HON’BLE SRI JUSTICE R. SUBHASH REDDY WRIT PETITION Nos.6415 and 26258 of 2009 Date: 08.10.2010 Between : G. Raju & others. …….Petitioners And The Government of Andhra Pradesh, rep. by its Secretary, Agriculture and Cooperation (Coop III) Department & others. …..Respondents. For the petitioners : Sri E.Manoher, Senior Counsel, for Sri R.N.Hemendranath Reddy, counsel on record. For R-1 to R-3 : G.P. for Cooperation. For R-4 : Sri A.Anand Rao. For R-5, R-7 & R-11 : Sri D.Prakash Reddy, Senior Counsel, for Sri M.S.Ramchandra Rao, counsel on record. For R-8 & R-10 : Sri C.V.Narasimham. For R-12 to R-14 : Sri S.S.Prasad, Senior Counsel, Kum.C.Sindhu Kumari, counsel on record. For R-15 : Sri M.V.Durga Prasad. < Gist : > Head Note : ? CITATIONS : 1. 2010 (4) ALT 97 (DB) 2. 2002 (3) ALT 728 (DB) 3. 2000 (6) ALT 354 4. 1955 (1) AnWR 699 (AP) 5. AIR 1987 SC 251 6. AIR 1979 SC 1628 C/15 HON’BLE SRI JUSTICE R. SUBHASH REDDY WRIT PETITION Nos.6415 and 26258 of 2009 Date: 08.10.2010 Between : G. Raju & others. …….Petitioners And The Government of Andhra Pradesh, rep. by its Secretary, Agriculture and Cooperation (Coop III) Department & others. …..Respondents. HON’BLE SRI JUSTICE R. SUBHASH REDDY WRIT PETITION Nos.6415 and 26258 of 2009 COMMON ORDER : As much as common questions of law and fact arise for consideration in these two writ petitions, they are heard together and are being disposed of by this common order. For the purpose of disposal, I refer to the facts as arise in W.P.No.6415 of 2009. 2. In this writ petition, the petitioners seek for directions by way of Mandamus, questioning the validity of Memo No.19201/Coop.iii(1)/2005-1, dated 18.04.2006, issued by the 1st respondent-Government and also the consequential proceedings of the Commissioner for Cooperation and Registrar of Cooperative Societies, Andhra Pradesh, Hyderabad, dated 28.04.2006, and also seek to declare the sale of property affected in favour of respondents 5 to 11 as illegal and arbitrary and set aside the same, with a consequential direction to the 4th respondent-Bank to sell the property in public auction and appropriate the sale proceeds proportionately/equally into all the loan accounts in O.D. Account Nos.471 to 479, 500 and 501. 3. The respondent No.4 is a Society registered under the A.P. Cooperative Societies Act, 1964 (hereinafter referred to as ‘the APCS Act’), engaged in the business of banking, by obtaining license under the Banking Regulation Act, 1949. The petitioner No.1, which is a Proprietary concern by name M/s.Rajashree and Company along with 10 other proprietary concerns, who include the petitioners in W.P.No.26258 of 2009, availed a loan to the tune of Rs.20.02 Crores from the 4th respondent-Bank. Initially, the loans obtained by the petitioners were term loans, but the same were converted into O.D accounts in the year 2000-2001 vide O.D. Accounts bearing Nos.471 to 479, 500 and 501. Respondents 12 to 14 herein have mortgaged their property admeasuring 7528 sq. yards, situated at Begumpet village of Balanagar Mandal in Ranga Reddy District. The said property was offered as security for the loans obtained by the petitioners and other proprietary concerns and the respondents 12 to 14 have not divided the interest in the property, which was mortgaged to the 4th respondent-Bank. To secure the loan, respondents 12 to 14 have executed all necessary documents, including the demand promissory note and memorandum of deposit of title deeds in favour of the Bank. 4. The writ petitioners and other borrowers and the mortgagers, whose property was given as security for the loans obtained by the petitioners and others, committed default in repayment of loans as agreed by them, as such, the 4th respondent-Bank has taken steps for recovery of loans, by initiating arbitration proceedings. Ultimately, there was an Award in favour of the 4th respondent-Bank to recover the loan amounts from the borrowers, and the respondents 12 to 14 herein, who have created equitable mortgage of their property to secure the loans obtained by the petitioners and others. 5. In view of the liquidity problems suffered by the 4th respondent-Bank, the Reserve Bank of India issued directions under Section 35-A of the Banking Regulation Act, with effect from 07.03.2003, and subsequently, the Reserve Bank of India also reviewed the financial position of the Bank in a meeting held on 04.04.2005 and felt that there is a possibility of reconstruction of the Bank, provided the Bank achieves the following goals: (i) recover atleast Rs.20 Crores from sale of one of the properties mortgaged to the Bank, situated on Begumpet road; (ii) increase share capital of the Bank by Rs.12 Crores by conversion of deposits; (iii) close two more branches; and (iv) further reduce the expenditure on overheads. The Person Incharge Committee of the 4th respondent- Bank has taken a