. SIKRI, J.
1. Leave granted.
2. Respondent No. 1 herein had taken loan from Syndicate Bank (hereinafter
to be referred as the ‘Bank’). Because of its default in repaying the
said loan, the bank took action under the provisions of the
Securitization and Re-construction of Financial Asset and Enforcement
of Security Interest Act, 2002 (SARFAESI Act). After taking formal
possession of the mortgaged property which was given as a surety for
due discharge of the loan, the said property was put to sale. The
appellant herein was the highest bidder whose bid was accepted
resulting into issuance of the sale certificate. Respondent No. 1
(hereinafter referred to as the ‘borrower’) challenged the said sale by
filing application before the Debt Recovery Tribunal (DRT). This
application was dismissed. The borrower filed Writ Petition before the
High Court of Karnataka against the order of DRT. The learned Single
Judge dismissed the Writ Petition as well. Undeterred, the borrower
appealed against the order of the learned Single Judge. This time it
triumphed, as the Division Bench has set aside the sale of the property
in favour of the appellant. The reason given is that the public notice
issued for the said sale was defective as 30 days time which is
mandatorily required under Rules 8 and 9 of SARFAESI Act was not given.
Concededly the public notice was published in the newspaper on
28.4.2006, fixing the date for sale as 8.5.2006, inviting tenders from
prospective buyers at 2.00 p.m. on 6.5.2006.
3. This fact that insufficient notice was given, is, therefore, not in
dispute. Legal position about the mandatory nature of Rule 8 & 9 is
also not agitated. Notwithstanding this legal possession, the
appellants viz auction purchaser as well as the Bank maintain that the
sale was valid because of the reason that delay was entirely
attributable to the borrower who by its conduct waived the said
mandatory requirement of the Rules. In this backdrop, the question that
arises for consideration is as to whether there could be a waiver of
the aforesaid mandatory condition? If so, whether this waiver can be
discerned in the present case? Before we answer these questions it
would be apposite to have a thorough glimpse of the facts on record.
4. The borrower had availed a loan of Rs. 1,84,70,000/-. This loan was
obtained from the bank to construct a hotel in a prominent place in
Belgaum. The borrower has constructed the hotel at the said place for a
land measuring 1825.25 sq. mtrs. with a built up area of 4749.64 sq.
mtrs. At the time of sanction of the loan, the premises were valued at
Rs. 3.16 crores. As mentioned above, the borrower committed default in
the repayment of these financial facilities granted to it. Notice under
Section 13(2) of the SARFAESI Act to take formal possession of the
property was issued. Thereafter, the Authorised Officer of the Bank
(Respondent No. 2)under SARFAESI Act proceeded to sell this property.
Property could not be sold in the first attempt and the efforts were
fructified only when it was put to auction third time. Since the
earlier endeavour made by the Authorised Officer are used as shield
against the borrower’s attack on sale in question, it becomes necessary
to take a note of these attempts as well.
5. First notice for auction was published on 11.9.2004 fixing the auction
date as 15.10.2004. Reserve Price was fixed at Rs. 3.50 crores. This
notice, admittedly, was for more than 30 days. At that stage, the
borrower filed the Writ Petition in the High Court challenging the said
notice 3 days before the proposed sale i.e. on 12.10.2004. Though the
High Court did not grant stay against the scheduled auction, it granted
stay against confirmation of sale. As per the appellant, in view of the
said partial stay order, nobody came forward to participate in the
auction and the exercise went into futility.
6. The Writ Petition filed by the borrower was dismissed by the High Court
on 28.2.2005 upholding notice dated 27.7.2004 issued under Section
13(4) of the SARFAESI Act. In the meantime, it came to the notice of
the Authorised Officer of the bank that there were encumbrances in the
form of statutory liabilities to the tune of Rs. 43,01,100/- payable by
the borrower and, therefore, the Reserve Price fixed at Rs. 3.50 crores
had to be reduced. The borrower was informed about it. The Bank issued
fresh notice on 9.3.2005 for auction of the property fixing date of
auction as 21.3.2005 with reduced Reserve Price at Rs. 2.39 crores.
7. In the auction held on 21.3.2005 the highest offer which was received
was in the sum of Rs. 2.25 crores which was less than even the reduced
reserve price. It can well be discussed that this sale notice was for a
period of less than 30 days. Be as it may, the bank wrote letter dated
28.6.2005 to the borrower asking it to convey its consent for the sale
of property for a sum of Rs. 2.25 crores which was the highest bid.
