BUYING A PROPERTY IN BANK AUCTION

The traditional channels of searching real estate listings and working with real estate agents aren't the only ways to acquire a property. Experienced real estate investors often purchase properties at auctions. But auctions aren't limited to professionals; novices have purchased their homes at auctions, too.

How Do Properties End Up at Auction?

The two main types of property auctions are foreclosure auctions and tax lien auctions. Before a property reaches this stage, several things have to happen.

First, the homeowner has to have not paid the mortgage for several months. Then, the bank files a notice of default with the county recorder. If the homeowner doesn't pay the balance owed or renegotiate the mortgage with the lender, the home can be put up for auction. The amount of time it takes from when the homeowner stops paying the mortgage to when the home ends up at auction varies, but can be anywhere from a few months to a year or more.

The other main way a home ends up at auction is when the owner doesn't pay property taxes or becomes severely delinquent on state or local income taxes. In these cases, it is the unpaid tax authority (not the bank) that seizes the property.

How Property Auctions Work

Auctions take place at local government courthouses and other locations chosen by auction companies, such as hotel conference rooms. Homes are also auctioned online. Foreclosure auctions are held by bank-hired trustees. Tax lien auctions are conducted by local sheriffs.

Winning a property at these auctions can work in two different ways. In a lender confirmation auction, the lender doesn't have to accept your offer even if you are the highest bidder. In an absolute auction, the winning bid gets the property.

The starting price of the auction may be the balance owed on the mortgage or may be a lower amount designed to spur bidding. In the case of a foreclosure auction, the lender is not allowed to profit from the auction. Often, these properties are sold at a loss, but if there is a profit, it is supposed to go the foreclosed homeowner after the mortgage and any other liens are paid.

What is e-Auction? When should Forward and Reverse Auction be used?

e-Auctions are negotiations conducted via an online platform where Suppliers get the possibility of improving their proposals based on market feedback (e.g. rank in negotiation) and are considered to be the most transparent way of conducting negotiations. Basically, there are two types of Auctions.

1. Forward Auction 

2. Reverse Auction

Forward Auction - Forward Auctions are sales oriented auctions, where Auctioneers are trying to sell their products or services. In a forward auction, the buyer bids on the seller's item and the prices of the item increases by a fixed increment amount during the auction and in a forward Auction the highest bid price during the Auction is the one which wins.

For example, when a Bank or a Debt Recovery Tribunal (DRT) hold an auction to sell a property or an asset - it will use Forward Auction mechanism.

Reverse Auction - Reverse Auctions are Purchase oriented auctions, where Auctioneers are trying to purchase products or services. In a reverse auction, the seller bids on the Buyer's item and the prices of the item decreases by a fixed decrement amount during the auction. In a Reverse Auction the lowest bid price during the Auction is the one which wins.

For example, if a bank (or any organization) wants to buy computer systems or even transportation services, it can hold a reverse auction to procure goods and services at the best possible price.

Who is a Bidder?

Anyone be an executive of a company or an individual wishing to bid or participate in an online Auction event is a Bidder. On Bank or DRT Auctions, a Bidder will be bidding in the Auctions he has been qualified for. By responding in an Auction, the Bidder commits to buy or sell items at prices submitted by him during Auction.
 

What can potential bidders learn about auction properties before bidding?

Some auction companies have open houses so potential bidders can walk through the properties ahead of time. Listings describing the properties to be auctioned are also available. Other times it is only possible to drive by and see the outside. To discover properties that will be auctioned off, potential buyers can check county recorder websites and foreclosure listing services.

As for payment, bidders should bring to the auction a cashier's check for the amount of money required by the auction holder. Winning bidders will pay any auction fees and/or bidding fees and put down an earnest money deposit on the property they are purchasing before leaving the auction site. The winners then go through escrow and closing just like with any other home purchase. Bidders at property auctions are often real estate investors who can afford to pay cash, but for auctions that allow financed purchases, it is best to get prequalified ahead of time.

Some auction houses prefer that you work with their affiliated lenders and will have those lenders on site at the auction. However, do your research beforehand to determine the interest rates available from competing lenders. This information may give you some leverage when working with a bidder's lenders.

Benefits

Why would anyone be interested in buying a property at auction? For one thing, an auction offers a first chance to snap up a property you might not otherwise be able to afford. Because of the extra risk involved and because fewer people may be interested in the property than if it were available through traditional channels, prices can be lower. Auction properties aren't always great deals – the auctioneer could set a hidden reserve price on it, the minimum you must bid – but the potential to get a residence at a fire sale price is such a big draw that, for many people, it compensates for the numerous potential drawbacks.

Drawbacks

Properties being auctioned off aren't necessarily hidden gems. If a property winds up at auction, it means the owner was having financial trouble, so the house may have deferred maintenance problems. It might even be completely trashed. Also, there may be claims against the home – not just the aforementioned tax liens, but contractor liens or a second mortgage. Bidders should check with the auction house to ensure that the property has clear titles.

Buying a property at auction often requires a lot of cash. Each auction company and county government has its own requirements for payment, but you will probably need some amount of ready money just to secure your bid. Down payment amounts and methods of purchasing often depend on the property and the auction house. More flexible financing options may be available by purchasing a bank-owned property the traditional way, instead of at an auction.

Auction properties sometimes do not allow for a home inspection or even provide a view of the inside before the auction. If you can't afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding. Without this information, it can be hard to know what you're getting into, what a property's repair costs will be, or the true value of property until you've become the owner.

Also, in some cases, the (former) owner or a squatter will be occupying the property, meaning you will have to evict them – a process that can be unpleasant at best, and lengthy and expensive at worst.

Finally, if you're an ordinary person trying to buy a home at auction, be prepared to face stiff competition from investors looking to snap up properties to flip or turn into rentals.

The Bottom Line

If you're interested in trying to pick up a bargain property at an auction, there's a lot to learn. Auctions can be a riskier way to purchase a property than buying a property through a real estate agent, so it's important to be extremely well-educated about the process and about the properties you are interested in bidding on.

Foreclosed homes may be financially appealing, but there are many obstacles to consider before buying. Also, just because a home is for sale at auction doesn't mean that you'll be able to get it at a good price (or that the home is a good deal at any price – it could be a money pit!). But for savvy, intelligent and motivated individuals, property auctions are worth exploring as a way to pick up a home or an investment property on the cheap.

Properties sold under Bank Auctions can be bought for as cheap as 30% from Current Market Rate. The price of properties sold under Bank Auctions is fixed according to Government Guidance Value whereas Current Market Price is normally 3-4 times in upcoming areas and 2 times in developed areas. There are only few bidders in bank Auctions as these properties are usually bought by investors or people who have ready funds available for purchase but in bank auctions property cannot be bought on loan.

Whenever bank auctions these properties, there will be 2 terms in Auction Notice:

(a) Reserve Price: Reserve Price is Minimum Bid Price i.e. Starting Bid Price of Auction or Lowest Price at which Bank is willing to Sell the Property through Bank Auctions.

(b) Earnest Money Deposit (EMD): It is actually Good Faith Deposit i.e. Amount to be deposited before Auction Process by Potential Bidder showing that he is a serious buyer. Only after depositing EMD, a person is eligible to participate in Auction Process. EMD is refundable for unsuccessful bidders.

After Auction process, successful bidder need to deposit 25% of total Sale Amount (including EMD) on the day of Auction itself and rest amount needs to be deposited within 15 days from Auction. It’s quite clear that only person with ready funds can fulfill these stringent payment condition.

For example..Suppose Bank has put up Property A for Auction with reserve price of 50 Crores therefore EMD will be 5 Crores. Potential Bidders need to pay 5 Crores upfront in order to eligible for participating in Auction Process.

Assuming Person B bought property for 60 Crores during Auction process. On same day, he needs to pay 15 Crores i.e. 25% of Sale Amount. As he has already paid 5 Crores as EMD therefore rest 10 Crores should be deposited on the Day of Auction after Auction is over so that he fulfill condition of payment of 25% of Sale Amount i.e. 15 Crores to be paid by Auction Date…Rest 45 Crores i.e. 75% of Sale Amount should be deposited within 15 days from Date of Auction.

Usually Notices for Bank Auctions are published in B Range Newspapers and not in most popular ones.

Lastly those buyers who would like to take cost advantage of Auctioned Properties through Loan route, can opt for Loan against Property. Only catch is, first you need to arrange for 100% funds from own sources or through Short term borrowing of 1 Month or so from Mortgage institution or from friends & relatives….After buying property through Auction, you can take Loan against Property and can repay the borrowed amount. Secondly, Interest Rate under Loan against Property option will be slightly higher compared to Normal Home Loan Rate & there is no income tax benefit available to salaried class in this case.

Note of Caution: Properties under Bank Auctions are sold on “As is Where is & What is There is Basis” which implies Bank does not take any responsibility regarding Title of the property i.e. on encumbrance front, No liability of Bank. In the event of any legal dispute or any other claim on property, Bank does not indemnify the buyer from same. The complete responsibility of encumbrance rests with Buyer for auctioned properties.

Whereas in normal sale deeds, buyer can put a clause where the seller indemnify the buyer legally from any encumbrance on property prior to date of property registration therefore buyer is safe from all encumbrances prior to purchase.

Most important point is to insist the bank that Original Borrower of the Property, whose property is being auctioned by bank should become the “Confirming Party” in your Sale Deed / Registration with the bank so that in future he should not file case in court to cancel the auction.

It is always advisable to take help of Chartered Accountants / Local Competent Professional Property Lawyer before participating in Bank Auctions as he can help you in understanding the rules and regulations. He can also help you to check Property Title and encumbrance on property (If any).

Steps to Buy Property through Bank Auction

Step 1: Search for Bank Auction Property

This is one of the most painful step as there is no organized data in India. You may find some sites providing information on Bank Auction Property. This information is normally available on chargeable basis. These sites are not updated regularly. The other sources of information are Newspapers, Notice posted in Bank Branch or Notice posted in the Society. You can also check auction notice on website of Asset Reconstruction Company like ARCIL. It is advisable to narrow down your search so that it will be easy to search the property.

Step 2: Check Property Details

Once you shortlist bank auction property, carry out preliminary check on our own. Check market price of the property, obviously reason for bank auction is payment default but check out any legal dispute, bank auction related details and how can you participate in bank auction.

The biggest problem with Bank Auction is that you will not have get access to property papers before purchase for title search. Banks are not willing to share much information. Sole objective of bank is to dispose off the property. If you are seriously interested in buying the property then it is advisable to hire a chartered accountant or lawyer or expert for this process. One important point to check is Balance outstanding of the defaulter. In many cases balance outstanding is much higher compared to Reserve Price. Please check if the property is auctioned at amount below balance outstanding amount then how bank will recover the balance amount. In such scenarios, defaulter has to pay the balance amount but better to clarify. If final bid amount is more than outstanding amount then balance amount is paid to the defaulter by the bank.

Step 3: Physically Inspect the Property

It is advisable to physically inspect the property. Now a day’s banks have started mentioning the inspection date and time in auction notice. You can visit the site at designated time to inspect the property. In e-auction notice you will find the contact details of concerned officer. It is advisable to contact him and get all the details. Now one good thing is that if bank is organizing physical inspection then it means bank has physical possession of the property. It is always advisable to buy property where bank has physical possession. In case of notional or symbolic possession, winner of bank auction process will struggle to get the possession. After auction bank will be totally non-cooperative. In some cases, it may take years to get physical possession or you may need to file a court case to get physical possession.

Step 4: Submit Tender Form

In this step, you can collect Tender Form and you should deposit EMD (Earnest Money Deposit) along with Tender form. EMD is normally deposited through Banker’s Cheque or Demand Draft. Please check all details in tender form and submit your tender before the Tender Closing Date. Along with Tender form, bank also demand KYC documents. As the time is very short therefore you should arrange all documents well in advance. One of the most common reason for rejection of tender form is incomplete tender form i.e. either KYC documents are not available or Tender form is not filled properly.

Step 5: Bidding

There are multiple ways of submitting your bid. You can submit your bid through bidding form. In most of the cases Tender form and Bid form are one and same thing. In short, you can submit bid through tender form. You have to submit separate Tender form / bid form if you wish to submit multiple bids in “multiple of increase in bid amount”. In some cases, Tender form is submitted physically and bid is submitted online through separate Bid form. Competitive bidding is allowed by bank in certain cases among the bidders to increase the final bid amount. In e-auction, you can bid multiple times during the window of e-auction. There is no standard bidding process except for e-auction. It is at the sole discretion of the bank.

