IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 26.07.2011 Coram: The Honourable Mr.Justice D.MURUGESAN and The Honourable Mr.Justice K.K.SASIDHARAN Writ Petition No. 11337 of 2011 and M.P.No.1 of 2011 ---------- M.Rajendran .... Petitioner vs. 1. The Authorised Officer, Corporation Bank, Villupuram Branch, No.6, Nehruji Road, Villupuram – 605 602. 2. T.Dhanasu 3. M.Kaliyamoorthy 4. The Registrar, Debts Recovery Appellate Tribunal, 4th Floor, Indian Bank Building, Wellington Estate, Egmore, Chennai – 600 008. .... Respondents Petition filed under Article 226 of the Constitution of India praying for the issue of a Writ of Certiorari to call for the records pertaining to order dated 21.03.2011 made in RA (SA) No.57/2008 on the file of the fourth respondent herein to quash the same. For Petitioner :::: Mr. V.R.Kamalanathan For Respondent 1 :::: Mr.S.Sethuraman For Respondent 2 :::: Mr.R.Baskar For Respondent 3 :::: No Appearance https://hcservices.ecourts.gov.in/hcservices/ O R D E R (The Order of the Court was made by D.Murugesan, J) This writ petition raises an important question as to whether the provisions of Rules 8 & 9 of the Security Interest (Enforcement) Rules, 2002 are complied with when the secured creditor brings the immovable secured asset for sale. 2. The facts, which give raise to the present petition, are as follows:- The petitioner had availed CVPDL Loan of Rs.3 lakhs from the first respondent-bank for his vegetable business and executed necessary documents in the year 2002. He also mortgaged his property situated at Door Nos.219 & 219A, Mahatma Gandhi Road, Villupuram Town, Villupuram District as security for repayment of the said loan. Though the petitioner has also repaid his monthly installments regularly, but due to sudden recession in the business as well his illness there was default in payment of installments to the bank. Hence, the first respondent-bank issued notice dated 30.06.2006 under Section 13(2) of the SARFAESI Act, 2002 (for short "the Act") calling upon the petitioner to pay the said amount demanded in the notice within a period of 60 days from the date of notice. The petitioner requested the first respondent- bank to give at least three months time to regularise the loan amount. Nevertheless, the first respondent-bank proceeded to take symbolic possession of the secured assets on 22.09.2006, followed by a issue of sale notice on 11.10.2007 fixing the date of sale on 21.11.2006. The property was sold and the sale intimation was given to the petitioner on 23.11.2007. 3. On the ground that the provisions of Security Interest (Enforcement) Rules, 2002 were not followed in selling the property, the petitioner preferred S.A.No.168 of 2007 before the Debt Recovery Tribunal, Chennai. The Debt Recovery Tribual by order dated 3.12.2007, set aside the sale on the ground that there was no affixture on a conspicuous part of the immovable property, and hence for violation of Sub-rule (7) of Rule 8 of the Rules, the sale is liable to be set aside. Being aggrieved by the above order, the respondent-bank preferred an appeal before the Debt Recovery Appellate Tribunal in RA(SA) No.57 of 2008. The Appellate Tribunal by order dated 30.06.2008, found that inasmuch as the writ petitioner herein has not disputed the service of notice and compliance of Rule 9, no prejudice is caused in selling the property and consequently confirmed the sale. With that finding, the Debt Recovery Appellate Tribunal set aside of the Debt Recovery Tribunal. This order is put in issue in this writ petition. https://hcservices.ecourts.gov.in/hcservices/ 4. We have heard Mr.V.R.Kamalanathan, learned counsel appearing for the petitioner, Mr.S.Sethuraman, learned counsel appearing for the first respondent-bank and Mr.R.Baskar, learned counsel appearing for the second respondent. 5. As far as the facts are concerned, there is no dispute that the petitioner had availed CVPDL Loan of Rs.3 lakhs from the first respondent-bank and had defaulted in repayment of the loan, for which the first respondent-bank is entitled to bring the property for sale as a measure to recover the debts in terms of the provisions of the Act. Nevertheless, the provisions of the Act being very stringent, as it relates to the property right of the individual under Article 300-A, strict compliance of the provisions of the Act and the Rules are mandatory. In this context, we may refer to the relevant Rules which mentions the steps to be followed by the secured creditor while bringing the immovable secured asset for sale. 6. Rules 8 & 9 of the Security Interest (Enforcement) Rules, 2002 read as under:- 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. https://hcservices.ecourts.gov.in/hcservices/ (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; https://hcservices.ecourts.gov.in/hcservices/ (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. (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. https://hcservices.ecourts.gov.in/hcservices/ (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 authorized 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 claims 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. (8) On such deposit of money for discharge of the encumbrances, the authorised officer may 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. https://hcservices.ecourts.gov.in/hcservices/ (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." 