decision on 7th December 2005, to permit the sale of mortgaged property, which is given as security in connection with the loans obtained by the petitioners and other proprietary concerns and the same was agreeable for respondents 12 to 14 herein. After the 4th respondent-Bank secured Award under Arbitration proceedings to recover the loan amounts with interest against the principal borrowers and the mortgagers, attempts were made in 2003 to put the mortgaged property for sale through public auction in execution proceedings, but the 4th respondent-Bank was not successful since the consideration was substantially low and there were many claim petitions, which stood in the way of executing the award. Further attempts were made to put the mortgaged property for auction during the years 2004 and 2005, when a three-member-committee was appointed to manage the affairs of the Bank, headed by the Joint Collector, Ranga Reddy District as Chairman. Even in the said attempts, the 4th respondent-Bank could not get the good price for the land. In the auctions held in the years 2003, 2004 and 2005, the highest offers were at Rs.11,600/-, 14,500/- and 25,000/- per sq. yard, respectively. At that stage, the respondent No.5 herein, a Private Limited Company, has offered to purchase the property at the rate of Rs.30,500/- per sq. yard. As the Person Incharge Committee of the 4th respondent-Bank felt that the said rate is in conformity with the market trends, to achieve the goal to recover atleast Rs.20 Crores from the sale of property as directed by the Reserve Bank of India, in the meeting held on 7th December, 2005, took a decision to permit the sale of mortgaged property, as per the rate proposed by the 5th respondent herein. A letter was addressed in this regard, to the 2nd respondent-Commissioner, and accordingly, the proposal of the Bank was also forwarded to the Government. In the proposals submitted from the 2nd respondent-Commissioner and the Registrar of Cooperative Societies to the Government, inter alia, it is stated that in the auctions held during the years 2003, 2004 and 2005, the highest offers were at Rs.11,600/-, 14,500/- and 25,000/- per sq. yard respectively, and the rate offered at Rs.30,500/- is in conformity with the market trends, and in view of the conditions imposed by the Reserve Bank of India, the Person Incharge Committee of the Bank resolved to permit the mortgagers to sell the property to the buyers of their choice. The Government, having considered the proposals emanated from the Bank, which were forwarded by the Commissioner for Cooperation to the 1st respondent, agreed for the proposals for sale of property to respondent No.5, in the interest of the Bank and depositors, and issued Memo No.19201/Coop.iii(1)/2005-1, to that effect on 18.04.2006. Consequently, the 2nd respondent has issued proceedings, dt.28.04.2006, in Rc.No.38629/2000 UBV, addressed to the 4th respondent-Bank, asking to take further action for sale of property by taking an undertaking from the purchasers for remitting the amount of sale proceeds directly to the Bank. Further, it was stated in the proceedings that the documents of the property should be released only after realizing the full sale consideration. Subsequently, the said undivided property belonged to respondents 12 to 14, was sold in bits in favour of respondents 5 to 11 on 11.05.2006 for a total consideration of Rs.23,12,24,584/-. On receipt of such amount, it was adjusted by the Bank in the O.D. loan account bearing No.478, granted in favour of M/s.Maheswari Enterprises and O.D. account No.479, granted in favour of M/s.Bhargavi Enterprises and closed the said accounts and also credited towards principal amount into the O.D. loan account Nos.471 to 477. 6. This writ petition is filed on 25th of March 2009 by the proprietor of M/s.Rajashree and Company, which is the 1st petitioner herein, along with another, questioning the orders issued by the Government and the consequential orders issued by the 2nd respondent and also questioning the sale of mortgaged property in favour of respondents 5 to 11. As averred in the affidavit filed in support of the writ petition, it is the case of the petitioners that as per the provisions under A.P. Cooperative Societies Act, 1964 and the Rules made thereunder, the mortgaged immovable property shall be sold only in public auction to the highest bidder. It is alleged that the 1st respondent has no authority or jurisdiction for issuing the impugned Memo permitting the 4th respondent-Bank to allow the owners/mortgagers to sell the property, either to respondent No.5 or others, deviating from the mandatory provisions contemplated under Rule 52 of the A.P. Cooperative Society Rules, 1964 (hereinafter referred to as ‘the APCS Rules’). It is also the case of the petitioners that the only power conferred on the Government is