Step 6: Auction Date

On auction date, visit the site / bank / auction venue to check whether you won the bank auction or not. If bids are submitted through tender form / bid form then bank will open all the eligible bids in front of all bidders. Highest bidder is declared winner of bank auction. If you win auction then you need to deposit 25% of the bid amount within 24 hours including EMD deposited with tender form. Balance 75% of bid amount should be deposited within 15 to 30 days from the date of bank auction. If you are planning to avail Home Loan then it is advisable to apply for Home Loan from the bank which has auctioned the property. Normally home loan is risky proportion and most of bank auctions are closed without Home Loan. Banks are not willing to lend on foreclosed properties. I will not suggest to depend on Home Loan for such properties because of tight timelines.

Step 7: Sale Certificate

After the balance 75% payment is made. You will receive Sale Certificate from Bank but title transfer is incomplete till you register sale certificate in sub-registrar office

Step 8: Register Sale Certificate in Sub-Registrar office

You can register Sale Certificate and should insist on inclusion of defaulter as confirming party. The sale certificate should be signed by the authorized bank executive at the time of property registration.

Important Points related to Bank Auction Process

1. Bank Auction is scheduled after 30 days from the date of Auction notice. If defaulter pay the money to bank in between then bank auction process is cancelled.

2. If you win the bank auction and do not pay balance amount within specified period then your entire paid amount will be forfeited by the bank.

3. Properties auctioned by PSU banks are cheaper compared to properties auctioned by Private banks.

Legal Pronouncements 

 P.Mohan vs The Authorised Officer on 26 June, 2018 (Madras High Court)

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED: 26.06.2018

 

CORAM:

THE HON'BLE MR.JUSTICE S.MANIKUMAR

AND

THE HON'BLE MR.JUSTICE SUBRAMONIUM PRASAD

 

W.P.No.8206 of 2018

and

WMP No.10174 of 2018

 
P.Mohan ... Petitioner

vs.

1. The Authorised Officer,
Indian Overseas Bank,
Regional Office,
13/25, Registrar Periasamy Street,
Veerasamy Nagar, Sankaran Palayam,
Vellore - 632 001.
 
2. Mrs.Premavathy
 
3. Debts Recovery Appellant Tribunal,
4th Floor, Indian Bank Circle Office,
55, Ethiraj Salai, Chennai ... Respondents
 
WRIT Petition filed under Article 226 of the Constitution of India, praying for the issuance of
 
For Petitioner : Mr.R.K.M.Suresh
For Respondents : Mr.FB.Benjamin George (for R1)
Mr.PV. Rajeswari (for R2)
 
ORDER
 
(Order of the Court was made by S.MANIKUMAR, J) Borrower, has availed financial assistance of Rs.5 Lakhs from Indian Overseas Bank, Vellore, 1st respondent in the year 2007. Cash credit facility was increased to the tune of Rs.25 Lakhs. Borrower defaulted. Hence, Bank classified the account as Non Performing Asset. Bank issued notice dated 17.07.2012 under Section 13(2) of the SARFAESI Act, 2002, followed by a possession notice dated 26.02.2013, under Section 13(4) of the SARFAESI Act, 2002. Borrower had tendered some amounts in installments. After four months, bank issued sale notice dated 06.06.2013. Said notice was published on 12.06.2013 in the newspapers. Sale was fixed on 11.07.2013 between 11.00 am and 12.00 noon.
 
2. Being aggrieved by the sale notice dated 06.06.2013, borrower has filed S.A.No.198 of 2013, before the Debts Recovery Tribunal-III, Chennai. Auction was permitted by the tribunal. Petitioner filed I.A.No.414 of 2013 in S.A.No.198 of 2013, to raise additional grounds. Petitioner also filed I.A.No.415 of 2013 to set aside the sale dated 11.07.2017, in so far as property mentioned in Item No.1 of the sale notice dated 06.06.2013. Petitioner also filed I.A.No.416 of 2013 to implead Mrs.Premavathy, auction purchaser / 2nd respondent herein. IA No.414 of 2013 was allowed in favour of the writ petitioner / borrower. Contentions raised before the Debts Recovery Tribunal-II, Chennai in SA No.198 of 2013 and in I.A.Nos.415 & 416 of 2013 are, "

(i) No clear 30 days notice is given in this case.
 
(ii) Sale Notice was never served to the applicant.
 
(iii) Valuation is not proper and it was not done by an approved Valuer under Wealth Tax Act.
 
(iv) Sale notice does not contain the amount due as on date.
 
(v) Sale notice was not affixed in the property.
 
(vi) There was only bidder and there may be a likelihood of syndicate formation, especially when the purchaser is residing in very close proximity to the secured asset.
 
(vii) A sum of Rs.22 lakhs was the upset price fixed by the bank and the property was sold for Rs.22.7 lakhs.
 
(viii) Time was fixed between 11am and 12 noon but the ame was unilaterally changed to 11 a.m. to 1.p.m."
 
3. Before the Debts Recovery Tribunal-III, Ex.A1 to A4 were marked on the side of the borrower.  Ex.B1 to B15, were marked on the side of the bank. On the above grounds and submissions, vide order dated 16.01.2014, Debts Recovery Tribunal-III, dismissed S.A.No.198 of 2013. Being aggrieved, borrower, filed RA (SA) No.184 of 2014, before the Debts Recovery Appellate Tribunal, Chennai.
 
4. Though, the borrower has reiterated the abovesaid grounds and in particular, that there was no clear thirty days notice, placing reliance on the decisions of the Hon'ble Supreme Court in Mathew Varghese Vs. M.Amritha Kumar, reported in (2014) 5 SCC 610 and Vasu P. Shetty Vs. HotelVandana Palace and others, reported in (2014) 5 SCC 660 and, after considering, rival submissions,  the Debts Recovery Appellate Tribunal, vide order dated 27.03.2018 in RA (SA) No.104 of 2014,concurred with the order of the Debts Recovery Tribunal-III, Chennai, as hereunder.
 
"8. On having a comparative view of evidence of both the parties, in my considered opinion, valuation of the house fixed by the Bank can be presumed to be reasonable and correct. Merely by the fact that upset price was fixed at Rs.22 lakhs will not vitiate the sale, because ultimately it was sold for a sum of Rs.28 lakhs. At times, upset price is fixed to be low with a view to attract more persons. In so far as proof of service of notice by affixture is concerned, photographs are available where Bank Officers were photographed in front of the house. Personal service of Sale Notice on 6.6.2013 though was questioned by the appellant, but appellant failed to discharge his part of duty. He also left some ambiguity in his defence.
 
9. Sole question remained about the time gap between date of publication of Sale Notice and the actual sale. It should be 30 days, whereas it is 29 days. There appears no substance in the averment that time of sale was fixed to be 11.00am to 12.00 noon, but it was extended upto 1.00pm, because extension of time can be ignored, illegality can be presumed when auction was completed even before the time schedule. Grant of some more time, i.e., one hour will not be prejudicial to anyone. However, it was extended only to wait for any specific stay order to be ordered by PO of DRT in the SARFAESI Appeal. It means Appellant was more interested in litigation than in repayments. In this backdrop and in these circumstances, lack of one day's gap in Sale Notice, in my considered opinion, it has been rightly ignored by the PO of DRT.

10. PO of DRT has discussed the facts and law meticulously. In view of the facts and circumstances of this cases, PO of DRT has arrived at on a conclusions."
 
5. Accordingly, appeal in RA(SA) No.104 of 2014 has been dismissed. Being aggrieved by the order in RA(SA) No.104 of 2014 dated 27.03.2018, instant writ petition is filed on the following grounds:
 
(i) The Appellate Tribunal has erred in not taking into consideration that the Writ petitioner herein during the pendency of the application filed under Section 17 before the Debts Recovery Tribunal-III, in S.A.No.198 of 2013 had deposited a sum of Rs.5,00,000/- and thereafter, in the proceedings before the Appellate Tribunal in RA(SA) No.104 of 2014, deposited a sum of Rs.2,80,167/-. Thus, the total deposit made by the petitioner was Rs.13,65,137/- vis-a-vis, the alleged claim of the bank Rs.22,76,335/-. That the second respondent herein was the sole bidder in the auction, alleged to have been conducted, which is in violation of the rules and therefore, the appellate tribunal, in the interest of justice, ought to have set aside the auction, and permitted redemption of the property by the petitioner.

(ii) The Appellate Tribunal has failed to note that Rules 8 and 9 of the Rules of Security Interest (Enforcement) Rules are mandatory in nature and not directory. In this regard, the writ petitioner has relied on the decisions of the Hon'ble Apex Court reported in (2014) 5 SCC 610 (Mathew Varghese Vs. M.Amritha Kumar & Others) and in (2014) 5 SCC 660 (Vasu P.Shetty vs. Hotel Vandana Palace & Others).
 
(iii) The Appellate Tribunal has failed to note that clear 30 days notice was not given to the petitioner, as mandated in 8 of the Security Interest (Enforcement) Rules.

(iv) The Appellate Tribunal has failed to note that the Sale notice was not affixed, in the property, as prescribed in the Act and Security Interest (Enforcement) Rules.
 
6. Indian Overseas Bank, 1st respondent herein has filed counter affidavit on 25.06.2018 and the same is as follows:
 
(i) Petitioner P.Mohan is the borrower of Indian Overseas Bank. Petitioner, initially borrowed a cash credit limit of Rs.5 Lakhs from the Tiruttani Branch of the bank on 13.03.2007. Later, at the request of the said borrower, the limit was enhanced to Rs.15 Lakhs on 22.03.2008 and further enhanced to Rs.25 Lakhs on 31.10.2008. The said loan was inter-alia secured by immovable properties measuring 900 sq.ft and the building measuring 900 sq.ft. situated thereon bearing Door No.69, New No.68/B, Akkaiya Naidu Street, Tiruttani situated within R.S.No.139/8 and 139/11. Petitioner availed the loan and operated the account. However, borrower defaulted in repayment of the dues and on 31.03.2012, the account became NPA. As on 31.06.2012, a total sum of Rs.27,30,334/- was due in the cash credit account of the petitioner. Therefore, the 1st respondent bank, invoked the provisions of the SARFAESI Act, 2002 and issued a demand notice dated 17.07.2012 under Sec.13(2) of the Act. The petitioner received the said notice under clear postal acknowledgment. However, he did not furnish any reply. Therefore, the 1st respondent proceeded further under SARFAESI Act, 2002 and on 26.02.2013 took symbolic possession of the schedule property. Thereafter, the secured creditor bank issued a sale notice for the sale of the schedule property on 06.06.2013, fixing the date of auction on 11.07.2013.

(ii) Borrower has challenged the said measure under Section 17 of the SARFAESI Act, by filing an application SA.No.198 of 2013 on the file of the Debts Recovery Tribunal III, Chennai. The said application came before the Tribunal on 11.07.2013 and the Debts Recovery Tribunal by its order dated 11.07.2013 permitted the bank to go ahead with the auction sale and restrained the bank from confirming the sale until further orders. Later, in compliance of the conditional order passed by the Debts Recovery Tribunal, the petitioner/borrower remitted a sum of Rs.5 Lakhs. However the balance amount was not paid.

(iii) In the auction held on 11.07.2013, one Mrs.Premavathi 2nd respondent herein, was the successful bidder. Later the Debts Recovery Tribunal on 16.01.2014 dismissed SA No.198 of 2013, thus enabling the 1st respondent bank to confirm the auction. Therefore, the 1st respondent confirmed the sale, in favour of the auction purchaser and on payment of the entire sale consideration, issued the sale certificate to the 2nd respondent on 31.01.2014.

(iv) Challenging the order dated 11.07.2013 in SA No.198 of 2013, the petitioner herein filed RA(SA) No.104 of 2014 and finding no merit in the appeal, the same was dismissed on 27.03.2018. Being aggrieved the present Writ Petition has been filed.
 
(v) Petitioner has canvased the following grounds before the DRAT.
 
a) No clear 30 days notice was given
 
b) Sale notice was not served on the applicant
 
c) Valuation is not proper and it was not done by an approved valuer under Wealth Tax Act.
 
d) Sale Notice does not contain the amount due, as on date.

e) Sale notice was not affixed in the property.
 
f) There was only one bidder and there was a likelihood of syndicate formation, especially when the purchaser is residing in close proximity, of the secured assets.
 
g) A sum of Rs.22 lakhs was the upset price fixed by the bank and the property was sold only for Rs.22.70 lakhs.
 
h) Time fixed for auction was between 11 AM and 12 noon, but same was unilaterally changed to 11 AM to 1 PM. Bank has further contended that the above grounds rejected by the DRAT, Chennai have been raised, by the petitioner, in the present writ petition.