However, the borrower did not respond to this letter. Thereafter,
another letter dated 16.8.2005 written by the bank stating the reasons
as to why it was constrained to reduce the Reserve Price.
8. The borrower did not accede to the request of the Bank. Instead, on
15.11.2005, the borrower expressed its intention to settle the matter
by making the proposal under One Time Settlement (OTS) scheme of the
RBI. It was followed by letter dated 8.1.2006 by the borrower to the
Bank requesting for OTS at Rs. 2,13,93,320/-. This proposal of the
borrower was sanctioned by the Bank on 8.2.2006 with further
stipulation that the amount would be paid on or before 31.3.2006.
Cheque of Rs. 20 lakhs which was given by the borrower along with its
OTS proposal was encashed by the Bank and was credited to the ‘No Lien
Account’. However, on 31.3.2006, instead of paying the amount as per
the agreed OTS, the borrower requested for extension of time giving its
own reasons. Time was extended upto 15.4.2006 for payment as a last
chance. However, on 14.4.2006 another request for extension of time by
two months was made which was followed by letter dated 22.4.2006 to the
same effect. This time the Bank rejected the request of the borrower
vide letter dated 25.4.2006. As a consequence, the OTS did not
fructify.
9. On failure of OTS due to the fault of the borrower, the Authorised
Officer of the Bank sprung into action and took steps for the sale of
the property, in question. Notice dated 27.4.2006 was published in
Indian Express (English) and in Tarun Bharat (Marathi) on 7.5.2006 for
the acution of the property. The Auction date was published as
8.5.2006. Auction was held on 8.5.2006 wherein the bid of the appellant
in the sum of Rs. 2.16 crores being the highest, was accepted. The
appellant paid 25 percent of the bid amount and the balance amount was
paid on 24.5.2006. The appellant also made payment for the encumbrances
to the concerned statutory authorities which was in the sum of Rs.
49.91 lakhs. In this way the appellant made total payment of Rs.
283,39,735/-. On receiving the full consideration as per the auction,
sale deed conveying the property was executed in favour of the
appellant on 26.5.2006 followed by issue of the sale certificate.
10. It would be relevant to mention here that the borrower had filed the
Writ Petition 6471/2006 challenging the auction notice. However, it
withdrew this Writ Petition on 1.6.2006 with liberty to avail alternate
remedy to challenge the auction that is provided under SARFAESI Act.
Thereafter, it filed the appeal under Section 18 of the SARFAESI Act
before the DRT. This appeal was dismissed by the DRT on 5.7.2007 with
the observations that the borrower was only adopting dilatory tactics.
This order was challenged by the borrower in the form of writ petition
filed before the High Court of Karnataka, Circuit Bench, Dharwad. The
learned Single Judge echoed the reasoning given by the DRT and
dismissed the Writ Petition vide orders dated 19.9.2011. Against this
order, the borrower approached the Division Bench by filing intra court
appeal which has been allowed by the High Court. The sale in question
is set aside.
11. The High Court took into consideration provisions of the sub-Rule (5)
and (6) of Rule 8 as well as Rule 9 of these Rules which are as under:
“Rule 8 Sale of immovable secured assets:
(5) Before effecting sale of the immovable property referred
to in sub-rule (1) of rule 9 the Authorised Officer shall obtain
valuation of the property from an approved valuer and in
consultation with the secured creditor, fix the reserve price of
the property and may sell the whole or any part of such
immovable secured asset by any of the following methods:-
(a) By obtaining quotations from the persons dealing with
similar secured assets or otherwise interested in buying the
such assets;
(b) By inviting tenders from the public.
(c) By holding public auction; or
(d) By private treaty.
6) The authorised officer shall serve to the borrower a notice of 30
days for sale of the immovable secured assets, under sub-rule
(5):
Provide that if the sale of the such secured asset is being
effected either inviting tenders from the public or by holding
public auction, the secured creditor shall cause a public notice
in two leading newspapers one in vernacular language having
sufficient circulation in the locality by setting out the terms
of sale, which shall include:
(a) The decription of the immovable property to be sold,
including the details of the encumbrances known to the
secured creditor;
(b) The secured debt for recovery of which the property
is to be sold.
c) Reserve price, below which the property may not be sold.