under Section 131 of the APCS Act, which empowers the Government to issue in general or particular matters under the Act, any direction in accordance with the provisions of the Act and in the interest of the Cooperative movement in the State, as it may consider necessary to the Registrar, but such orders issued by the Government are without any authority of law, and in any event, the 1st respondent has erred in not affording opportunity to the petitioners, who are affected by such sales. It is alleged that the principal borrowers availed loans by creating mortgage of valuable property as security under the bonafide impression that the mortgaged properties are very much sufficient for recovery of loans in the event of default on the part of the principal borrowers. It is stated that if the mortgaged properties are sold for lesser value, by adopting the procedure contrary to the Rules framed under the APCS Act, the principal borrowers as well as the guarantors will be put to irreparable harm and hardship. Alleging that the principal borrowers and guarantors in the above said loans were not given any notices before issuing the impugned memo by the 1st respondent, the petitioners seek invalidation of the sales affected in favour of respondents 5 to 11. It is also the case of the petitioners that adjusting the entire amount only to two accounts in O.D. account Nos.478 and 479 without obtaining any consent from the other loanees/principal borrowers and guarantors, is also illegal. 7. The 4th respondent-Bank has filed counter affidavit with the following averments. It is stated that the petitioners and 10 other proprietary concerns have availed the loan of Rs.20.02 Crores and respondents 12 to 14 have mortgaged their property admeasuring 7528 sq. yards at Begumpet village in Balanagar Mandal of Ranga Reddy District. The said mortgaged property is not divided and each have undivided interest. Accordingly, the guarantors executed all necessary documents including the demand promissory note and memorandum of deposit of title deeds. The writ petitioners and other borrowers and guarantors committed default, as such, the Bank had initiated recovery proceedings under APCS Act, and secured Awards in the loan accounts and in terms of the Award, the guarantors and principal borrowers are jointly and severally responsible to discharge the loan amounts. It is stated that during the arbitration proceedings, summons were issued to all the principal borrowers and parties, who were involved in the loan transactions, including the writ petitioners, however, the writ petitioners never appeared before the arbitrator in recovery proceedings and never responded to the notices, hence, they were set exparte and awards were passed in respect of all the 11 loan accounts. It is also stated that aggrieved by the awards, the guarantors and certain individuals have filed appeals in CTA.Nos.92 of 2003 to 100/2003 and when the Cooperative Appellate Tribunal has modified the awards, they have questioned the same before this Court. It is stated that during the pendency of appeals before the Cooperative Tribunal, the Bank made many attempts to put the mortgaged property to sale through public auction in execution proceedings, but the 4th respondent-Bank was not successful since the considerations offered in auctions were substantially low, as such, in view of the proposals of the mortgagers and the 5th respondent herein, the bank recommended for sale of property in favour of respondent No.5 at the rate of Rs.30,500/- per sq. yard, which is in conformity with the market rate. It is further stated that in view of the directions issued by the Reserve Bank of India, the Person Incharge Committee of the Bank permitted sale of property to the prospective buyers for fetching good price for the property. Accordingly, the 2nd respondent forwarded proceedings to the 1st respondent and the 1st respondent-Government, in turn, have agreed for the proposals and permitted sale of property by the mortgagers to the 5th respondent. Accordingly, the property was disposed of for Rs.23,12,24,584/- and the respondents 12 to 14, who are the owners and mortgagers of the property, have executed registered sale deeds in favour of respondents 5 to 11. It is further stated that the 4th respondent-Bank received the sale consideration directly from the purchasers and the sale consideration was adjusted in the loan accounts at the request of respondents 12 to 14. The remaining amounts, after the said adjustments, were unsecured and the 4th respondent issued notices in terms of the arbitration award when the borrowers, guarantors and mortgagers were demanded for payment of loan dues. While denying the allegation of the petitioners that there is a collusion with the mortgagers i.e. respondents 12 to 14 in adjusting the entire amount only for two accounts i.e. O.D. account