(v) Bank has further contended that it is incorrect to say that no 30 days notice was given to the petitioner, for sale of the secured asset. E-Auction Sale Notice 06.06.2013 was personally served on the petitioner against acknowledgment on 06.06.2013 itself. The sale was conducted only on 11.07.2013, which is after the expiry of 30 days provided under Rule 8 and 9 of Security Interest (Enforcement) Rules, 2002. The secured asset was valued by the approved valuer. The Sale Notice contains the amount due and recoverable from the petitioner, and the sale Notice was affixed at the site. All relevant documents were filed before DRT, which has given a categorical finding that the procedure laid down under the rules were followed. The said finding has been reaffirmed by the DRAT. It is not the case of the petitioner that the said finding is perverse. Bank has contended that in a proceeding under Article 226 of Constitution of India, this Hon'ble Court cannot re-appreciate the concurrent findings of the tribunals below. Infact the petitioner himself has produced copy of the documents in the typed set of papers, and the said documents would show that all the proceedings were duly followed in the sale.

(vi) Bank has further contended that the Security Interest (Enforcement) Rules 2002 does not bar the sale of the asset in the event of a single bidder. The fact that against the upset price of Rs.22 Lakhs, the 2nd respondent Auction purchaser had submitted her bid for Rs.28 lakhs and became the successful bidder itself is sufficient to show that the allegation of formation of syndicate is false. the circumstances under which, the auction was extended has been discussed by the DRT in its order dt. 16.01.2014.
 
(vii) It is the further case of the petitioner that 30 days duration was not given between the date of publication and the date of Sale. Rule 9 of Security Interest (Enforcement) Rules 2002 contemplates a minimum period of 30 days either from the date of service of notice or from the date of publication and the date of auction sale. It is relevant to note that 30 days clear notice was given to the petitioner. The judgments relied upon by the petitioner viz. 2014 (5) SCC 610 and 2014 (5) SCC 660 have no application to the facts of the present case. It is pertinent to note that the sale held under the SARFAESI Act, was not set aside by the Hon'ble Apex Court even in those judgments. In any event, no prejudice was caused to the petitioner and it is not the case of the petitioner that the purchaser was prevented from participating the auction for want of sufficient time.

(viii) Bank has further contended that SARFAESI Act, 2002 permits the borrower to pay the entire dues any time before completion of sale to redeem the property. In the instant case, the borrower has failed to exercise the said right. The property has been sold. Sale certificate was issued and it has been registered. Therefore, at this stage, the question of exercising the right of redemption does not arise. Further though it is the prayer of the petitioner to permit redemption of the property, till date the petitioner has not shown his bonafide by tendering the entire dues before this Hon'ble Court. There is no bonafide in the actions of the petitioner. Therefore the writ petition is liable to be dismissed.
 
7. Counter affidavit of the auction purchaser / the 2nd respondent herein is reporeduced.

(i) Averments in paragraph No.4 of the affidavit are denied. The petitioner has not produced any document either before the Debts Recovery Tribunal or before the Debts Recovery Appellate Tribunal to substantiate the averments made in para 4 of the affidavit filed in support of the writ petition. From the Notice of e-auction sale of the property served by the 1st respondent on the petitioner on 06.06.2013 which is enclosed, as document at page 32 of the "typed set of documents" filed by the petitioner along with the writ petition, it is evident that the petitioner has been served with the sale notice on 06.06.2013 itself. In such circumstances, publication of sale notice dated 06.06.2013 in "The New Indian Express" on 12.06.2013 for bringing the property for sale by e-auction on 11.07.2013 cannot be considered as illegal, and that the same will not vitiate the auction sale.
 
(ii) The property of the petitioner purchased by the auction purchaser in the e-auction conducted by the 1st respondent on 11.07.2013 is just a single hall type godown adjoining the auction purchaser's residence. When the notice was pasted in the property, the auction purchaser came to know about the sale and since the same is next to the residence of the auction purchaser, she thought it fit to purchase the same for more convenient enjoyment of her residential property with a plan, to extend the residential property, as her younger son was about to be married at that time. Even though the auction purchaser is illiterate, her younger son who had completed MCA at that time took all sincere efforts to enable her to participate in the e-auction by duly applying for and obtaining a valid Digital Certificate in the name of the auction purchaser and submitted the bid online application on 10.07.2013 and participated in the e-auction on the following day, viz., 11.07.2013. After coming to know about the proposed sale of the property through the notice of e-auction of the first respondent the auction purchaser proceeded to enquire about the sale and participated in the e-auction conducted by the first respondent in a bonafide manner and finally purchased the property for a valuable consideration of Rs.28,00,000/- following due procedure prescribed by the first respondent bank, for completing of such e-auction sale.

(iii) The "Sale (through e-auction only) Notice" dated 6.6.2013 of the 1st respondent prescribed certain terms and conditions for participating in the e-auction. After duly complying with all such conditions and as a bonafide bidder, holding valid digital certificate, the auction purchaser submitted her bid after paying EMD amount of Rs.2,20,000/- in respect of only one property out of the three properties, which were notified for e-auction, in the Sale Notice. Before submission of the bid, the auction purchaser also enquired with the first respondent bank about the pendency of any proceedings, preventing such sale. At that time the auction purchaser was informed by the first respondent bank that the petitioner has moved an application before the Debts Recovery Tribunal-III and the auction purchaser was advised to have a keen watch on the portal of the first respondent bank, on the day fixed for the e-auction sale, i.e. 11.7.2013. Auction purchaser further submitted that accordingly as a genuine bidder, having interested in purchase of the property, in a bonafide manner, the auction purchaser kept a close watch of the website of the first respondent bank, through her younger son, to purchase the property out of her earned savings.

(iv) It was only in such circumstances, she raised her bid value on 11.07.2013, based on the prevailing market rates to Rs.28,00,000/- immediately, after the portal opened for e-auction on and rightly the property was knocked down in her favour. Thereafter on the same day, she paid Rs.4,80,000/- which sum when added to the EMD amount of Rs.2,20,000/- already paid by her worked out to 25% of the Bid amount, i.e. 7,00,000/- and as such she complied with all the terms and conditions of Auction.  

(v) After the auction proceedings on 11.07.2013, she was informed by the first respondent bank that on an application filed by the petitioner, Debts Recovery Tribunal has passed an order dated 11.07.2013 not to confirm Sale till the next day of hearing of the case. Accordingly, the auction purchaser was instructed to await the outcome of the said proceedings.

(vi) Thereafter, the auction purchaser received a communication dated 17.1.2014 from the first respondent bank, informing her that the application filed by the petitioner was dismissed by the Debts Recovery Tribunal-III, Chennai and she was called upon to remit the balance amount of Rs.21,00,000/- to the credit of the EMD A/c. No.140502000000800. She was further informed that on such payment, Sale certificate would be issued in her favour and if she fails to pay the balance amount, she will have to forego the EMD amount already paid. On receipt of such intimation, she immediately remitted Rs.8,50,000/- to the first respondent bank on 20.1.2014 by mortgaging her husband's house property with the bank. She also paid the remaining amount and completed payment of the entire bid amount of Rs.28,00,000/- on 27.1.2014. Since the entire payment towards the e-auction sale of the property was completed by her, she was asked to deposit the Registration Fees of Rs.2,24,200/- for issue of the Sale Certificate. She had also deposited the Registration Fees of Rs.2,24,200/- on 31.1.2014. On the same day, i.e. 31.1.2014 itself, Sale Certificate in respect of the said property was issued in her favour by the first respondent bank. Accordingly, she is the bonafide purchaser of the property in the e-auction conducted by the first respondent bank.

(vii) As detailed above, she has participated in the e-auction conducted by the first respondent bank, in respect of one property out of the three properties and based on the market value of the property, she thought it fit to increase the bid amount for the property, soon after the e-auction proceedings commenced on 11.07.2013 even though she had quoted Rs.22.70 Lakhs initially in her bid submitted on 10.07.2013. Hence, the averment in para 10 of the affidavit to the writ petition that unilateral increase of e-auction price by her ought to have been considered, as a point in favour of the petitioner by the Debts Recovery Tribunal-III is unsustainable. The unilateral increase cannot be a ground for vitiating the sale validly concluded by the first respondent in her favour.
 
(viii) From the documents produced by the petitioner it is evident that the petitioner has not taken any steps to clear the dues to the first respondent bank either before or during the pendency of the proceedings before the Debts Recovery Tribunal-III, Chennai. Even after the dismissal of the petition by the Debts Recovery Tribunal-III, Chennai, the petitioner had not taken any step to clear
the dues.

(ix) In fact, it is evident from the record of the proceedings filed in the typed set of documents that the appeal itself was moved on 6.2.2014 along with an application for waiver of pre-deposit in I.A.No.143 of 2014. It is also submitted further that by that time, the sale certificate was already issued in her favour on 31.1.2014. It was only thereafter, pursuant to the orders of the third respondent Appellate Tribunal, the petitioner seemed to have deposited an amount of Rs.2,80,167/- as pre-condition deposit. However, such a pre-conditional deposit is only for consideration of the appeal against the orders of the Debts Recovery Tribunal and such payment cannot be considered as a ground for setting aside the sale, validity concluded in her favour by the first respondent bank.

(x) She further submitted that the grounds raised by the petitioner in para 12 of the affidavit are unsustainable in law and none of the grounds therein is legally available to the petitioner to set aside the e-auction conducted by the first respondent on 11.7.2013 and concluded in her favour. In respect of the various grounds raised in para 12, she further submitted that the Debts Recovery Appellate Tribunal has elaborately considered them by applying its judicial mind on the facts of the case and based on the documents submitted by the parties. The reasons adduced by the Appellate Tribunal are based on the documents produced before the Tribunal and are not based on any presumption, assumption, and surmises as averred by the petitioner in para 12.

(xi) She had duly and strictly complied with all the terms and conditions of the e-auction and therefore e-auction sale concluded in her favour is not in violation of any of the provisions / rules. The fact that she was the sole bidder cannot be a ground in favour of the petitioner to challenge the order passed by the Appellate Tribunal. It is evident from the records produced by the petitioner that she was served with the copy of notice for e-auction dated 11.7.2013 as early as on 6.6.13 itself and in such circumstances the ground raised by the petitioner that there was no clear 30 days notice given to the petitioner as prescribed under Rule 8 of the Security Interest (Enforcement) Rules, is unsustainable. Both the Debts Recovery Tribunal and the Debts Recovery Appellate Tribunal have duly considered all the documents produced before them including the service of Sale Notice on the petitioner and rightly dismissed the application and appeal, respectively. Hence the grounds raised by the petitioner in the writ petition for challenging the well considered order of the third respondent, are unsustainable in law. The writ petition is only to protract the proceedings and deny her from taking physical possession of the property.

(xii) The ground raised by the writ petitioner that sale notice was not affixed in the property is false and being a person residing in the adjoining house sharing wall on one side of the said property, auction purchaser also submitted that she had the knowledge about the e-auction primarily only through the sale notice, affixed on the property.

(xiii) The time of auction in the sale notice was mentioned only as "from 11.00 AM on 11.07.2013" and that she was having a close watch on the website on that particular day with a view to participate in the e-auction proceedings. Hence immediately after the portal for conducting the auction was opened on 11.07.2013, she participated in the auction and merely because there was a delay of few minutes in commencing the e-auction, after the notified time of 11:00 AM, on the notified day, the same cannot be a ground for challenging the auction sale or the sale legally concluded in her favour.

(xiv) Auction purchaser has further submitted that the property is not a residential house in occupation of the petitioner as claimed by the writ petitioner in para 13 of the affidavit. It is only a single hall without any basic amenities like water, toilet etc. and it was only let out by the petitioner as a godown for a furniture showroom until 12.06.2018. Now, as on today the property is lying vacant.

(xv) Auction purchaser has further submitted that the auction was not postponed, as averred by the petitioner in paragraph no.13 of the affidavit and that she had paid the balance amount of 75% soon after the receipt of communication from the 1st respondent bank and therefore the averments in para 13 of the supporting affidavit to the writ petition that the balance amount of 75% was not paid on time is incorrect. The petitioner has not exercised his right to redeem the property, within the period allowed by law, and has been initiating and prosecuting vexatious proceedings to deprive the auction purchaser's lawful right to take possession of property duly purchased in the auction sale conducted by the 1st respondent.

(xvi) Auction purchaser has further submitted that she is a bonafide purchaser of the property, in the e-auction conducted by the first respondent, and shelled out the hard earned money of Rs.28,00,000/-. She had purchased the property bonafide, believing that she would soon be put in physical possession of the property and that she can use the same for extending her residential house adjoining the same.

(xvii) Knowing fully well that the petitioner could not mobilise funds to clear the dues to the bank and without taking any steps towards that end, the petitioner has been unnecessarily preventing the auction purchaser for the past about five years from taking physical possession of the property.