(d) Time and place of public auction or the time after
which sale by any other mode shall be completed.
(e) Depositing earnest money as may be stipulated by the
secured creditor.
(f) Any other thing which the authorised officer
considers it material for a purchaser to know in order to
judge the nature and value of the property.
9. Time of same, issues of sale certificate and delivery of
possession, etc.-
(1) No sale of immovable property under these rules shall take
place before the expiry of 30 days from the date on which the
public notice of sale is published in newspapers as referred to
in the proviso to sub-rule (6) or notice of sale has been served
to the borrower.
(2) The sale shall be confirmed in favour of the purchaser who
has offered the highest sale price in his bid or tender or
quotation or offer to the Authorised Officer and shall be
subject to confirmation by the secured creditor.
Provided that no sale under this rule shall be confirmed, if the
amount offered by sale price is less than the reserve price,
specified under sub-rule (5) of Rule 9.
Provided further that if the authorised officer fails to obtain
a price higher than the reserve price, he may, with the consent
of the borrower and the secured creditor effect the sale at such
price.
(3) On every sale of immovable property, the purchaser shall
immediately pay a deposit of 25 percent of the amount of the
sale price, to the property shall forthwith be sold again.
(4) The balance amount of purchase price payable shall paid by
the purchaser to the Authorised Officer on or before the
fifteenth day of confirmation of sale of the immovable property
or such extended period as may be agree upon in writing between
the parties.
(5) In default of payment within the period mentioned in sub-
rule (4), the deposit shall be forfeited and the property shall
be resold and the defaulting purchaser shall forfeit all claim
to the property or to any part of the sum for which it may be
subsequently sold.
(6) On confirmation of sale by the secured creditor and if the
terms of payment have been complied with, the Authorised Officer
exercising the power of sale shall issue a certificate of sale
of the immovable property in favour of the purchaser in the form
given in Appendix V to these rules.
(7) Where the immovable property sold is subject to any
encumbrances, the authorised officer may, if the thinks fit,
allow the purchaser to deposit with him the encumbrances and any
interest due thereon together with such additional amount that
may be sufficient to meet the contingencies or further cost,
expenses and interest as may be determined by him. [Provided
that if after meeting the cost of removing encumbrances and
contingencies there is any surplus available out of the money
deposited by the purchaser such surplus shall be paid to the
purchase within fifteen days from the date of finalisation of
the sale.
(8) On such deposit of money for discharge of the encumbrances
the Authorised Officer shall issue or cause the purchaser to
issue notices to the persons interested in or entitled to the
money deposited with him and take steps to make the payment
accordingly.
(9) The authorised officer shall deliver the property to the
purchaser free from encumbrances known to the secured creditor
on deposit of money as specified in sub-rule (7) above.
(10) The certificate of sale issued under sub-rule (6) shall
specifically mention that whether the purchaser has purchased
the immovable secured asset free from any encumbrances known to
the secured creditor or not.”
12. The High Court has found the following informaties in the
conduct of the impugned sale:-
(i) Before bringing the property for sale vide notice dated
28.4.2006 and 5.5.2006 fresh valuation of the property from the
accrued valuer was not obtained by the Bank when the property
worth crores had to be sold. There was infraction of sub-rule
(5) of Rule 8 which is mandatory.
(ii) 30 days notice as required under sub-rule 6 of Rule 8 was
not given thereby committing breach of this mandatory provision
as well.
iii) According to the High Court publication in Tarun Bharat Marathi
language was effected just one day prior from receiving from the
prospective buyers. However, publication in Marathi language
cannot be considered as vernacular language as the Belgaum is in
Karnataka where the vernacular language is Kannada and not
Marathi.
iv) As per the sale notice, the appellant was required to deposit
entire sale consideration within 15 days from the date of
confirmation of the sale. In the counter, the Bank has stated
that the appellant has made the payment within the time allowed
by the Authorised Officer. When the sale consideration is Rs.
2.16 crores, the bank was required to give details of the
payment made by the appellant in order to hold whether the
payment was made within the time stipulated in the sale and
whether the time was extended by the Officer by accepting the
reasonable cause shown by the purchaser and whether the
purchaser is bonafide purchaser or not. Unfortunately, the bank
has failed to produce these documents.
