IN THE HIGH COURT OF KERALA AT ERNAKULAM C.K. Abdul Rehim, J. W.P. (C) No. 30611 of 2010 Decided On: 13.01.2011 K.R.S. Latex (India) Pvt. Ltd. and Anr. Vs. Federal Bank and Ors. Head Note:- Security Interest (Enforcement) Rules, 2002 - Rule 8(1), 8(5), 8(6), 9 and 9(1) - Service of 30 days notice with respect to sale to be conducted under Sub-rule (5) is mandatory, especially in view of the word 'shall' used in Sub-rule (6). Held:- Even though I am not in agreement with the contention of the Petitioner that it contemplates notice with respect to every stage under Sub-rule (5), such as getting valuation, fixing reserve price, fixing mode of sale etc., I have no hesitation to hold that 30 days notice regarding sale is a clear pre-requisite. The prohibition imposed under Rule 9(1) only insist that the sale shall not be conducted before expiry of 30 days either from the date of publication or from the date of service of notice on the borrower. It indicates that the computation of period can be either from the date of publication or from the date of service of notice. But it does not in any way indicate that once the publication is there the requirement under Sub-rule (6) can be waived. Sri K.K. John, learned Counsel appearing for the Petitioner points out a decision of the Bombay High Court in Manoj D. Kapasi and Anr. v. Union of India and Ors. reported in (2005) 125 Com Cas 676, wherein it is held that, although Rule 8(5) provided for various methods for realisation, when the Bank is resorting to public auction, it is bound to follow the correct procedures and requirements of Rule 8(6) and 9(1) i.e., 30 days notice to the borrower is mandatory. If the requirements are not followed, the entire procedure will be faulty, is the dictum. Constitution of India, 1950 - Article 226 - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13, 13(2), 13(4), 14(1), 17, 17(1) and 31(1) - Whether the Petitioners can invoke remedy under Section 17(1) against the proceedings of sale in a case where they have not chosen to challenge the steps taken under Section 13(4) for taking over possession of the property. Held:- One of the arguments is that even a sale conducted by the authorized officer can be construed as a measure referred to in Sub-section (4) of Section 13, which is amenable to challenge under Section 17(1). But in the present case I need not look into such contentions, because I am of the view that exercise of extraordinary jurisdiction vested under Article 226 of the Constitution of India, is perfectly justified. It is trite law by this time that availability of an alternate remedy is not an absolute bar, but it is only a self-imposed restriction. Since a patent illegality arising out of evident non-compliance of the mandatory procedure is brought out, I am of the view that exercise of writ jurisdiction is warranted and justified, even if there is availability of alternate remedy. Referred Cases:
For Petitioner:
For Respondents:
J U D G M E N T C.K. Abdul Rehim, J. 1. The first Petitioner is a company engaged in manufacture of 'Centrifuged Latex' and 'Skim Rubber Crepe'. The second Petitioner is the Managing Director of the company. The first Petitioner company availed various credit facilities from the 1st Respondent Bank, for which the stock in trade, plant and machinery, and book debts of the company were hypothecated, along with collateral security of equitable mortgage created with respect to various items of immovable properties belonging to the Petitioners. 2. The issue involved in this writ petition relates to sale of immovable property, conducted pursuant to Ext.P-3 proclamation. Pursuant to proceedings initiated under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) Respondents 1 & 2 had issued a demand under Section 13(2) of the Act, as per Ext.P-1, dt. 10-10-2009. According to the Petitioners, on receipt of Ext.P-1, they raised objections through various representations, inter alia seeking re-structuring of the credit facilities and also contending that certain properties described as Schedule B and C of the notice are agricultural lands which is exempted from the purview of the SARFAESI Act under Section 31(1). But the objections were rejected, and invoking Section 14(1) the 2nd Respondent had approached the Chief Judicial Magistrate Court. The property in question was taken over possession by issuing Ext.P-2 notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002. Thereafter the Respondents 1 and 2 had conducted sale of the immovable property which is having an extent of 2.70.74 Hectares, situated in Koovappally Village in Kanjirappilly Taluk along with the factory building, plant and machinery contained therein. 3. The sale in question was conducted for a sum of Rs. 2,51,00,000. As per Ext.P-3 sale notice, the reserve price fixed for the property in question is a sum of Rs. 2,15,00,000. According to the Petitioner, the valuation of the property in question is Rs. 4,15,72,260 as per Ext.P-4 valuation report prepared by an independent valuer, as on 1-8-2005. It is stated that Ext.P-4 valuation report was prepared at the behest of the 1st Respondent Bank while it took over the accounts of the Petitioner company from Union Bank of India, Kottayam branch. The Petitioner had also produced another valuation report, Ext.P-5, prepared at the instance of Andhra Bank, with whom the Petitioners had proposals for taking over the accounts. As per Ext.P-5, valuation with respect to the property having an extent of 2.70.74 Hectares with factory building, plant and machinery is Rs. 7,12,65,000. Therefore, contention of the Petitioner is that the sale price of Rs. 2,51,00,000 at which the bid was finalized in favour of the 4th Respondent, is only a paltry sum. 4. The sale conducted on 29-9-2010 is inter alia challenged on the ground that it is vitiated by a material irregularity of lack of notice to the Petitioners who are the borrowers, as mandated under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. Contention of the Petitioner is that as per Rule 8(6) it is mandatory that notice should be issued to the borrower with respect to the various steps adopted under Rule 8(5), such as, obtaining of valuation of the property through approved valuer, fixing of reserve price of the property, and fixing of the mode of sale. But no such notice was issued in the case at hand and hence the sale is liable to be set aside, is the contention. 5. In the counter-affidavit filed by Respondents 1 & 2 it is stated that, after taking over possession of the property, a valuation report was obtained from an approved valuer, who reported that the market price of the property is Rs. 2,14,86,395. On that basis the reserve price was fixed at Rs. 2,15,00,000, in consultation with the secured creditor. It is further stated that the sale was conducted after publication of notice in two dailies. The sale was fixed in favour of the 4th Respondent who quoted the highest bid of Rs. 2,51,00,000, and he had deposited the entire sale amount in two phases, i.e: 25% initially and then the balance 75%. 