(xviii) From the e-auction notice itself it is clear that it is not the only property of the petitioner and if he had the intention to clear the dues to the first respondent bank and redeem the property sold to the auction purchaser under e-auction dated 11.7.2013, he would have taken steps towards that end and got the property redeemed even before the issue of sale certificate in her favour. Sale certificate has already been issued in her favour and the writ petitioner does not have any legal or valid grounds to seek an order of injunction restraining the 1st respondent from executing the sale certificate in her favour.

8. Heard the learned counsel for the parties and perused the materials available on record.

9. Though several grounds have been raised, we propose to address the issue as to whether there is any violation of the requisite of 30 days clear notice to the borrower or guarantor, whose property was brought for auction. Sale notice has been issued on 06.06.2013, fixing the date of auction as 11.07.2013 between 11.00 am and 12.00 noon. Admittedly publication of the sale notice in newspapers has been made on 12.06.2013. Sale has been effected on 11.07.2013. Rule 8 and 9(1) of the Security Interest Rules, 2002, relevant for the purpose of the instant case are extracted hereunder.

8. Sale of immovable secured assets (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (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; or
 
(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 thirty days for sale of the immovable secured assets, under sub-rule (5):

PROVIDED that if the sale of such secured asset is being effected by 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 description 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.
 
(7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web-site of the secured creditor on the Internet.

(8) 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.

9. Time of sale, issue of sale certificate and delivery of possession, etc. (1) No sale of immovable property under these rules shall take place before the expiry of thirty 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."

10. On the aspect as to whether the borrower / guarantor, whose property is brought for an auction should be put on a clear thirty days notice before bringing the secured asset for auction and as to whether all the three modes viz., service on the borrowers / guarantors, as the case may be, publication in the newspapers and affixture on the property should be made with a clear thirty days notice, the Hon'ble Supreme Court in Mathew Varghese's case at paragraph Nos.29 to 35, held as follows.

"29. A careful reading of sub-section (8), therefore, has to be made to appreciate the legal issue involved and the submissions made by the respective counsel on the said provision:

29.1. A plain reading of sub-section (8) would show that a borrower can tender to the secured creditor the dues together with all costs, charges and expenses incurred by the secured creditor at any time before the date fixed for sale or transfer. In the event of such tender once made as stipulated in the said provision, the mandate is that the secured asset should not be sold or transferred by the secured creditor. It is further reinforced to the effect that no further step should also be taken by the secured creditor for transfer or sale of the secured asset. The contingency stipulated in the event of the tender being made by a debtor of the dues inclusive of the costs, charges, etc., would be that such tender being made before the date fixed for sale or transfer, the secured creditor should stop all further steps for effecting the sale or transfer. That apart, no further step should also be taken for transfer or sale.

29.2. When we analyse in depth the stipulations contained in the said sub-section (8), we find that there is a valuable right recognised and asserted in favour of the borrower, who is the owner of the secured asset and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub-section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the Sarfaesi Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a constitutional right protected under Article 300-A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law.

29.3. Therefore, dehors the extent of borrowing made and whatever costs, charges were incurred by the secured creditor in respect of such borrowings, when it comes to the question of realising the dues by bringing the property entrusted with the secured creditor for sale to realise money advanced without approaching any court or tribunal, the secured creditor as a trustee cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SarfaesiAct.

29.4. 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 or at least ensure that in the process of sale the secured asset derives the maximum benefit and the secured creditor or anyone on its behalf is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the Sarfaesi Act. More so, under Section 13(1) of the Sarfaesi Act, the secured creditor is given a free hand to resort to sale of the property without approaching the court or Tribunal.

30. 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.

31. Once the said legal position is ascertained, the statutory prescription contained in Rules 8 and 9 have also got to be examined as the said Rules prescribe as to the procedure to be followed by a secured creditor while resorting to a sale after the issuance of the proceedings under Sections 13(1) to (4) of the Sarfaesi Act. Under Rule 9(1), it is prescribed that no sale of an immovable property under the Rules should take place before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers as referred to in the proviso to sub-rule (6) of Rule 8 or notice of sale has been served to the borrower. Sub-rule (6) of Rule 8 again states that the authorised officer should serve to the borrower a notice of 30 days for the sale of the immovable secured assets. Reading sub-rule (6) of Rule 8 and sub-rule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days' time-gap for effecting any sale of immovable secured asset is a statutory mandate. It is also stipulated that no sale should be affected before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days' individual notice to the borrower and also a public notice by way of publication in the newspapers. In other words, while the publication in newspaper should provide for 30 days' clear notice, since Rule 9(1) also states that such notice of sale is to be in accordance with the proviso  to sub-rule (6) of Rule 8, 30 days' clear notice to the borrower should also be ensured as stipulated under Rule 8(6) as well. Therefore, the use of the expression or in Rule 9(1) should be read as and as that alone would be in consonance with Section 13(8) of the Sarfaesi Act.

32. The other prescriptions contained in the proviso to sub-rule (6) of Rule 8 relates to the details to be set out in the newspaper publication, one of which should be in vernacular language with sufficient circulation in the locality by setting out the terms of the sale. While setting out the terms of the sale, it should contain the description of the immovable property to be sold, the known encumbrances of the secured creditor, the secured debt for which the property is to be sold, the reserve price below which the sale cannot be effected, the time and place of public auction or the time after which sale by any other mode would be completed, the deposit of earnest money to be made and any other details which the authorised officer considers material for a purchaser to know in order to judge the nature and value of the property.

33. Such a detailed procedure while resorting to a sale of an immovable secured asset is prescribed under Rules 8 and 9(1). In our considered opinion, it has got a twin objective to be achieved:

33.1. In the first place, as already stated by us, by virtue of the stipulation contained in Section 13(8) read along with Rules 8(6) and 9(1), the owner/borrower should have clear notice of 30 days before the date and time when the sale or transfer of the secured asset would be made, as that alone would enable the owner/borrower to take all efforts to retain his or her ownership by tendering the dues of the secured creditor before that date and time.

33.2. Secondly, when such a secured asset of an immovable property is brought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid and the total liability of the borrower to the secured creditor. Since, the proviso to sub-rule (6) also mentions that any other material aspect should also be made known when effecting the publication, it would only mean that the intending purchaser should have entire details about the property brought for sale in order to rule out any possibility of the bidders later on to express ignorance about the factors connected with the asset in question.

33.3. Be that as it may, the paramount objective is to provide sufficient time and opportunity to the borrower to take all efforts to safeguard his right of ownership either by tendering the dues to the creditor before the date and time of the sale or transfer, or ensure that the secured asset derives the maximum price and no one is allowed to exploit the vulnerable situation in which the borrower is placed.

34. At this juncture, it will also be worthwhile to refer to Rules 8(1) to (3) and in particular sub-rule (3), in order to note the responsibility of the secured creditor vis-`-vis the secured asset taken possession of. Under sub-rule (1) of Rule 8, the prescribed manner in which the possession is to be taken by issuing the notice in the format in which such notice of possession is to be issued to the borrower is stipulated. Under sub-rule (2) of Rule 8 again, it is stated as to how the secured creditor should publish the notice of possession as prescribed under sub-rule (1) to be made in two leading newspapers, one of which should be in the vernacular language having sufficient circulation in the locality and also such publication should have been made seven days prior to the intention of taking possession. Sub-rule (3) of Rule 8 really casts much more onerous responsibility on the secured creditor once possession is actually taken by its authorised officer. Under sub-rule (3) of Rule 8, the property taken possession of by the secured creditor should be kept in its custody or in the custody of a person authorised or appointed by it and it is stipulated that such person holding possession should take as much care of the property in its custody as a owner of ordinary prudence would under similar circumstances take care of such property. The underlying purport of such a requirement is to ensure that under no circumstances, the rights of the owner till such right is transferred in the manner known to law is infringed. Merely because the provisions of the Sarfaesi Act and the Rules enable the secured creditor to take possession of such an immovable property belonging to the owner and also empowers to deal with it by way of sale or transfer for the purpose of realising the secured debt of the borrower, it does not mean that such wide power can be exercised arbitrarily or whimsically to the utter disadvantage of the borrower.

35. Under sub- rule (4) of Rule 8, it is further stipulated that the authorised officer should take steps for preservation and protection of secured assets and insure them if necessary till they are sold or otherwise disposed of. Sub-rule (4), governs all secured assets, movable or immovable and a further responsibility is created on the authorised officer to take steps for the preservation and protection of secured assets and for that purpose can even insure such assets, until they are sold or otherwise disposed of. Therefore, a reading of Rules 8 and 9, in particular, sub-rules (1) to (4) and (6) of Rule 8 and sub-rule (1) of Rule 9 makes it clear that simply because a secured interest in a secured asset is created by the borrower in favour of the secured creditor, the said asset in the event of the same having become a non-performing asset cannot be dealt with in a light-hearted manner by way of sale or transfer or disposed of in a casual manner or by not adhering to the prescriptions contained under the Sarfaesi Act and the abovesaid Rules mentioned by us."

11. After considering the statutory provisions and decision in Narandas Karsondos Vs. S.A.Kamtam, reported in (1977) 3 SCC 247, Mardia Chemicals Ltd., Vs. Union of India, reported in (2004) 4 SCC 311, Ramkishun Vs. State of U.P., reported in (2011) 11 SCC 511 : (2013) 1 SCC (Civ.) 382 and Transcore Vs. Union of India, reported in (2008) 1 SCC 125 : (2008) 1 SCC (Civ) 116, the Hon'ble Supreme Court, at paragraph No.43 of the judgment in Mathew Varghese's case, has categorically held that recovery of public dues should be made expeditiously, in accordance with the procedure prescribed by law and it should not frustrate a constitutional right, as well as the human right of a person, to hold a property and in the event of a fundamental procedural error occurred in a sale, the same can be set aside. For brevity paragraph No.43 of the judgment of the Mathew's case is reproduced.

"43. The above principles laid down by this Court also make it clear that though the recovery of public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that it should not frustrate a constitutional right, as well as the human right of a person to hold a property and in the event of a fundamental procedural error occurred in a sale, the same can be set aside."

12. Considering the ratio decidendi in Mathew's case [cited supra], the Hon'ble Supreme Court in Vasu P. Shetty Vs. Hotel Vandana Palace and others, reported in (2014) 5 SCC 660, held as follows:

2. 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:-

2. 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:- 

7..... A reading of Section 13(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 in Mathew Varghese case, 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 assetcan 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.

14. Thereafter, in Paragraph 27, the Court observed as follows:- 

7. 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. 

15. 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.

13. The Hon'ble Supreme Court has declared the law that Rule 8 and 9 of the Security Interest Rules, 2002, are mandatory and that there should be a clear gap of 30 days notice, when property of theborrower / guarantor, as the case may be, is brought for auction and all the three modes viz., service  on the borrowers / guarantors, publication in newspapers and affixture on the property, should be made with a gap of thirty days notice to the borrower / guarantor, as the case may be.

14. Reverting to the case on hand, there is no clear 30 days notice from the date of publication. At the risk of repetition, sale notice was dated 06.06.2013. Publication was on 12.06.2013 and sale hadbeen effected on 11.07.2013, evidencing thereby that there was no 30 days notice as between publication and sale.

15. Though, by inviting the attention of this Court, to paragraph Nos.67 & 68 of the judgment of the Hon'ble Supreme Court in Mathew Varghese's case, Mr.F.B.Benjamin George, learned counsel for the bank submitted that ultimately, in the above reported case, the Hon'ble  Supreme Court was not inclined to set aside the sale, on the facts and circumstances of the instance case, we are not in agreement with the said submission.

16. Though the learned counsel for the bank also submitted that sale certificate had already been issued, interest of the auction purchaser should be protected and on the same lines, Mrs. PV.Rajeswari, learned counsel for the auctionpurchaser / 2nd respondent made submissions, we are not inclined to accept the said contentions, for the reason that when the Hon'ble Supreme Court has laid down the law declaring that Rule 8 and 9 of the Security Interest Rules, 2002 as  mandatory, then the declaration of law binds this Court.

17. When violation of law, is substantiated, then Courts have to give effect to the law declared by the Hon'ble Supreme Court. As regards, protection of the right, said to have been created by the issuance of sale certificate, grievance of the auction purchaser can always be redressed by refund of the auction amount with reasonable interest and the cost of registration, incurred.

18. In Ambalavanan Vs. Canara Bank, [Review Application (writ) No.302 of 2015], dated 01.04.2016, a Hon'ble Division Bench of this Court considered the question of awarding interest to the auction purchaser. Following the same, a Hon'ble Division Bench of this Court in W.P.No.39199 of 2016 dated 28.04.2017 awarded 10% interest on the amount paid by the auction purchaser. Following the same, we direct the respondent bank to refund a sum of Rs.28 Lakhs, received as bid amount, for the purchase of the property with 10% per annum simple interest from the date of deposit, till refund, to the auction purchaser, within a period of two weeks from the date of receipt of a copy of this order.