13. We may point out, at the outset, that the opinion of the High
Court on the interpretation of sub-Rules (5)and (6)of Rule 8 of the
Rules is flawless. In this behalf it would be pertinent to mention that
there is an imprimatur of this court as identical meaning is assigned
to these provisions. In the case of Mathew Varghese v. M. Amritha
Kumarr & Ors.; 2014 (2) SCALE 331. The aforesaid judgment has been
followed by this very Bench of the Court in C.A. No. 3865 of 2014
titled as J. Rajiv Subramaniyan & Anr. v. M/s Pandiyas & Ors. decided
on March 14, 2014, wherein the earlier referred case has been discussed
in the following manner:-
“12. This Court in the case of Mathew Varghese Vs. M.Amritha
Kumar & Ors. examined the procedure required to be followed by
the banks or other financial institutions when the secured
assets of the borrowers are sought to be sold for
settlement of the dues of the banks/financial
institutions. The Court examined in detail the
provisions of the SARFAESI Act, 2002. The Court also
examined the detailed procedure to be followed by the
bank/financial institutions under the Rules, 2002. This Court
took notice of Rule 8, which relates to Sale of
immovable secured assets and Rule 9 which relates to time of
sale, issue of sale certificate and delivery of possession etc.
With regard to Section 13(1), this Court observed that
Section 13(1) of SARFAESI Act, 2002 gives a free hand to the
secured creditor, for the purpose of enforcing the secured
interest without the intervention of Court or Tribunal. But
such enforcement should be strictly in conformity with the
provisions of the SARFAESI Act, 2002. Thereafter, it is
observed as follows:-
“A reading of Section13(1), therefore, is clear
to the effect that while on the one hand any SECURED
CREDITOR may be entitled to enforce the SECURED ASSET
created in its favour on its own without resorting to any
court proceedings or approaching the Tribunal,
such enforcement should be in conformity with the other
provisions of the SARFAESI Act.”
13. This Court further observed that the provision
contained in Section 13(8) of the SARFAESI Act, 2002 is
specifically for the protection of the borrowers in as much
as, ownership of the secured assets is a constitutional right
vested in the borrowers and protected under Article 300A of
the Constitution of India. Therefore, the secured creditor
as a trustee of the secured asset can not deal with the same
in any manner it likes and such an asset can be disposed of
only in the manner prescribed in the SARFAESI Act, 2002.
Therefore, the creditor should ensure that the borrower was
clearly put on notice of the date and time by which either the
sale or transfer will be effected in order to provide the
required opportunity to the borrower to take all possible
steps for retrieving his property. Such a notice is also
necessary to ensure that the process of sale will ensure that
the secured assets will be sold to provide maximum benefit
to the borrowers. The notice is also necessary to ensure that
the secured creditor or any one on its behalf is not
allowed to exploit the situation by virtue of proceedings
initiated under the SARFAESI Act, 2002. Thereafter, in
Paragraph 27, this Court observed as follows:-
“27. Therefore, by virtue of the stipulations contained
under the provisions of the SARFAESI Act, in
particular, Section 13(8), any sale or transfer of a SECURED
ASSET, cannot take place without duly informing the
borrower of the time and date of such sale or transfer in
order to enable the borrower to tender the dues of the
SECURED CREDITOR with all costs, charges and expenses and
any such sale or transfer effected without complying
with the said statutory requirement would be a
constitutional violation and nullify the ultimate sale.”
14. As noticed above, this Court also examined Rules 8 and 9 of
the Rules, 2002. On a detailed analysis of Rules 8 and 9(1),
it has been held that any sale effected without complying with
the same would be unconstitutional and, therefore, null and
void.
15. In the present case, there is an additional reason for
declaring that sale in favour of the appellant was a nullity.
Rule 8(8) of the aforesaid Rules is as under:-
“Sale by any method other than public auction or public
tender, shall be on such terms as may be settled between
the parties in writing.”
16. It is not disputed before us that there were no terms settled
in writing between the parties that the sale can be affected by
Private Treaty. In fact, the borrowers – respondent Nos. 1
and 2 were not even called to the joint meeting between the
Bank – Respondent No.3 and Ge-Winn held on 8th
December, 2006. Therefore, there was a clear violation of the
aforesaid Rules rendering the sale illegal.