Nos.478 and 479 and it is stated that respondents 12 to 14 directly approached the purchasers and sold the property in favour of respondent No.5 and registered the property. While pleading that the 4th respondent-Bank has taken all precautions and acted in accordance with law, it is stated that the Bank is at liberty to do so. It is further stated that since respondents 12 to 14 are equally, jointly and severally liable for the repayment of the loan amounts being mortgagers and guarantors, their consent itself is a clear proof that they are personally liable. It is further stated that the writ petitioners being the borrowers, cannot question the way of adjustment of sale proceeds and further stating that the writ petition itself is filed after three years of sale, pleaded for its dismissal on merits as well as on the ground of guilty of laches. 8. A separate counter affidavit is filed on behalf of respondents 1 and 2, sworn in by Sri D.R.Garg, Commissioner and Registrar of Cooperative Societies, A.P., Hyderabad, with the following averments. It is stated that though the 1st respondent-Government issued the Memo on 18.04.2006, and consequential proceedings were issued by the 2nd respondent in the same year, the writ petition was filed after lapse of 3 years. It is pleaded that the petitioners have kept quite for all these years, as such, the writ petition is hit by severe laches and it is to be dismissed on this ground alone. In the counter, it is stated that the petitioners have not divulged in the writ petition as to in what way their rights are affected and the petitioner No.2 has not furnished any particulars to maintain the writ petition. While giving the directions issued by the Reserve Bank of India for reconstruction of the Bank and the conditions imposed by it, it is stated that in view of the decision of the Person Incharge Committee to permit the sale of mortgaged property by the mortgagers, proposals were sent to the Government and keeping in view the reconstruction scheme of the Bank, the 1st respondent- Government approved the proposals to sell the property. While referring to the arbitration proceedings initiated by the 4th respondent-Bank, it is stated that summons were issued to all the principal borrowers and the parties who were involved in the loan transactions, including the respondent No.1, however, they did not appear before the arbitrator in the ARC proceedings and having failed to avail the opportunity, the petitioners cannot contend contra now. It is further pleaded that having committed default in payments and having failed to appear before the arbitrator inspite of issuance of summons, it is not open for the petitioners to contend that the 1st respondent has issued the impugned memo without notice to them. It is stated that there is no need to give any notice before issuing the memo and the said memo issued by the Government is in the interest of depositors and to revive the Bank as per the directives issued by the Reserve Bank of India. In the counter, while referring to the steps taken by the Bank for sale of the mortgaged property in execution of the award during the years 2003, 2004 and 2005, it is stated that the petitioners, who are defaulters, cannot have any objection to the action taken by the respondents. It is stated that the writ petition filed by the petitioners is not a bonafide litigation and the only aim and intention of the petitioners appears to be to protract the litigation for oblique motives. Pleading that the writ petition is devoid of merit, sought for its dismissal. 9. There is another counter affidavit filed by respondents 5, 7 and 11, wherein, it is stated that respondents 7 and 11 Companies are merged with respondent No.5 and the name of the 5th respondent- Company has been changed to ‘GRT Hotels and Resorts Private Limited’, and consequent upon merger, a fresh certificate of incorporation was issued by the Registrar of Companies on 21.03.2007. In the counter, it is stated that the writ petition is filed belatedly on 20th March 2009, challenging the memo issued by the 1st respondent- Government, dated 18.04.2006, and the consequential proceedings of the 2nd respondent, dated 28.04.2006, and as no single reason is given by the petitioners to explain the inordinate delay of about 3 years, pleaded for dismissal of the writ petition on the ground of laches. It is stated that they are the owners of property comprising totally 7049 sq. yards, which was purchased from respondents 12 to 15 with the prior consent of the 4th respondent-Bank, to which, the property was mortgaged for the loans advanced by it. It is stated that the writ petitioners also claim to be the borrowers from the very same bank with O.D Account No.500, but the petitioners are neither owners of the said property nor have any right, title or interest thereon. The 2nd petitioner