19. Insofar as the Registration charges incurred by the auction purchaser is concerned, we direct the petitioner / borrower to pay a sum of Rs.2,24,200/- to the auction purchaser / 2nd respondent,  within a period of two weeks from the date of receipt of a copy of this order.

20. Impugned orders made in SA No.198 of 2013 dated 16.01.2014- and RA  (SA) No.104 of 2014 dated 27.03.2018, are set aside. Consequent to the same, if the original documents pertaining to the subject property, were already handed over to the auction purchaser, following the issuance of sale certificate, no sooner the bank refunds the amount to the auction purchaser and the registration charges, as directed, auction purchaser is directed to return all the original documents, to the bank within a period of two weeks, thereafter.

21. Record of proceedings shows that submission was made before the Debts Recovery Appellate Tribunal, that after the issuance of 13(2) notice, for Rs.27,30,334/- a sum of Rs.10.85 Lakhs has been paid by the borrower to the bank.

22. Record of proceedings dated 28.03.2014 in IA No.143 of 2014 (waiver application) in RA (SA) No.104 of 2014, further shows that a sum of Rs.2,80,167/- has been directed to be deposited with the Registrar of DRAT before 25.04.2014 and that the said amount has also been deposited. Since 11 years has elapsed, from the date of availing loan and having regard to the deposit already made / paid to the bank, it is open to both parties to negotiate and arrive at an amicable settlement. Above observation does not foreclose the right of the bank to take appropriate proceedings for realisation of the due.

23. With the above directions and observations, the instant writ petition is allowed. No Costs. Consequently, the connected writ miscellaneous petition is closed.

---------------------------------------------------------

 M/S.Sri Selliamman Blue Metals vs The Branch Manager / Authorised ... on 28 April, 2018

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED : 28.04.2018

CORAM

THE HON'BLE MR.JUSTICE S.MANI KUMAR

&

THE HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN

 

W.P.No.18590 of 2017

and

W.M.P.Nos.20135 & 20177 of 2017

 

M/s.Sri Selliamman Blue Metals
Rep. by its Proprietor,
Mrs.Pushpavalli,
1/1-81, Rana Nagar,
Kuruppanaickanpalayam,
Bhavani - 638 301. ... Petitioner
 
Vs.
 
1. The Branch Manager / Authorised Officer,
Canara Bank,
Bhavani Branch, Rajalakshmi Complex,
Mettur Main Road, Bhavani 638 301.
 
2. The Divisional Manager
Canara Bank,
Circle Office,
No.524, Old No.563/1,
Anna Salai, Teynampet
Chennai 600 018. ... Respondents
 
Writ Petition is filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, to call for the order of the first respondent made in e-auction notice dated 22.06.2017 insofar as the items of movable and immovable properties mentioned therein under item 7 of the said impugned order and quash the same.

For Petitioner : Mr.Silambanan Senior Counsel
For M/s.Kaavya Silambanan Associates
 
For Respondents : Mr.Raghunathan
For M/s.T.S.Gopalan & Co
 
ORDER

This Writ petition has been filed challenging e-auction notice dated 22.06.2017 issued by the first respondent regarding the items of movable and immovable properties mentioned therein under item 7 of the said impugned order and quash the same.

2. The brief facts of the case are that the petitioner is doing a business of manufacture of blue metals, and had approached the Canara bank i.e., the first respondent herein, for financial assistance. As per request, the first respondent sanctioned 3 term loan in the year 2013 and one term loan in the year 2015 to the petitioner for purchasing machineries and accessories like lorry, conveyor belt, crusher machine etc., to run the quarry. The total term loan sanctioned and availed by the petitioner was Rs.93,03,250/-, for which, the petitioner had mortgaged her agricultural property by way of Memorandum of Title Deeds registered on 03.09.2013 and her husband stood, as a guarantor for the above said loan.

3. The petitioner would submit that when she was doing her business in a profitable manner and had been paying the installments without any default, the Chief Manager of the first respondent bank, instigated her to avail further loan to expand her business, and further promised that all the necessary assistance will be extended without any delay. Believing the manager's words, the petitioner has also applied for additional cash credit facility by producing all the relevant documents. Thereafter, the respondent bank, after scrutinizing all the documents, informed the petitioner by letter dated 05.05.2015 that they have provisionally sanctioned a sum of Rs.65,00,000/- under MSE and requested the petitioner to register the MODTD (Memorandum of deposit of Title Deeds) on the documents mortgaged by them. On such sanction, the manager of the respondent bank directed the petitioner to execute the Memorandum of Title Deeds of her agricultural land, immediately, in favour of the respondent bank. The petitioner had registered the same on 06.05.2015 as Document No.1589 of 2015 at the office of the Sub-Registrar, Anthiyur.

4. The petitioner would further submit that though the additional cash credit was provisionally sanctioned on 05.05.2015 and the petitioner had executed the Memorandum of Title Deeds on the very next day itself, the respondent failed to credit the additional cash credit to the petitioner's account even after several requests and remainders sent by the petitioner. Since the petitioner did not receive the money and any proper response from the respondent bank, she was put in a very difficult situation at the end. It is further submitted by the petitioner that at one point of time, she had informed the Chief Manager of the first respondent bank that she would be compelled to take the matter to the higher authorities and inform them regarding the attitude of the Bank officials that inspite of deposit of the title deeds of her agricultural property, the bank has not sanctioned the cash credit loan to the petitioner and because of this, she was put into deep trouble in the business. Further, the petitioner submitted, that the Chief Manager of the respondent bank, compelled her to settle the dues and immediately sent a notice under Section 13(2) of the SARFAESI Act, 2002 stating that from 30.04.2016, the account of the petitioner has become irregular and the liability as on 15.07.2016 towards the Cash Credit limit was Rs.95,58,137/-. But in the said notice, the exact date, when the petitioner's account has become NPA was left without being filled up.

5. It is further submitted by the petitioner that after receipt of the said notice, immediately she approached the Chief Manager to question as to why they have not sanctioned the loan as promised. The Chief Manager, again gave a evasive reply and promised that the said notice was sent only as a formality so not to worry about the same and further promised that the loan sanctioned will be credited immediately to the petitioner's account. Thereafter, when the petitioner was expecting a fair response, to her shock and surprise, she received an another notice dated 19.08.2016 under Section 13(2) of the SARFAESI Act, stating that as on 02.08.2016, the outstanding amount of Rs.1,71,44,809.08 was said to be paid by the petitioner and this time, the Chief Manager has stated in the notice that, from 29.07.2016 the petitioner's account has become NPA.

6. The petitioner further submitted that the respondent bank has also issued a separate notice through their counsel on 21.09.2016 calling upon the petitioner to settle the 4 term loans. Immediately, the petitioner approached the Chief Manager of the respondent bank, and the petitioner was directed to deposit a sum of Rs.10,00,000/- in the Cash Credit account to reconsider the above issue. However, the first respondent bank has issued possession notice on 05.11.2016 under Section 13(4) of the SARFAESI Act and published the same on 19.11.2016. Thereafter, the respondent bank issued paper publication on 25.11.2016 by setting out the details of Section 13(2) notice dated 19.08.2016 and also setting out the two properties which were mortgaged to the respondent bank.

7. The main grievance of the petitioner as stated in the affidavit is that the due of the two immovable properties, which were mortgaged as mentioned in Section 13(4) notice, wherein, one property in S.No.101/3, 103/2B of about 3.11 acres of agricultural land was in relation to the Cash Credit for Rs.85,00,000/- which was sanctioned in the year 2013 and availed by the petitioner. However, the second property mortgaged in S.No.103/2A of about 1 acre of agricultural land with reference to the Cash Credit account for Rs.65,00,000/- which was sanctioned but not credited to the account of the petitioner. Hence, the petitioner has alleged that the respondent bank played fraud on her, despite she had paid a sum of Rs.10,00,000/- on 12.12.2016, Rs.1,50,000/- on  8.01.2017, Rs.1,50,000/- on 21.01.2017, Rs.1,00,000/- on 28.03.2017 and Rs.50,000/- on 31.03.2017. Totally, the petitioner has paid a sum of Rs.14,50,000/- with regard to Cash Credit account even after 13(2) notice dated 19.08.2016 issued by the respondent bank.

8. It is further submitted by the petitioner that she again approached the Chief Manager with regard to the fraud played on her by the bank and again the Manager gave false promises, and directed the petitioner to leave the office. However, the respondent bank, on 27.03.2017, pasted a notice on the property of the petitioner, stating that the property has been seized by the bank under SARFAESI Act, since the loan was not repaid, and has also appointed security guards around the property to prevent the petitioner from carrying on her business. The petitioner further submits that though the entire dues against the 4 term loan and 1 Cash Credit limit was covered under the notice dated 19.08.2016, the respondent bank, issued a notice on 27.03.2017 with regard to financial assistance of Rs.15,04,219/- for purchase of vehicle calling upon the petitioner to repay a sum of Rs.9,37,544/- as on 01.08.2016.

9. The petitioner further submits that she made a representation on 14.06.2017 to the Divisional Manager/Ombudsman Canara Bank by setting out her grievances, to direct the first respondent to permit the petitioner to continue her business and sought for credit of the sanctioned loan amount, and also for adequate compensation for the sufferings caused by the first respondent bank. The petitioner's representation was redirected to Bhavani Branch which falls within the jurisdiction of Chennai circle. While that being the status, when the petitioner was expecting a response from Chennai branch, she was shocked to receive a notice under Section 13(4) of the SARFAESI Act read with Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 dated 22.06.2017 i.e. after 3 months of having illegally seized the premises, in the said notice, the respondent had stated that they would proceed for e-auction of the petitioner's property for having committed default in repaying the loan amount. On the very same day, the respondent bank had issued another e-auction notice for various properties of the petitioner including movable and immovable properties which have not even mortgaged by the petitioner on 03.09.2013 and 06.05.2015 while executing the Memorandum of Title Deeds, and further stated that the e-auction would be held on 26.07.2017. Hence, the petitioner had approached this Court seeking to quash e-auction notice on various grounds, alleging irregularities against the respondents.

10. This Court, at the time of admission on 21st July 2017, had ordered notice of motion returnable by 18.08.2017 and granted an interim stay on condition that the petitioner shall deposit 25% of the outstanding amount to the respondent bank within a period of six weeks from the date of receipt of a copy of the order and further posted the matter on 18.08.2017. When the matter was listed on the said date i.e., 18.08.2017, the learned Senior Counsel Mr.S.Silambanannan, appearing for the petitioner, requested the case to be posted on 05.09.2017 to comply with the conditional order passed while granting an interim stay. However, the learned counsel Mr.P.Raghunathan, appearing for the respondent bank, submitted that, though possession as taken by the bank without recourse  under Section 14 of the SARFAESI Act, 2002, after the interim order passed on 21.07.2017, the Writ petitioner has trespassed into the Crusher unit site forcefully, by showing the stay order and took away the jally materials loaded and tipper lorry hypothecated to them by manhandling the security guards posted over there, for which, the bank officials have lodged a complaint to Vellithirupur Police Station and another complaint was given to the Superintendent of Police, Erode District. Thereafter, the learned Senior Counsel appearing for the petitioner sought time to get instructions regarding the above issue and the case was adjourned to 23.08.2017 by this Court.

11. It is seen from the records that on 23.08.2017, the respondent bank has filed their counter to the affidavit filed in support of the Writ petition. On perusal of the counter affidavit filed by the respondent bank, through its Chief Manager the first respondent herein, it is stated that the credit facilities were secured inter alia by hypothecation of entire current assets of the petitioner including stocks of Blue Metal, Work in process, Book debts, machinery etc. The respondent bank has also contended that the credit facilities were also secured by mortgage of properties being stone quarry  nd factory therein, and the hypothecation deeds of the petitioner forms part of Annexure - A. The respondent bank further contended that when the petitioner defaulted in payment, thebank classified the petitioner's account as NPA with effect from 29.07.2016. Pursuant to which, the first respondent had issued demand notice dated 02.08.2016, since the petitioner did not respond or object or even comply with the demand, the respondent had taken symbolic possession of the immovable property on 09.11.2016 and further effected publication of notice in two leading newspapers. However, the petitioner has not challenged 13(2) and 13(4) notice at any point of time.

12. The respondent had further alleged that they took physicalpossession of the property such as land, building and machineries from the petitioner on 23.07.2017, and also appointed Security Guards to prevent the petitioner from carrying on her business. The "Panchnama" dated 23.07.2017 as also said to be recorded by the respondent bank. It is further stated by the respondent bank that In fact when the bank officials took possession of the property, the petitioner did not object for the same and at the time of acquiring physical possession, there were two tipper trucks, with Registration Nos.TN36AW4945 and TN36AY9419 and loads of granite gravel hypothecated to the bank under the Hypothecation deed.