17. It must be emphasized that generally proceedings
under the SARFAESI Act, 2002 against the borrowers are
initiated only when the borrower is in dire-straits. The
provisions of the SARFAESI Act, 2002 and the Rules, 2002 have
been enacted to ensure that the secured asset is not sold for a
song. It is expected that all the banks and financial
institutions which resort to the extreme measures under the
SARFAESI Act, 2002 for sale of the secured assets to ensure,
that such sale of the asset provides maximum benefit to the
borrower by the sale of such asset. Therefore, the secured
creditors are expected to take bonafide measures to ensure
that there is maximum yield from such secured assets for
the borrowers. In the present case, Mr. Dhruv
Mehta has pointed out that sale consideration is only Rs.10,000/-
over the reserve price whereas the property was worth much
more. It is not necessary for us to go into this question as,
in our opinion, the sale is null and void being in violation of
the provision of Section 13 of the SARFAESI Act, 2002 and Rules
8 and 9 of the Rules, 2002.”
14. Thus, when the matter is to be examined from this angle it
cannot be said that the view of the High Court is perfunctory or
flawed. Procedure contained in the aforesaid Rules was admittedly not
followed. Notwithstanding this position, Mr. Ranjit Kumar, learned
Senior Counsel appearing for the appellant submitted that a contrary
view is taken by this Court in General Manager, Sri Siddeshwara
Cooperative bank Limited and Anr. v. Ikbal & Ors.; (2013) 10 SCC 83
wherein it is held that the mandatory provision of 30 days notice can
be waived by the borrower and in such an eventuality, the sale cannot
be voided.
15. After recapitulating the facts which have already been narrated
above, his submission in this behalf was that the borrower had, in the
present case, delayed the sale of the property and he was not entitled
to take advantage of its own wrong. He dilated this submission by
pointing out that first notice for auction which was published on
11.9.2004, clear 30 days notice was provided therein as the date of
auction was fixed as 15.10.2004. However, conduct of the borrower in
filing frivolous Writ Petition and obtaining interim order therein,
desisted any intending purchaser from coming forward and participating
in the auction. Further, even when second notice for auction sale was
published on 28.2.2005 and notice of less than 30 days was given
therein fixing the date of auction as 23.1.2005, the borrower never
challenged the validity of this notice. Instead, at that stage the
borrower expressed its intention to settle the matter by offering OTS
proposal. The bank succumbed to this request of the borrower treating
the same to be a bonafide offer and even accepted the OTS proposal of
the borrower. Here again the borrower committed default and never
remitted the money as per OTS arrangement agreed to between the
parties. In this way, highlighting the aforesaid blameworthy conduct of
the borrower, Mr. Ranjit Kumar submitted that it is estopped from
challenging the validity of the notice for auction. It was also pointed
out that not only entire amount is paid by the appellant towards the
sale consideration, the appellant has discharged statutory liabilities/
encumbrances as well; sale deed registered in its favour way back on
26.5.2006; sale certificate issued; and the appellant is in possession
of this property ever since. Therefore, the sale should not have been
invalidated. Mr. A.B. Dial, learned Senior Counsel for the appellant
Bank in other appeal also argued on the same lines.
16. Let us examine the aforesaid submission of the appellant in the
light of the judgment in the case of Ikbal on which strong reliance is
placed by the learned Senior Counsel. That was a case where R-1 (the
borrower) took a housing loan from the appellant Bank by mortgaging
certain immovable property. As R-1 committed default in repayment of
the said housing loan, the Bank issued a notice to him on 30.6.2005
under Section 13(2) of the Securatisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (the
SARFAESI Act) informing him that if he failed to discharge the
outstanding dues within 60 days, the Bank may take action under Section
13(4) and the mortgaged property shall be sold. On 18.12.2005 the Bank
published the auction notice in the local newspapers and the public
auction was conducted on 11.1.2006. The bid of the auction-purchaser
for Rs. 8,50,000 was accepted being the highest bid. The auction-
purchaser paid 25% of the sale consideration immediately but he did not
make the payment of remaining 75% within 15 days of the confirmation of
sale. He made the final payment on 13.11.2006 and the Bank issued the
sale certificate in his favour. As the proceeds from the sale of the
mortgaged property fell short of the total outstanding amount against
the borrower, the Bank moved the Joint Registrar of Cooperative
Societies for recovery of the outstanding amount. In those proceedings,
an ex parte award for the outstanding amount was passed against the
borrower R-1. It was then that R-1 challenged the sale certificate
issued in favour of the auction purchaser in two writ petitions before
the High Court. The Single Judge of the High Court quashed the sale
certificate issued in favour of the auction-purchaser on the ground
that the mandatory requirements of Rule 9 of the 2002 Rules were not
followed and, therefore, despite the remedy of appeal to the borrower
provided under Section 17 of the SARFAESI Act, a case was made out for
interference under Article 226 of the Constitution, which was affirmed
by the Division Bench of the High Court. The Bank and the auction-
purchaser had filed the appeals challenging the judgments of the High
Court.