6. With respect to the specific contentions regarding lack of notice under Rule 8(6), answer of Respondents 1 & 2 is that, such notice is not mandatory in view of Rule 9, if the sale is conducted after expiry of 30 days of publication of sale notice in News Papers. Since the sale notice in this case was published in two dailies, clearly before 30 days of the date of the sale, there is no infirmity in the sale, is the contention. Counsel appearing for the 4th Respondent, who is the purchaser of the property in the auction sale is also adopting the very same contentions. 7. Considering the rival contentions, I feel that it will be beneficial to have the relevant Rules extracted; Rule 8(5) & (6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 reads as follows: Rule 8 (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. Rule 8 (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 authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property. Rule 9 (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. 8. On a plain reading of Rule 8(5) & (6) it is clear that service of 30 days notice with respect to sale to be conducted under Sub-rule (5) is mandatory, especially in view of the word 'shall' used in Sub-rule (6). Even though I am not in agreement with the contention of the Petitioner that it contemplates notice with respect to every stage under Sub-rule (5), such as getting valuation, fixing reserve price, fixing mode of sale etc., I have no hesitation to hold that 30 days notice regarding sale is a clear pre-requisite. The prohibition imposed under Rule 9(1) only insist that the sale shall not be conducted before expiry of 30 days either from the date of publication or from the date of service of notice on the borrower. It indicates that the computation of period can be either from the date of publication or from the date of service of notice. But it does not in any way indicate that once the publication is there the requirement under Sub-rule (6) can be waived. 9. Sri K.K. John, learned Counsel appearing for the Petitioner points out a decision of the Bombay High Court in Manoj D. Kapasi and Anr. Vs. Union of India and Ors. reported in (2005) 125 Com Cas 676, wherein it is held that, although Rule 8(5) provided for various methods for realisation, when the Bank is resorting to public auction, it is bound to follow the correct procedures and requirements of Rule 8(6) and 9(1) i.e., 30 days notice to the borrower is mandatory. If the requirements are not followed, the entire procedure will be faulty, is the dictum. 10. In the present case, the Respondent has no contention that any notice as required under Rule 8(6) was issued to the borrower, before conducting the sale. Hence I find that the sale in question which was conducted on 29-9-2010, on the basis of Ext.P-3 notice, is vitiated from non-compliance of the mandatory requirements and hence it is illegal. 11. Further question to be considered, which is rather basically a preliminary issue, is that whether this Court is justified in entertaining this writ petition to examine validity of the sale conducted under the SARFAESI Act. Respondents 1 & 2 had raised a contention that this writ petition is not maintainable since the Petitioners have not exhausted the effective, expeditious and alternate remedy available under Section 17 of the SARFAESI Act. It is contended that the Petitioners have not stated any reason for not availing such remedy and that having slept over the matter for quite long period, the Petitioner could not be allowed to invoke the extraordinary jurisdiction. On the other hand, averments in the writ petition is to the effect that since the Petitioners have not filed any appeal within 45 days of the date of taking the measures under Section 13(4) of the SARFAESI Act, no appeal can be filed challenging the action of sale. Contention of the learned Counsel for the Petitioner is that if there is violation of statutory provisions such actions are liable to be quashed in a writ petition. When statutory power conferred on an authority is exercised in an illegal and arbitrary manner, in an improper way, which is not as conferred by the legislature, this Court is perfectly justified in interference, is the contention. Counsel for the Petitioner points out a decision of this Court in Betty Vs. Union Bank of India, 2007 (4) KLT 53 (C.No. 58) in support of his contention. It was held that this Court is justified in interfering with steps initiated under Section 13(4) when there is arbitrary classification of the account as 'NPA' in violation of the guidelines issued by the Reserve Bank. A learned Judge of this Court observed that the availability of alternate remedy is not a bar when a patent illegality has been committed and when the Bank has exercised its power in a most arbitrary manner. 12. Question arises as to whether the Petitioners can invoke remedy under Section 17(1) against the proceedings of sale in a case where they have not chosen to challenge the steps taken under Section 13(4) for taking over possession of the property. One of the arguments is that even a sale conducted by the authorized officer can be construed as a measure referred to in Sub-section (4) of Section 13, which is amenable to challenge under Section 17(1). But in the present case I need not look into such contentions, because I am of the view that exercise of extraordinary jurisdiction vested under Article 226 of the Constitution of India, is perfectly justified. It is trite law by this time that availability of an alternate remedy is not an absolute bar, but it is only a self-imposed restriction. Since a patent illegality arising out of evident non-compliance of the mandatory procedure is brought out, I am of the view that exercise of writ jurisdiction is warranted and justified, even if there is availability of alternate remedy. 13. For the reasons stated above, it is held that the sale conducted by the 2nd Respondent on 29-9-2010 pursuant to Ext.P-3 notice, in favour of the 4th Respondent, is illegal and it is vitiated by material irregularity due to non-compliance of the mandatory legal requirements prescribed under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. Hence the writ petition is allowed and the sale is hereby quashed. Needless to say that the 4th Respondent is entitled for refund of amounts deposited, without any delay. It is made clear that Respondents 1 & 2 will be at liberty to proceed with fresh steps for sale, after compliance of the statutory procedures. |