13. The respondent bank further alleged that they sent a notice to the petitioner on 22.06.2017 regarding the proposed auction sale on 26.07.2017. The said auction sale notice was also published in two leading newspapers i.e., Tamil and English dailies. Further, the respondent bank alleged that on 10.07.2017, the petitioner along with her son trespassed into the Crusher unit, created ruckus with the watch and ward staff by manhandling them and drove them away inspite of their plea to contact the bank's officials and took away the granite gravel loaded tipper trucks. Thereafter, The bank lodged a complaint with the Station Inspector, at Vellithiruppur, on the same day i.e. on 10.07.2017 and subsequent to that, they received a letter from the learned Senior Counsel for the petitioner on 24.07.2017 informing about the order dated 21.07.2017 granting stay of auction by this Court. It is alleged that, on 25.07.2017 the petitioner and her son along with some unruly elements once again trespassed into the Crusher unit site forcibly, showed the High Court order manhandle the security guards and took away the granite gravel and tipper lorry hypothecated to the bank, which made the respondent bank to lodge an another complaint on 25.07.2017 to the District Superintendent of Police by Registered Post, seeking action. Thus, the respondent bank refuted the allegations set out in the Writ Petition filed by the petitioner.

14. Apart from narrating the incidents took place after 21.07.2017 on which day the interim stay was granted, the petitioner has also filed a detailed reply to the counter, denying all these allegations setout in the counter affidavit, and would submit that, the document filed by the respondent bank showing the inventory of immovables that was taken possession on 27.03.2017, in the said list, there is no reference to not even one tipper lorry. Hence, from the records available before this Court, it has to be decided whether the action of the respondent issuing the impugned e-auction notice is sustainable or not.

15. The learned Senior Counsel for the petitioner would contend that the respondent bank initially granted the Cash Credit in the year 2013 to the tune of Rs.93.03,250/- by accepting the hypothecation deed dated 03.09.2013 with regard to the agricultural property in R.S.No:101/3 and 103/2B, Old S.F.No.16/5, 17 & 16/3, Pudur Village and Panchayat, Sub-Registrar, Anthiyur, Erode District, to an extent of 3.11 acres which were mortgaged as early as, 2013. However, the respondent bank who have promised and provisionally sanctioned the loan for a limit of Rs.65,00,000/- by its letter dated 05.05.2015, to which, a separate deposit of title deed was effected on 06.05.2015 by registered Document No.1589 of 2015 pertaining to the land in R.S.No.103/2A to an extent of 1 acres. However, the respondent bank, having accepted the said deposit of title deed for a limit of Rs.65,00,000/-, has not credited the same into the petitioner's account, which is an illegal Act committed on the part of the respondent, and therefore, the action taken by the respondent bank under SARFAESI Act, instead of crediting the sanctioned loan is illegal.

16. The learned Senior Counsel for the petitioner further pointed out that in the 13(2) notice sent on 15.07.2016, wherein, the date on which the petitioner's account became NPA, was not even filled up and hence, the 13(2) notice lacks necessary particulars pertaining to the date on which the account become NPA as per the SARFAESI Act. The learned Senior Counsel would also argue that the  respondent bank has also committed various irregularities by not crediting the additional Cash Credit facility of Rs.65,00,000/- which was sanctioned preferentially and giving a false promise to the petitioner to deposit her title deeds and classifying the petitioner's account as NPA, further made the petitioner to deposit a sum of Rs.14,50,000/- under false promise. Thereafter, received the land and seized the property whereby, the respondent bank, prevented the petitioner from doing any business, and brought the property for auction.

17. The learned Senior Counsel for the petitioner, further argued that there cannot be an auction insofar as the agricultural properties are concerned, as the same are exempted from SARFAESI Act. Thus, the e-auction notice dated 22.06.2017 is without any jurisdiction and arbitrarily issued against the petitioner's property. The respondent counsel refuted the arguments put forth by the learned Senior Counsel appeared for the petitioner.

18. It is seen from the records that the respondent bank has issued notice under Section 13(2) as early as on 15.07.2016 and 19.08.2016, followed by a lawyer notice on 21.09.2016. Further, the bank, after waiting for three months from 13(2) notice, issued possession notice under Section 13(4) on 19.11.2016, and paper publication of 13(4) notice had also been effected as contemplated under SARFAESI Act on 25.11.2016. Thereafter, the respondent bank has served e-auction notice to the petitioner informing the auction initiated by the bank. Only at this stage, the petitioner has approached this Court, challenging the e-auction notice claiming several irregularities committed by the respondent bank. The conduct of the petitioner, who has not taken any steps to challenge the action initiated by the respondent bank, wherein, the bank has issued 13(2) notice as early as on 19.08.2016 and having kept quiet without approaching the DRT, challenging the e-auction notice before this Court, is only to protract the proceedings. Meanwhile, the respondent bank, has completed the entire proceedings as contemplated under the Act and only after issuance of e-auction notice, the petitioner has approached this Court. Though this Court on appreciation of fact, especially when the Senior Counsel pointed out that the agricultural land sought to be auctioned, had granted an interim stay of the e- auction sale on condition that the petitioner has to deposit 25% of the outstanding amount with the bank within a period of six weeks, the same was not complied with by the petitioner. Further, having secured an interim order in their favour, the petitioner has also indulged in trespassing into the mortgaged property, factory and seems to have taken away the granite gravel loaded along with the tipper trucks as alleged by the respondent bank.

19. When the counter affidavit was filed by the respondent, alleging misuse of the orders passed by this Court by an order dated 21.07.2017, this Court directed the District Superintendent of Police, to render assistance by conducting a detailed enquiry and to submit a report with regard to allegations made by the bank, regarding the misuse of orders passed by this Court, by the petitioner. On 31.08.2017, this Court also directed the learned Additional Public Prosecutor to communicate the copy of the order dated 23.08.2017 to the District Superintendent of Police, Erode. The Superintendent of Police, has conducted an enquiry and submitted a report on 04.09.2017 before this Court. From the report, it is seen that the Superintendent of police when he arrived at the Petitioner's property, there was no Watchman or Guard in the said place and no quarry work was going on, at the time of his visit. It could be seen from the report that the possession of the property, which was hypothecated in favour of the bank, has been taken as early as on 19.11.2016. On 12.07.2017, It is seen that the petitioner has entered into the premises and carried away the Jally materials from the site through a tipper lorry and minidor vehicle from the factory.

20. The respondent counsel contended that lorries bearing Registration Nos.TN36AW4945 and TN36AY9419 hypothecated with this bank, were taken away by the petitioner on 25.07.2017 along with her son by trespassing into the property and further, took away the granite gravel loaded along with tipper trucks. But, in the report submitted by the Superintendent of Police, Erode District, it is found that the incident occurred on 12.07.2017 was true, since the jally was loaded in the tipper lorry and minidor vehicle and unloaded at Mylambadi and Reddypalayam respectively by the petitioner's husband, which act is not warranted, when the entire property has been taken possession by the bank. With regard to the incident occurred on 25.07.2017 as stated by the respondent bank, is contradictory, since the petitioner herein had entered into the quarry only on 26.07.2017. The statement recorded by the Superintendent of Police during his enquiry from Tr.Raman and Tr.Chinnasamy would clearly show that the petitioner has trespassed into the property after being taken possession by the respondent bank under Section 13(4). However, it is not clear from the report submitted by the police that the petitioner and her son had trespassed into the mortgaged property on 25.07.2017.

21. This Court on appreciating the initial submissions made by the Senior Counsel, granted an interim stay on condition, by directing the petitioner to deposit 25% of the outstanding amount due to the respondent bank within a period of six weeks. Even till date, the petitioner has not complied with the order, and sought for further time even today, when there is default. However, the petitioner has successfully stalled the e-auction by the interim order passed by this Court and after securing the interim order that too a conditional order. It could be inferred from the conduct of the petitioner that the petitioner's had only an intention of stalling the e-auction. The action of the petitioner after getting the interim order is highly condemnable.

22. The learned Senior Counsel for the petitioner argued on the irregularity in payment, committed by the bank, but, there is no answer from the petitioner as to why she has not chosen to challenge neither 13(2) notice nor the possession notice under Section 13(4) of the SARFAESI Act which was invoked by the respondent bank. The petitioner having not challenged the initial proceedings, cannot set her foot in the property, by challenging the e-auction notice. In similar circumstances, this Court as well as the Honorable Supreme Court, on many occasions laid down the law, in the matter pertaining to action under SARFAESI Act, cannot be set aside under Article 226, when there is a remedy available to them to approach Debt Recovery Tribunal.

23. The petitioner having failed to challenge any of the banks' proceedings before the appropriate forum, and at the appropriate time, cannot be permitted to allege irregularities which are factual aspects against the bank, that too at the time of e-auction stage. The petitioner ought to have approached the DRT at the initial stage itself. The petitioner who has not chosen to challenge neither 13(2) nor 13(4) notices before the appropriate forum, has no right to approach this Court under Article 226 when there is an alternative remedy. Though the first hypothecation deed states only 3.11 acres and the second hypothecation deed states only 1 acre and sale deed documents are mortgaged, but the said sale deed copies are not produced before this Court. As pointed out by the Senior Counsel Mr.Silambanan, learned counsel for the petitioner and from the perusal of the hypothecation deed produced by the bank, it is seen that 18 movable properties (Machineries and Vehicles) have also been brought for auction which were not mortgaged by the petitioner to the respondent bank. Hence, if the petitioner is aggrieved by the sale notice issued regarding movable properties which are not alleged to have been mortgaged to the respondent bank, they can approach the concern bank authority. 

24. Under these circumstances, the petitioner has not made out any case for interference from this Court against the impugned order and hence, the Writ petition deserves to be dismissed. The petitioner having secured the interim order against the e-auction notice dated 26.06.2017 by way of conditional order, successfully stalled the e- auction proceedings scheduled on 26.07.2017, failed to comply with the conditional order passed by this Court on 21.07.2017, and behaved in an irresponsible manner, had approached this Court with unclean hands. Hence, this Court feels, it is a fit case to impose cost of Rs.50,000/- as against the petitioner for indulging in such kind of activities. Accordingly, the Writ Petition is dismissed, directing the petitioner to pay a cost of Rs.50,000/- to the Hon'ble Chief Justice Relief fund within a period of three weeks from the date of receipt of a copy of this order. No costs. Consequently, connected miscellaneous petitions are closed.

---------------------------------------------

V.Sridhar vs The Authorized Officer on 23 January, 2018 (Madaras High Court)

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATE : 23.01.2018

 

CORAM

THE HONOURABLE MR.JUSTICE S.MANIKUMAR

and

THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN

 

Writ Petition No.16579 of 2016

 
V.Sridhar .. Petitioner
 
Versus
 
The Authorized Officer
Indian Bank, Guindy Branch
GST Road, Guindy
Chennai-32. .. Respondent
 
Writ Petition has been filed under Article 226 of the Constitution of India for issuance For Petitioner : M/s.S.Sivakumar
For Respondent : Mr.N.Chandra Raj
 
ORDER

(Order of the Court was delivered by V.BHAVANI SUBBAROYAN,J.) The petitioner has come forward with the present Writ Petition for issuance of a Writ of Certiorarified Mandamus calling for the records of the respondent in connection with the impugned order passed in proceedings NIL dated 06.10.2015 and to quash the same and further direct the respondent to refund the amount paid by the petitioner viz., Rs.1,21,37,500/- (Rupees One crore twenty one lakh and thirty seven thousand and five hundred only) with interest.

2. The case of the petitioner is that the respondent issued a notification on 05.06.2015 and invited applications for tender -cum- e-auction sale, in respect of the property in respect of the property of land and building measuring an extent of 3274 sq.ft. at Door No.65, New No.132 Sengalaneer Pilliar Kovil Street, New Street, Mannadi, Muthialpet, Chennai, Fort-Tondiarpet Taluk, Chennai District, in O.S.No.1826, R.S.No.3060 and C.C.No.447, which was taken possession by the Bank under Section 13(4) of SARFAESI Act, 2002, to recover a sum of Rs.3,99,33,842.86 with further interest and other charges thereon; and in the e-auction notice, the reserve price for the property was fixed at Rs.3,25,00,000/-. The further case of the petitioner is that he submitted his application and participated in the e-auction that was held on 10.07.2015 in which, the petitioner quoted a sum ofRs.3,25,00,000/- and the respondent bank declared the petitioner as the highest and successful bidder. Immediately, as per the condition of the bid, as a successful bidder, the petitioner deposited 25% of the bid amount, viz., Rs.81,37,500/- to the respondent as per the respondent's direction on the same day and the sale confirmation letter was issued by the respondent on 20.07.2015 and the petitioner was directed to pay the remaining 75% of the sale amount within the period of 15 days from the date of receipt of the letter. It is also the case of the petitioner that on the receipt of the said sale confirmation letter, he went to the schedule mentioned property and found that there were number of persons residing in the schedule mentioned premises and the petitioner informed the same to the respondent, by way of his representation dated 03.08.2015, which was acknowledged by the respondent on the same day. In his letter dated 03.08.2015, the petitioner has brought to the knowledge of the respondent that the physical possession of the said auctioned property has not been taken, despite the bank having invoked Section 14 proceedings before Chief Metropolitan Magistrate, Chennai, to take possession, which was also pending. However, the respondent, despite receiving the said letter dated 03.08.2015 sent a reply on 31.08.2015 by referring to it's letter dated 04.08.2015 and informed the petitioner to make the balance payment within the mandatory period of 15 days of receiving the sale confirmation letter as per the terms of tender -cum- e-auction sale. 