17. This Court, after interpreting the provisions of Rule 9, returned a
categorical opinion that the said provision is mandatory in nature. It
was further held that even though this Rule is mandatory, that
provision is for the benefit of the borrower. The Court held that it is
a settled position in law that even if a provision is mandatory, it
can always be waived by a party (or parties) for whose benefit such
provision has been made. The provision in Rule 9(1) being for the
benefit of the borrower and the provisions contained in Rule 9(3) and
Rule 9(4) being for the benefit of the secured creditor (or for the
benefit of the borrower), the secured creditor and the borrower can
lawfully waive their rights. These provisions neither expressly nor
contextually indicate other wise. Obviously, the question whether there
is waiver or not depends on the facts of each case and no hard and fast
rule can be laid down in this regard.
18. In the facts of that case it was found that the letter dated
13.11.2006 sent by the borrower to the Bank clearly depicted that the
borrower had waived his right under Rule 9 (1) and the provisions
contained in Rule 9(3) and Rule 9(4) as well. It was also found that at
the time of auction sale on 11.1.2006, the borrower was present but did
not object to the auction being held before expiry of 30 days from the
date of which public notice of sale was published. Not only this, he
agreed that the bid given by the auction purchaser, which was the
highest bid, be accepted as the auction purchaser happened to be his
known person. Another important feature which was noted was that the
borrower expressly gave consent in writing that the balance sale price
may be accepted from the auction purchaser even when tendered after
some delay and the sale certificate be issued to him. There was a
written agreement between the borrower and the Bank for extension of
time upto 15.4..2006 within which the auction purchaser had made the
payment. On these facts, the court came to the conclusion that
condition in Rule 9(4) viz. “such extended period as may be agreed upon
in writing between the parties” would be treated as substantially
satisfied. Again, pertinently, the Writ Petition was filed by the
borrower more than 4 years after the issuance of the sale certificate.
On these facts the court concluded that there was a waiver of the
aforesaid mandatory provisions by the borrower.
19. It can, thus, be seen that there is no conflict between the two
sets of judgments namely Mathew Varghese case followed in J. Rajiv
Subramaniyan case on the one hand and Ikbal’s case on the other hand.
In the first set of cases the interpretation given to Rule 8 and 9 of
the Rules hold that these Rules are mandatory. It is so held even in
Ikbal’s case. However, Ikbal’s case proceeds further to lay down the
principle that since these provisions are for the benefit of the
borrower, borrower can always waive those procedural requirements. This
latter aspect never fell for consideration in the earlier two
judgments. Therefore, we see no force in the contention of the learned
Senior Counsel of the appellant that judgment in Mathew Varghese
(supra) goes contrary to the law laid down in Ikbal’s case.
20. The only question, therefore, is as to whether it can be held
that the borrower in the present case had also waived the mandatory
provisions of Rules 8 and 9 of the Rules. We may remark that it is
expressly clarified in Ikbal’s case itself that the question whether
there is a waiver or not depends on the facts of the each case and no
hard and fast rule can be laid down in this regard.
21. We would like to point out at the outset that the argument of
waiver was not raised by the appellant in the High Court. In fact,
this ground is not even raised in the Special Leave Petition. The
appellant’s case rested with hammering the blameworthy conduct of the
borrower by relying upon the observations of the DRT to the effect that
the borrower had been adopting dilatory tactics and delaying the
recovery of amounts due to the bank somehow or the other. It was also
argued that the appellant is a bonafide purchaser and equities are in
favour of the appellants which should be balanced and the borrower is
not entitled to any relief because of his intemperate conduct.
22. Be as it may. Since the arguments is predicated on the admitted
facts appearing on record, we proceed to examine the same on merits.