7. As far as the compliance of the invitation of tenders from public, there is no dispute that the first respondent-bank had published the sale notice in two leading dailies. The question is whether the respondent bank should follow Sub-rule (7) of Rule 8, particularly when the Rule contemplates that 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 website of the secured creditor on the Internet. A reading of the Sub-rule shows that affixture on the conspicuous part of the immovable property is mandatory for the simple reason that the factum of secured asset being brought for sale should be known to the public, so that there will be large participation in the auction thereby the property could fetch better price. This further makes clear the intention of the legislator that the same Rule also empowers the Authorised Officer, if he deems fit, to put on the website of the secured creditor on the internet. The second portion of Sub-rule (7) of Rule 8 makes it clear that the purpose and object of the affixture on the conspicuous part of the immovable property is not only for the knowledge of the borrower or guarantor whose property is brought on sale, but also to the public at large to have knowledge of the sale, so that they could participate in the auction. 8. Mr.S.Sethuraman, learned counsel appearing for the first respondent-bank repudiate the said allegation. Learned counsel would further submit that nevertheless the non-compliance of Sub-rule (7) of Rule 8 would only be considered as irregularity in the sale, and not illegality, and for that purpose he relied upon a judgment of the Delhi High Court in the case of State Bank of India & Anr. v. Hon'ble Debts Recovery Appellate Tribunal & Others reported in CDJ 2010 DHC 804. There cannot be any dispute that sale cannot be set aside only on the ground of illegality. The judgment relied upon by Mr.Sethuraman, learned counsel is one under the provisions of the Civil Procedure Code. Incidentally, in the said judgment, the Court also had gone into the question as to the Rules applicable for sale are mandatory or not. A bare reading of Sub-rule (7) of Rule 8, in our considered view, appears that it is mandatory. In the judgment of Delhi High Court (supra) relied on by the learned counsel, it has been pointed out that sale cannot be set aside in the event no prejudice is caused to mortgagor. That https://hcservices.ecourts.gov.in/hcservices/ finding, in our view, was rendered in the context that exact amount of secured debt was not shown in the sale notice. But in the case on hand, it is the specific contention of the petitioner before the Debt Recovery Appellate Tribunal that the sale was conducted in contravention of the Rules and the bid was confirmed in favour of only one bidder, and there was fraud and collusion on the part of the bank officials. This being a serious allegation, it is for the bank to have responded by placing relevant materials to contend that not only the Rules have been strictly adhered to, but also there was no fraud or collusion as put forth by the petitioner herein. Except a bald denial, there was nothing on record to show that the bank has affixed notice in the conspicuous place of the immovable property. Mr.Sethuraman, learned counsel has made emphatic attempt to contend that in the absence of said ground raised before the Debt Recovery Appellate Tribunal, it cannot be said that the bank failed to respond to the same. Though we find some force in this contention, it cannot be said that the bank need not raise that as a ground before the Debt Recovery Appellate Tribunal while questioning the order of the Debt Recovery Tribunal. A careful reading of the memo of grounds of appeal before the Debt Recovery Appellate Tribunal also do not indicate as to the compliance of Sub-rule (7) of Rule 8, and particularly the allegation of collusion and fraud played by the officials of the bank in selling the property to only one bidder for a lesser price. This fact would constitute serious prejudice caused on the borrower in securing better price in the event, the affixture was made in the conspicuous place of the immovable property as mandated by Sub-rule (7) of Rule 8. Hence, the question of prejudice cannot be imparted on the facts of this case. The Delhi High Court Judgment (supra) relied on by the learned counsel appearing for the respondent-bank is distinguishable to the facts of this case. 9. For all the above reasons, we are of the considered view that non-compliance of Sub-rule (7) of Rule 8, which is mandatory, would render the sale invalid and accordingly, the sale is liable to be set aside and it is accordingly set aside. We are of the view that the Debt Recovery Tribunal has rightly set aside the sale, and the Debt Recovery Appellate Tribunal ought not to have interfered with the order of the Debt Recovery Tribunal. It is needless to mention that the respondent- bank is entitled to bring the property for sale by complying with the Rules. 10. The writ petition is allowed. No costs. Consequently, miscellaneous petition is closed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ Pv/- Copy to: 1. The Authorised Officer, Corporation Bank, Villupuram Branch, No.6, Nehruji Road, Villupuram – 605 602. 2. The Registrar, Debts Recovery Appellate Tribunal, 4th Floor, Indian Bank Building, Wellington Estate, Egmore, Chennai – 600 008. +1cc to Mr.S.Sethuraman, Advocate Sr 45330 +1cc to Mr.V.R.Kamalanathan, Advocate Sr 45313 SJ(CO) km/9.8. W.P.No.11337 of 2011 https://hcservices.ecourts.gov.in/hcservices/