The petitioner has further averred that he made another representation on 27.09.2015, about the pendency of Civil Suits filed by the tenants, who are occupying the auctioned property. The petitioner in the representation dated 27.09.2015 further contended that on the assurance and surety given by the bank orally, he has further paid a payment of Rs.40,00,000/- totalling Rs.1,21,37,500/-. By the said representation, the petitioner also informed the respondent bank that he is always ready and willing to pay the balance amount of sale consideration and requested the bank to clear encumbrance and fix a date to hand over the vacant possession of the property to him enabling him to pay the remaining payment on the same date, failing which the bank should refund the entire amount of Rs.1,21,37,500/- paid by him with interest and damages. However, instead of receiving the same, the respondent bank issued a letter dated 06.10.2015 forfeiting the entire amount of Rs.121.37 lakh paid by the petitioner, which is now under challenge in the Writ Petition.

3. On the other hand, the respondent bank has filed counter affidavit stating that by letter dated 06.10.2015, they have given valid and tenable reasons for forfeiting the said amount of Rs.1,21,37,500/- remitted by the petitioner. It is also contented that after the cancellation of the sale, the petitioner has voluntarily remitted a sum of Rs.40,00,000/- without the knowledge and authorisation for the same, and the said Rs.40,00,000/- was returned to the petitioner on 06.05.2016. Due to the act of the petitioner, the property was sold under a private treaty for a sum of Rs.270 lakhs and the bank has lost a sum of Rs.55 lakhs. Forfeiture of the initial bid amount is done as per law and in accordance with the accepted terms and conditions of the e-auction tender notice. Since the petitioner has not challenged the said terms and conditions of the e-auction tender notice, Writ Petition is not maintainable.

4. Heard the learned counsel for the petitioner and the learned counsel for the respondent and perused the materials available on record.

5. Learned counsel for the petitioner would submit that theimpugned order is not maintainable either in law and on facts. The respondent has failed to consider Rule 9(9) of the Security Interest Enforcement Rules, 2002, which states that the authorized 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). But the respondent suppressed all the litigations/encumbrances relating to the auctioned property. Since the petitioner was always ready and willing to pay the balance amount (75%) of sale consideration, he has repeatedly requested the bank to clear the encumbrance and hand over vacant possession of the property to him and to enable him to pay the remaining payment, but the respondent has failed to do so. Therefore, the petitioner requested the bank to refund the amount with interest. However, the bank without assigning any reason has passed a non-speaking order, forfeiting the entire amount (Rs.81,37,500/- + Rs.40,00,000/- = Rs.1,21,37,500/-), which is illegal and against the principles of natural justice.

6. Learned counsel for the respondent would contend that the property was sold on as is where is  basis and on as is what is conditions and without any representations and warranties on the part of the Bank relating to encumbrances/statutory liabilities etc., and therefore, presence of the tenants in the building and pendency of a CBI case against the borrowers and guarantors, are not mattersaffecting the sale of the property. He would further contend that the respondent bank has never undertaken to give vacant possession of the property to the petitioner, either in the tender document or by any letter, and therefore, the claim of the petitioner that he was not given vacant possession is not sustainable in law and on facts. Since the petitioner has not paid the remaining 75% of the bid amount, the initial deposit of 25% of the bid amount, was forfeited. Sum of Rs.40,00,000/- paid by the petitioner, after the cancellation of the sale, was returned to the petitioner, in the form of DD on 06.05.2016. Therefore, the learned counsel for the bank has prayed to dismiss the Writ Petition, with costs.

7. The only issue to be decided in this Writ Petition is that having participated in the auction conducted by the respondent, whether the petitioner is entitled for refund of Earnest Money Deposit made by him.

8. It is not in dispute that Indian Bank, Guindy Branch, the respondent herein, has issued a notification on 05.06.2015 inviting applications, for tender-cum- e-auction sale, in respect of the property mentioned in tender-cum-e-auction sale. The terms and conditions of the e-auction sale are enumerated in the said notification.

9. The important contention of the learned counsel for the petitioner is that possession of the property mentioned in the auction notice was not taken by the bank as specified under Section 14 of the SARFAESI Act, 2002. Learned counsel for the petitioner has contended that it is the duty of the bank to hand over unencumbered possession to the auction purchaser and unless the encumbrance is cleared, liability of the bank or the onus of the bank, in fulfilling the duty conferred on it under Section 13(4) of the SARFAESI Act, 2002 does not end, merely because the auction purchaser had participated in the auction and paid 25% of the bid amount. Learned counsel for the petitioner has vehemently contended that it is the responsibility of the bank, to hand over the property unencumbered meant to be auctioned, in the e-auction and having received 25% of the bid amount and thereafter, Rs.40,00,000/- on the remaining 75% of the bid amount, the bank is under the obligation, either to handover the unencumbered property or to return the Earnest Money Deposit along with Rs.40,00,000/- subsequently paid, by the petitioner with interest. To substantiate the argument, learned counsel for the petitioner relied on the unreported judgment of this Court in W.P.No.32337 of 2016 {RG Housing and Infrastructure Private Limited ..vs.. Union of India, represented by Secretary to Government, Ministry of Finance and two others}, wherein Earnest Money Deposit was directed to be refunded. Learned counsel for the petitioner, also relied on the unreported judgment of this Court dated 04.01.2017 made in W.A.No.530 of 2016 (V.Sambandan..vs.. The Punjab National Bank, represented by its Chairman cum Managing Director).
 
10. Per contra, learned counsel representing the bank has contended that the property was intended to be transferred or conveyed on as is where is basis and on as is what is condition and without any representations and warranties on the part of the Bank relating to encumbrances/ statutory liabilities etc., attached to the property . Learned counsel for the respondent bank has contended that the petitioner has participated in the tender-cum-e-auction sale, on his own volition. He also contended that as clause-06 of the terms and conditions of e-auction sale clearly provides for forfeiture of 25% remitted amount, if the remaining amount or balance sale consideration is not paid within 15 days of the confirmation of the sale or within the extended time, in writing, thequestion of returning the Earnest Money Deposit deposited by the petitioner will not arise. In support of his contention, learned counsel for the respondent bank has relied on the judgments of the Hon'ble Supreme Court reported in 2012 (8) SCC 197 (Punjab Urban Planning and Development Authority and others ..vs.. Raghunath Gupta and others) and 2009 (4) SCC 660 (UT Chandigarh Administration and another ..vs.. Amarjeet singh and others).

11. The respondent bank has filed counter affidavit contending that under clause-02 of the terms and conditions of e-auction sale, property shall be transferred or conveyed on as is where is basis and as is what is condition and without any representations and warranties, on the part of the bank, relating to the encumbrances/statutory liabilities etc., on tender-cum-e-auction sale basis, from the public. Apart from the above submission, learned counsel for the bank also contended that the bank has been put to heavy financial loss, as the subsequent attempt by the bank to sell the property, did not yield the desired result, and that the property was sold, under private treaty, for a sum of Rs.2,70,00,000/-, as against the petitioner's admitted amount of Rs.3,25,50,000/-, and that the bank has lost a sum of Rs.55,00,000/- due to the act of the petitioner. Therefore, learned counsel for the bank has submitted that forfeiture of initial bid amount, is in consonance with the terms and conditions, as accepted between the parties, under the e-auction tender notice.

12. In the above circumstances, to decide the present lis, clauses 1, 2 and 6 of the terms and conditions of tender-cum-e-auction sale, are relevant, and extracted hereunder:-
 
1. The inspection of the scheduled mention property can be inspected by the intending tenderer on 25.06.2015 at his/her expenses, between 11.00 am and 02.00 pm. The related documents / up-to- ate EC, can be verified/inspected by the intending purchasers / bidders on 26.06.2015 between 10.00 am and 5.00 pm at Indian Bank, Guindy Branch, at their own expenses.

02. The property shall be transferred or conveyed on as is where is basis and as is what is  condition and without any representations and warranties on the part of the bank relating to the encumbrances/ statutory liabilities etc., on tender-cum-e-auction sale basis from the public by means of a sale certificate in the name of purchaser only.
 
03. .....
 
04. .....
 
05. .....
 
06. Once the e-auction is completed, the sale is conferred on the person making the highest offer/tender/bid. The successful bidder will be intimated by email, as the case may be, who has to remit 25% of the bid amount (less the EMD) immediately by RTGS/NEFT/Account Transfer and/or any other acceptable mode of money transfer, failing which, the EMD remitted will stand forfeited. The balance sale price shall be paid within 15 days of confirmation of sale or extended time in writing. If the balance amount is not remitted within stipulated/ agreed time, the amount of 25% remitted will also be forfeited. As per the clauses of tender-cum-e-auction sale, the bank has auctioned the property.

13. Going through the clauses of auction, it would be appropriate to refer Section 13 of the SARFAESI Act, 2002, which reads thus:-

3. Enforcement of security interest.-

(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882 ), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice, failing which the secured creditor shall be entitled to exercise all or any of the rights under sub- section (4).

(3) The notice referred to in sub- section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non- payment of secured debts by the borrower.

(4) In case the borrower fails to discharge his liability in full within the period specified in subsection (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset;

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. .... ....

14. Sub-section 13(4) of SARFAESI Act, 2002 provides a procedure, under which, the secured creditor, shall enforce the liability to be discharged by the borrower. Primarily, after the issuance of notice under Section 13(2) and if the borrower fails to discharge his liability, within the period specified under Section 13(2), the secured creditor under Section 13(4)(a), can take possession of the secured assets of the borrower, including the right to transfer by way of lease, assignment or sale for releasing the secured assets. Section 13(4)(a) of SARFAESI Act, 2002 should be conjointly read with Rule-9 Clauses-9 and 10 of the Security Interest (Enforcement) Rules, 2002. Rule-9 of the Security Interest (Enforcement) Rules, 2002 reads, thus:-

9. Time of sale, Issue of sale certificate and delivery of possession, etc.-

(1) No sale of immovable property under these rules shall take place before the expiry of thirty 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 twenty-five per cent. of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.

(4) The balance amount of purchase price payable shall be 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 agreed 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 he thinks fit, allow the purchaser to deposit with him the money required to discharge 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 money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.]

(8) On such deposit of money for discharge of the encumbrances, the authorised officer 15[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. 

15. Admittedly, when the tender-cum-e-auction sale was notified on 05.06.2015, the respondent bank has not taken physical possession of the property. Admittedly, learned counsel for the petitioner has submitted that the respondent bank has not taken any steps to take actual physical possession of the property, under Section 14 of the SARFAESI Act, and that the same was pending, at the time of e-auction.

16. At this juncture, it would be appropriate to refer Section 14 of the SARFAESI Act, 2002 which reads as follows:-

4. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.-

(1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured assets, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall, on such request being made to him- (a) take possession of such asset and documents relating thereto; and (b) forward such asset and documents to the secured creditor.

(2) For the purpose of securing compliance with the provisions of sub- section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority. 

17. Learned counsel for the petitioner counsel also submitted that e-auction notice, does not contain or mention, about the encumbrance in the property, which amounts to misleading the auctioneers.