Our examination reveals that no case of waiver is made out.
23. In State of Punjab v. Davinder Pal Singh Bhullar & Ors.; 2011
(14) SCC 770; the Court explained the doctrine of waiver on the basis
of earlier pronouncements which are taken note of discussed in the
following manner:
“37. In Manak Lal this Court held that alleged bias of a
Judge/official/Tribunal does not render the proceedings invalid
if it is shown that the objection in that regard and
particularly against the presence of the said official in
question, had not been taken by the party even though the party
knew about the circumstances giving rise to the allegations
about the alleged bias and was aware of its right to challenge
the presence of such official. The Court further observed that:
(SCC p. 431, para 8)
“8. … waiver cannot always and in every case be inferred
merely from the failure of the party to take the objection.
Waiver can be inferred only if and after it is shown that
the party knew about the relevant facts and was aware of his
right to take the objection in question.”
38. Thus, in a given case if a party knows the material facts
and is conscious of his legal rights in that matter, but fails
to take the plea of bias at the earlier stage of the
proceedings, it creates an effective bar of waiver against him.
In such facts and circumstances, it would be clear that the
party wanted to take a chance to secure a favourable order from
the official/court and when he found that he was confronted with
an unfavourable order, he adopted the device of raising the
issue of bias. The issue of bias must be raised by the party at
the earliest. (See Pannalal Binjraj v. Union of India and P.D.
Dinakaran (1) v. Judges Enquiry Committee.)
39. In Power Control Appliances v. Sumeet Machines (P) Ltd. this
Court held as under: (SCC p. 457, para 26)
“26. Acquiescence is sitting by, when another is invading
the rights…. It is a course of conduct inconsistent with the
claim…. It implies positive acts; not merely silence or
inaction such as involved in laches. … The acquiescence must
be such as to lead to the inference of a licence sufficient
to create a new right in the defendant….”
40. Inaction in every case does not lead to an inference of
implied consent or acquiescence as has been held by this Court
in P. John Chandy & Co. (P) Ltd. v. John P. Thomas. Thus, the
Court has to examine the facts and circumstances in an
individual case.
41. Waiver is an intentional relinquishment of a right. It
involves conscious abandonment of an existing legal right,
advantage, benefit, claim [pic]or privilege, which except for
such a waiver, a party could have enjoyed. In fact, it is an
agreement not to assert a right. There can be no waiver unless
the person who is said to have waived, is fully informed as to
his rights and with full knowledge about the same, he
intentionally abandons them. (Vide Dawsons Bank Ltd. v. Nippon
Menkwa Kabushiki Kaisha, Basheshar Nath v. CIT, Mademsetty
Satyanarayana v. G. Yelloji Rao, Associated Hotels of India Ltd.
v. S.B. Sardar Ranjit Singh, Jaswantsingh Mathurasingh v.
Ahmedabad Municipal Corpn., Sikkim Subba Associates v. State of
Sikkim and Krishna Bahadur v. Purna Theatre.)
42. This Court in Municipal Corpn. of Greater Bombay v. Dr
Hakimwadi Tenants’ Assn. considered the issue of
waiver/acquiescence by the non-parties to the proceedings and
held: (SCC p. 65, paras 14-15)
“14. In order to constitute waiver, there must be voluntary
and intentional relinquishment of a right. The essence of a
waiver is an estoppel and where there is no estoppel, there
is no waiver. Estoppel and waiver are questions of conduct
and must necessarily be determined on the facts of each
case. …
15. There is no question of estoppel, waiver or abandonment.
There is no specific plea of waiver, acquiescence or
estoppel, much less a plea of abandonment of right. That
apart, the question of waiver really does not arise in the
case. Admittedly, the tenants were not parties to the
earlier proceedings. There is, therefore, no question of
waiver of rights by Respondents 4-7 nor would this
disentitle the tenants from maintaining the writ petition.”