does not mention as to how and in what manner he is concerned with the 4th respondent-Bank and the subject property. It is stated that the petitioners have no locus standi to file the writ petition challenging the sale of property, as such, the same is liable to be dismissed. It is stated that they are the bonafide purchasers of property for valuable consideration and the petitioners have oblique motive and the apparent grievance of the petitioners appears to be only against the 4th respondent-Bank and the present belated challenge to the memo issued by the Government is merely a ruse for filing the writ petition. Petitioners, being defaulters having not repaid the loans obtained from the 4th respondent-Bank, are not entitled for any equitable relief. It is stated that no writ petition can be maintained against them, as the petitioners do not have any cause of action against them. It is stated that if the petitioners got any grievance against the 4th respondent- Bank, they have to work out their remedies in appropriate forum. It is stated that as the petitioners failed to raise any objections since 2006, they are not entitled to challenge the sales affected in favour of respondents 5 to 11, and that too, after the entire sale consideration is used by the Bank to come out of a chaotic situation and to pay the thousands of depositors. It is stated that respondents 5 to 11 have purchased the property for a valuable consideration of Rs.23,12,24,584/- and paid directly to the 4th respondent-Bank. They have paid sale consideration for the said property at the rate of Rs.32,800/- per sq. yard, and also incurred substantial expenditure on stamp duty and registration charges for execution of sale deeds and thus, the total cost of acquisition of property has come to Rs.24,34,81,988/-. It is stated that respondent No.5 has taken on lease, the entire property from respondents 6 to 11 and is paying lease rents and respondent No.5 also incurred substantial expenditure for development of the subject property towards Architect fee, Consultant fee, preparation of architectural plans, statutory fees and charges, approvals and permissions, excavation works, civil works like construction of compound wall, security charges apart from administrative expenses, etc. It is stated that they have paid an amount of Rs.77.68 lakhs towards the consultancy, architectural and development charges, Rs.16.46 lakhs towards various fees and statutory charges, Rs.23.63 lakhs for administrative and security charges, and Rs.24.75 lakhs for civil works and excavation at the site till date. While pleading that there is no illegality or irregularity in the sales affected in favour of respondents 5 to 11, it is stated that the 1st respondent- Government permitted sale in favour of respondents 5 to 11 after several attempts to sell the property in public auction failed to yield any positive result. It is stated that respondents 5 to 11 being the purchasers of property, are entitled to develop the said property and have applied to the Greater Hyderabad Municipal Corporation to grant permission for constructing a hotel/commercial building in the premises and the Corporation has issued proceedings, dated 01.06.2009, asking the respondent No.5 to pay more than Rs.8.24 Crores for various fees and charges for final approval. It is stated that though the respondents are ready to commence construction, but in view of the orders passed by this Court, they are prevented from proceeding with the development of property. With the above said pleadings, they sought for dismissal of the writ petition. 10. A separate counter affidavit is filed on behalf of respondents 12 to 14 with the following averments. It is stated that the writ petition is liable to be dismissed on the ground of laches, as the petitioners are questioning the memo, dated 18.04.2006, issued by the State Government, by filing the writ petition in March 2009. It is stated that the 4th respondent-Bank has sold the property in question to respondents 5 to 11, who have purchased the same and are in its possession for all these years and the money realized from the said sale proceeds, has been appropriated by the 4th respondent-Bank in accordance with law and the writ petitioners have not shown any justification to maintain this writ petition after the lapse of almost three years. It is stated that pursuant to the said memo issued by the Government, third parties’ rights had come into operation as the property had already been sold, as such, the petitioners are not entitled for any relief in this writ petition under Article 226 of the Constitution of India. It is stated that when the 4th respondent-Bank had advanced certain loans to some of its debtors and when some money was realized out of the sale proceeds from the mortgaged property, it is the prerogative of the Bank to appropriate