18. Though the respondent bank has filed a counter, there is no specific averment, denying the facts stated in the affidavit filed by the petitioner/auction purchaser in the Writ Petition, especially paragraph No.6 of the affidavit, which reads thus:- 

It is submitted that the respondent has not taken any steps to take possession of the property and not cleared the court cases pending in the CMM Court (Section 14 application) and City Civil Courts. It is pertinent to note here that the respondent have not mentioned about the existence of the tenancy in the auction notice dated 05.06.2015 and also not mentioned about the encumbrance of the property is amounts to misleading the auctioneers and against the bid policy. Further the respondent have prior knowledge and information about the tenants issue and the respondent has exchanged so many communications with the Muthialpet Police Station and the petitioner has learnt that there was an order by the Debts Recovery Tribunal (DRT) prohibiting the respondent bank not confirm the sale by an order dated 18.02.2015 in S.A.No.26 of 2015. But for the reasons best known, the respondent has failed to disclose the same and received the EMD amount, 25% of bid amount and further payment of 40 lakhs is highly arbitrary and discriminatory in nature besides violation of principles of natural justice. In view of the above act of the respondent, the petitioner very much suffered and his huge hard earned money is locked with the respondent, hence narrating all these facts, the petitioner made representation on 27.09.2015 and immediately after the receipt of the representation/letter the respondent without taking any steps to cure the defects, simply passed the impugned order forfeiting the entire amount paid by the petitioner. The averments
stated in the affidavit filed by the petitioner in the Writ Petition have not been denied by the respondent bank in the counter affidavit. Learned counsel for the respondent is also not in a position to enlighten this Court, about the taking possession of the property under Section 14 of the SARFAESI Act, 2002 as on the date of tender-cum-e-auction sale ie., on 05.06.2015.

19. Conjoint reading of Section 13(4) of the SARFAESI Act and Rule 9 clauses 9 and 10 would clearly show that 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 2. However, the above said rule does not prevent the bank to bring the property for auction, when there are encumbrances attached to the property. Hence, the contention of the petitioner that bank cannot bring the property for auction, when there is encumbrance attached to it, cannot be sustained. However, bank is duty bound to disclose the encumbrances, attached to the properties and litigations or occupation by a tenant if there is any lis or lien attached to the property. Merely by including a clause as is where is basis or as is what is condition stated in the sale notice does not obviate the bank from disclosing the encumbrance attached to the property, brought for in auction. When there is no notification or mention of encumbrance, it is difficult to accept the contention of the bank that the property was auctioned as is where is basis and as is what is  condition. Though it would satisfy the Rules of Security Interest Enforcement Rules, 2002, bank cannot, in any situation, wash away the responsibility in disclosing the encumbrances, in the  notification or taking clear possession under Section 14 of the SARFAESI Act 2002 and handing over possession to the auction purchaser. There is no mention neither in the counter nor by the respondent counsel that whether possession has been taken under Section 14 of the Act. Unless the bank takes possession, the question of bringing the property for e-auction under Section 13(4) is not completed. Though as a secured creditor on the assets of the borrower or mortgaged or collateral, the right of the bank on such property will assume only after taking possession under Section 14 of the Act and only thereafter, the bank can initiate steps to bring the property for auction.

20. Learned counsel for the petitioner has relied on two unreported judgments of this Court reported in W.P.No.32337 of 2016 (RG Housing and Infrastructure Private Limited ..vs.. Union of India, represented by Secretary to Government, Ministry of Finance and two others), W.A.No.530 of 2016 (V.Sambandan ..vs.. The Punjab National Bank, represented by its Chairman cum Managing Director), which according to him, would come in aid to the contention raised by the petitioner. Hon'ble Division Bench of this Court, in W.A.No.530 of 2010 cited supra, by discussing elaborately, on this issue had held as follows:- ›

6. Admittedly, when notice, under Section 13(4) of the SARFAESI Act, 2002, was issued by M/s.Punjab National Bank, Chennai, respondents herein, physical possession of the subject property mortgaged, was not taken. Reading of Rule 9 makes it clear that there is a clear distinction, between sale of immovable property, subject to encumbrance and costs, to be incurred for removing the encumbrance.

38. Auction notice does not indicate anything about the encumbrance in the subject property sought to be sold, but it only states that sale of the property would be in, "as is where is/as is what is" condition. Section 13(4) of the SARFAESI Act, 2002, enables the secured creditor to take actual possession of the secured assets of the borrower.

41. In the above said notice, dated 28.07.2009, auction purchaser/appellant has also stated that there was suppression of material facts, in conducting the auction. He has also stated that the authorised officer was not in a position to deliver possession of the auctioned property, without any  encumbrances and free of litigations. He has stated that the original title deeds, as well as copies of documents, including the judgment and decree from the competent Court, pertaining to the auctioned property, except the sale deed Document No.2125/1990, dated 02.07.1990, were not furnished to him and in the above said circumstances, he has issued the said notice, calling upon the authorised officer to cancel the auction proceedings, held on 17.07.2009 and return the deposit amount of Rs.3,30,000/-, within a weeks' time, from the date of receipt of the said notice.

49. In Kathikkal Tea Plantations vs. State Bank of India reported in (2009) 7 MLJ 24, Kathikkal TeaPlantations, represented by its Managing Director, availed loan. There was default. Symbolic possession was taken under Section 13(4) on 11.12.2006. Bank sold the property by a private treaty on 09.04.2007 and issued a sale certificate. Property was not physically dispossessed and continued to hold on de facto possession, even after without issuance of sale certificate. Therefore, bank, filed an application under Sections 14(1)(2) of the SARFAESI Act, before the learned Chief Judicial Magistrate, Udhagamandalam, on 13.11.2008, seeking an order to take possession of the petitioner's property with the help of police aid and hand over the same to the bank. Permission was granted. Writ petition was filed challenging the order of the learned Chief Judicial Magistrate, Udhagamandalam contending inter alia that once sale certificate was issued in favour of the auction purchaser of the property, there is no secured debt and that the bank loses the character of the secured creditor. Contention has been made that the question of taking actual physical possession does not arise after the issuance of sale certificate. After considering Transcore vs. Union of Indiareported in (2008) 1 SCC 125, that banks are entitled to take actual possession of the property in terms of Section 13 of the SARFAESI Act, 2002 and other decisions, in Kathikkal Tea Plantations' case, a Hon'ble Division Bench of this court, at paragraph 16 observed thus:

"The third party, who comes forward to purchase the secured asset, must have a confidence that he  would get the property at the earliest. If the transferring of the property by way of title is going to be delayed endlessly, then the object of the Act which is meant for speedy recovery, would be defeated in whole."

58. When rules permit sale, with encumbrance and without, contention of the learned counsel for the appellant that the sale should be free from encumbrance, cannot be accepted. On the facts and circumstances of the instant case, what is required to be considered by us, is whether the Bank has notified the encumbrances on the property sold.

59. In the light of the decisions, stated supra, we are unable to accept the contentions of the bank that by imposing a condition, "as is where is" and "as is what is", the Bank has no obligation to mention in the auction notice, the encumbrance of the property, sought to be sold and it is suffice to contend that in the auction notice, the Bank has clearly stated that the property sold was in "as is where is" and "as is what is" condition and that the same would satisfy the requirements of Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, which states that the authorised officer shall state the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor. In Jai Logistics's case (cited supra), defence of the Bank that the encumbrance was not known to them, and hence, could not be published on the sale notice, to sustain the order of forfeiture, was not accepted by this Court.

60. On the facts and circumstances of the case, the Bank may be right in contending that physical possession need not be taken before bringing the mortgaged property for auction, but they cannot shirk their duty to hand over possession to the auction purchaser. If the bank was not in a position to take physical possession, before sale, then recourse ought to have been taken under Section 14 of the Act and under the scheme of the Act, the Bank cannot be permitted to contend that there is no statutory obligation, on its part, to put the auction purchaser in possession.

61. Ordinarily, a sale is completed, on receipt of the entire sale consideration and handing over possession. But if encumbrance is specifically mentioned in the sale notice and if the auction purchaser with eyes open, had purchased the property, then there could be a cause to contend that it is the purchaser, who had taken the risk. While issuing a sale notice, it is the duty of the Bank to mention all the encumbrances in the property. The condition, "as is where is" or "as is what is" may indicate that when the property is sold, everything is not clear. But at the same time, the purchaser cannot be expected to know that the property sold was already mortgaged to another bank, viz., Nedungadi Bank and that there was a decree in O.S.No.328 of 1999, dated 10.07.2000, on the file of Subordinate Judge, Poonamallee.  21. Material on record shows that the petitioner has participated in the e-auction and declared as the highest bidder by the bank and thereafter, the petitioner has paid Rs.81,37,500/- being 25% of the bid amount on the same day of the e-auction ie., 10.07.2015 and the respondent bank has issued sale confirmation letter on 20.07.2015 and directed the petitioner to pay the remaining 75% of the sale amount, within 15 days. During the said period, on 03.08.2015 the petitioner has sent a representation to the respondent bank, received by the respondent bank on the same day, in which, presence of the tenants, in the auctioned property and non-taking of physical possession of the auctioned property, by the bank, under Section 14 of the SARFAESI Act, were stated. At paragraph-2 of the said letter, the petitioner has stated as follows:-

After bidding the property, I went personally to inspect the property, to my shock, still there is lot of tenants occupied the property and I enquired with them regarding their status, I came to know from that the mortgagor of the property received nearly about Rs.40,00,000/- (Rupees forty lakh only) from the tenants as lease amount to the above property, still you have not taken physical possession of the property and I came to know that your have filed petition on the file of the CMM Court, Egmore, under Section 14 of the SARFAESI Act, to take possession of the above mentioned property, but still it is pending in the Court, no orders are passed by the Court in the above matter, if you are not able to take possession of the property, my expenses to the property will go very high and lot of tenancy cases will be filed by the tenants, I have to run around courts to tackle tenancy cases after investing huge amount to purchase the above mentioned property 

22. Without referring to the receipt of the letter dated 03.08.2015, Indian Bank, Guindy Branch, has sent a letter on 31.08.2015. The subject, reference and the content, read as follows:-

Sub : A/c Health Foods with our Branch - Ref : Our letter dated 04.08.2015 and your letter dated 17.08.2015.
 
Please refer our letter dated 04.08.2015, wherein we have advised you to make the balance Please note that the amount paid by you is forfeited and we will be going ahead with fresh

23. Thereafter, the petitioner has sent another letter dated 27.09.2015, to which the Please note that the auction was conducted on as is where is basis and you participated in the auction after doing your due diligence / inspection of the property. Hence, your justifications for not paying the balance amount for the reason that vacant possession of the property should be provided is not tenable. In view of the above, please note that the amount of Rs.121.37 lakh paid by you stands forfeited.

24. Though the property has been auctioned on as is where is basis and on as is what is  condition, as discussed earlier, this Court in W.A.No.530 of 2010 has held that the banks cannot shrink away the responsibility to hand over, possession of the property, to the auction purchaser. There is no averment in the counter by the bank nor any submissions made by the learned counsel for the respondent bank with regard to taking of possession of the auction property. Having regard to the statutory provisions, We are of the view that, it is the responsibility of the bank to specify the encumbrances attached to the property, while bringing the property for auction.

25. Referring to the letter dated 27.09.2015 of the petitioner, the respondent has declined the justification of the petitioner in not paying the balance amount, for the reason that vacant possession of the property should be provided is not tenable, and therefore, submitted that the respondent bank is entitled to forfeit the entire amount of Rs.1,21,37,000/- paid by the petitioner. It is seen that the respondent bank earlier, by its letter dated 31.08.2015, forfeited the amount paid by the petitioner and thereafter, by the impugned order dated 06.10.2015 forfeited Rs.1,21,37,000/-, which  ncludes Rs.40,00,000/- paid by the petitioner, after issuing the letter dated 31.08.2015. Hence, from the above, We are of the view that the bank has not followed the provisions of the SARFAESI Act, 2002 and Security Interest Enforcement Rules, 2002, scrupulously, in notifying the encumbrances attached to the property, to be auctioned in the auction notice and in the above circumstances, the petitioner is entitled for the refund of the money, deposited as Earnest Money Deposit, and the amount received by the respondent bank subsequently.


26. In the light of the above discussion, this Court directs the respondent bank to refund a sum of Rs.1,21,37,500/- (One Crore twenty one lakhs thirty seven thousand and five hundred only), to the petitioner. However, it is stated in the counter that Rs.40 lakhs, was refunded to the petitioner, in the form of DD dated 06.05.2016, after the filing of Writ Petition on 25.04.2016. Though, normally, in this situation, the petitioner is entitled for interest, as a purchaser, the petitioner is also duty bound to enquire about the property, before participating in the auction, as a person of normal diligence before buying any immovable property and when the petitioner himself has not made proper enquiries on the schedule property and encumbrance, there is a fault on the part of the petitioner also and therefore, this Court is not inclined to grant any interest to the amount paid by the petitioner.In the result, the Writ Petition is allowed and the impugned order dated 06.10.2015 passed by the respondent is hereby quashed. The respondent bank is directed to refund a sum of Rs.1,21,37,500/- (One Crore twenty one lakhs thirty seven thousand and five hundred only), less the amount already paid if any, to the petitioner, within a period of four weeks from the date of receipt of a copy of this order, failing which the amount shall carry interest at 9% per annum from 10.07.2015 till the date of payment. No costs.