24. From what is argued by the appellants, at best it can be
inferred that the borrower tried to thwart the earlier attempts of the
Bank in selling the property. When the first notice was issued, the
borrower filed the writ petition. However, it is to be borne in mind
that in the said Writ Petition no interim order was passed staking the
auction on the stipulated date. The only stay granted was against
confirmation of sale. That did not preclude anybody from participating
in the auction. We are mindful of the ground realities that many times
pendency of such a Writ Petition challenging the auction notice and
the kind of stay granted, even partial in nature, deter the intending
buyers to come forward and participate in the auction. Be as it may, we
find out that even in the second attempt when the reserve price was
reduced to Rs. 2.39 crores, the highest bid received was in the sum of
Rs. 2.25 crores. Further, even the bid of the appellant which was
accepted was in the sum of Rs.2.16 crores. Likewise, after the second
auction when the Bank requested the borrower to accept the bid of
Rs.2.25 crores giving its reasons and the borrower instead of doing so
took initiative resulting in OTS but defaulted therein, it would merely
indicate that the borrower was at fault in not adhering to the OTS. By
no logic it can be deduced therefrom that the Bank was relieved from
its obligation not to follow the mandatory procedure contained in the
Rules, while taking fresh steps for the disposal of the property.
25. The moot question is, even if there were delaying tactics
adopted by the borrower in respect of first two auctions, whether that
conduct of the borrower would amount to waiving the mandatory
requirement of publishing subsequent notice dated 27.4.2006 fixing the
date of auction as 8.5.2006? Our answer has to be in the negative. The
aforesaid conduct cannot be taken as waiver to the mandatory condition
of 30 days notice for auction as well as other requirements. For
examining the plea of waiver, we will have to see as to whether by
implied or express actions, the borrower has waived the aforesaid
mandatory requirement when the property was put to sale. We do not
find, nor it is suggested, even the slightest move on the part of the
borrower in this regard which may amount to waiver either express or
implied. On the contrary, when notice dated 27.4.2006 was published,
the borrower immediately filed the Writ Petition 6471 of 2006
challenging the auction notice. Thus, its conduct, far from waiving the
aforesaid requirement, was to confront the bank by questioning its
validity. It is a different matter that it had to withdraw the said
writ petition in view of availability of alternate remedy. Immediately,
it filed application under Section 18 of the SARFAESI Act. There is,
thus, not even an iota of material suggesting any waiver on the part of
the borrower.
26. The moment we find that the mandatory requirement of the Rules
had not been waived by the borrower, consequences in law have to
follow. As held in Mathew Varghese’s case, when there is a breach of
the said mandatory requirement the sale is to be treated as null and
void. Moreover, the appellant have no answer to many other infirmities
pointed out by the High Court. We, therefore, are of the opinion that
present appeals lack merit.
27. Before we part with, it is imperative to mention that the
purchaser has paid a sum of Rs.1.86 crores towards purchase of property
and Rs.30 lakh towards moveable items to the Bank. He has also spent
Rs.1,86,335/- towards registration fee and Rs.15,62,400/- towards stamp
duty. In addition, dues towards municipal tax, Sales Tax liability,
dues of Employees State Insurance Corporation, Employees Provident Fund
and Belgaum Industrial Cooperative Bank have also been paid. A total
whereof comes to Rs. 49,91,000/-. These were the liabilities of the
borrower. In this way, total amount of Rs. 2,83,39,735/- is paid by
the purchaser. He has also discharged municipal tax liability in the
sum of Rs.2,86,078/- for the period 1.4.2007 to 31.3.2009. As we have
affirmed the order of the High Court setting aside the sale, we grant
two months time to the borrower to discharge the entire liability of
the Bank. The borrower shall also reimburse the amount of registration
fee and stamp duty to the purchaser. The direction to pay this amount
is given having regard to the conduct of the borrower on earlier
occasions. If the borrower pays the amount due to the Bank,
registration charges, stamp duty as well as amount of encumbrances paid
by the purchaser, which was the liability of the borrower i.e. a sum of
Rs.49,91,000/- + 2,86,078/-, the property shall revert back to the
borrower. If the aforesaid amounts are not paid within the aforesaid
two months, the Bank shall be at liberty to proceed with the sale of
the property following due procedure under the law. In so far as the
purchaser is concerned, he shall be refunded entire amount spent by the
purchaser, as mentioned above. We have consciously not granted interest
to the purchaser on the aforesaid amount, as the purchaser has, in the
meantime, utilized the property in question.
28. Subject to the above, the appeals are dismissed.
…………………………J.
(Surinder Singh Nijjar)

 

 
………….……………..J.
(A.K.Sikri)
New Delhi,
April 22, 2014

 

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