IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 28TH SEPTEMBER 2010 / 6TH ASWINA 1932 WP(C).No. 37498 of 2007(L) ---------------------------------------- PETITIONER(S): ------------------------ 1. SHRI. VARGHESE UKKEN, AGED 60 YEARS, S/O. LONAPPAN, VILLA NO.15, SKY LINE HARMONY, NEAR SOUTH INDIAN HEAD OFFICE, THRISSUR. 2. LOUIS UKKEN, AGED 27 YEARS, S/O. VARGHESE UKKEN, RESIDING AT VILLA NO.15, SKY LINE HARMONY, NEAR SOUTH INDIAN HEAD OFFICE, THRISSUR. BY SRI.K.P.DANDAPANI, SENIOR ADVOCATE, BY ADV. SRI.PAUL MATHEW (PERUMPILLIL). RESPONDENT(S): --------------------------- 1. STATE BANK OF INDIA, REPRESENTED BY ITS SENIOR MANAGER, THRISSUR MAIN BRANCH, DHARMODAYAM BUILDING, ROUND EAST, THRISSUR-680 001. 2. ASSISTANT GENERAL MANAGER & AUTHORIZED OFFICER UNDER SECURITIZATION ACT, STATE BANK OF INDIA, THRISSUR MAIN BRANCH, DHARMODAYAM BUILDING, ROUND EAST,THRISSUR-680 001. 3. SHRI. ABOOBACKER, AGED 48 YEARS, S/O. K.V.HUSSAIN HAAJI, PANIKKAVEETTIL HOUSE, BLANGAD P.O., CHAVAKKAD TALUK, THRISSUR DISTRICT. 4. TAHSILDAR (REVENUE RECOVERY),THRISSUR, AYYANTHOLE,THRISSUR. 5. ADDL.COMMISSIONER OF INCOME TAX, DEPARTMENT OF INCOME TAX, PALAKKAD RANGE, PALAKKAD-14. 6. THE SUB REGISTRAR, OFFICE OF THE SUB REGISTRAR, DEPARTMENT OF REGISTRATION, THRISSUR, THRISSUR DISTRICT. R1 & R2 BY ADV. SRI.K.K.CHANDRAN PILLAI R3 BY ADVS.SRI.T.M.CHANDRAN, SRI.V.A.SASIDHARAN, SRI.JOSEPH ALBIN NEDUNTHALLY. R4 & R6 BY GOVERNMENT PLEADER SRI. V.K. SHAMSUDHEEN R5 BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES), SRI.GEORGE K. GEORGE, SC, IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 30/06/2010, THE COURT ON 28/09/2010 DELIVERED THE FOLLOWING: Kss WPC.NO.37498/2007 L APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF SALE NOTICE PUBLISHED IN MATHRUBHUMI DAILY ON 8/10/2007. P2: COPY OF OBJECTION DTD. 12/11/2007. P3: COPY OF ENCUMBRANCE CERTIFICATE. P4: COPY OF SALE CERTIFICATE BEARING NO.7989/2007. P5: COPY OF THE LETTER DTD. 26/11/2007. P6: PHOTOGRAPH SHOWING THE PRESENT CONDITION AND STATUS QUO OF THE PETITIONER'S HOUSE AS ON 05/09/2009. P7: PHOTOGRAPHS. RESPONDENT'S EXHIBITS & ANNEXURES: R1(A): COPY OF COMMON JUDGMENT DTD. 16/10/2006 IN WP(C) NOS.24586/06, 24587/06 AND 24763/06 OF THIS HON'BLE COURT. R1(B): COPY OF JUDGMENT DTD. 4/01/2007 IN WP(C) 34649/06 OF THIS HON'BLE COURT. R1(C): COPY OF INTERIM ORDER DTD. 14/03/2007 IN WP(C) 8572/07 OF THIS HON'BLE COURT. R1(D): COPY OF JUDGMENT DTD. 31/05/2007 IN WP(C) NO.8572/07 OF THIS HON'BLE COURT. R1(E): COPY OF JUDGMENT DTD. 1/08/2007 IN WP(C) 20787/07 OF THIS HON'BLE COURT. R1(F): COPY OF PUBLICATION MADE IN INDIAN EXPRESS DAILY DTD. 8/10/2007. R1(G): COPY OF LETTER DTD. 8/10/2007 ADDRESSED TO PETITIONERS 1 AND 2. R1(H): COPY OF ORDER IN WP(C) 33036/2007 DTD. 7/11/2007 OF THIS HON'BLE COURT. R1(I): COPY OF LETTER DTD. 10/11/2007 ADDRESSED TO THE PETITIONERS. R1(J); COPY OF ORDER DTD. 12/11/2007 ISSUED FROM THE INCOME TAX DEPARTMENT. R1(K): COPY OF ORDER DTD. 31/03/2008 IN WP(C) 33036/07 OF THIS HON'BLE COURT. R1(L): COPY OF ORDER IN THE CLAIM PETITION DTD. 22/09/2007 IN I.A.507/07 IN O.S. NO.106/05 OF THE SUB COURT, THRISSUR. R1(M): COPY OF JUDGMENT DTD. 9/02/2009 IN WP(C) 33036/2007 OF THIS HON'BLE COURT. Kss ..2/- ...2.... WPC.NO.37498/2007 L R3(A): COPY OF THE BUILDING PERMIT DTD. 17/08/2009. ANNEX-1: COPY OF THE INTERIM ORDER DTD. 14/03/2007 IN WP(C) NO.8572/07 OF THIS HON'BLE COURT. ANNEX-11: COPY OF THE JUDGMENT DTD. 1/08/2007 IN WP(C) 20787/07 OF THIS HON'BLE COURT. ANNEX-III: COPY OF THE ORDER DTD. 7/11/2007 IN WP(C) NO.33036/2007 OF THIS HON'BLE COURT. ANNEX-IV: COPY OF THE ORDER DTD. 31/03/2008 IN I.A.NO.4616/08 IN WP(C) NO. 33036/07 OF THIS HON'BLE COURT. /TRUE COPY/ P.S.TO JUDGE Kss (C.R.) P.R. RAMACHANDRA MENON J. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ W.P. (C) No. 37498 of 2007 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dated, this the 28th day of September , 2010 JUDGMENT Whether sale of the secured asset for the 'Reserve Price' fixed in respect of the property will stand vitiated, for not having obtained 'consent of the borrower/defaulter' by virtue of the 'second proviso' to Rule 9 (2) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules') is the primary question to be answered in this case. The incidental question is; whether interference is warranted, invoking the discretionary jurisdiction under Article 226 of the Constitution of India, in view of the several other Writ Petitions and proceedings filed earlier, wherein the challenge raised against allegedly inadequate 'reserve price' has been rejected; when the opportunities given to the defaulters to satisfy the liability in a phased manner have not been utilized and when the relief sought for availing alternate remedy under Section 17 of the SARFAESI W.P. (C) No. 37498 of 2007 : 2 : Act, by filing S.A. 49 of 2007 before the DRT, Ernakulam has been given up, causing the S.A. to be dismissed as withdrawn. 2. Before considering the question of law involved as aforesaid, it is necessary to encapsulate the factual matrix for the purpose of effective adjudication. The petitioners, father and son respectively, were running different establishments under different name and style. The first petitioner was running an establishment under the name and style as M/s Ukken Stores, while the second petitioner was running an establishment in the name and style as M/s Ukken Paper Marts. Both the petitioners were running, as partners, another establishment by name and style as M/s Ukken Paper and Boards. 3. In connection with the business transactions as above, the petitioners had borrowed various amounts (about Rs. 2 Crores), by way of 'cash credit facility' and 'term loan' from the first respondent Bank, creating security interest over the properties concerned. In the course of events, a total sum of Rs. 1.25 crores was paid and the account in respect of the establishment W.P. (C) No. 37498 of 2007 : 3 : by name M/s Ukken Stores was closed. But, since the petitioners continued to be defaulters in respect of the other establishments, the accounts were declared as 'NPA' and the Bank proceeded with steps under the SARFAESI Act, leading to issuance of notice under Section 13(2), way back in the year 2006 (22.6.2006). 4. Despite the several rounds of litigations and futile assurances given by the defaulters, the liability was not cleared, when the Bank was constrained to issue Ext. P1 notification on 08.10.2007, proclaiming the sale of the properties to be held on 09.11.2007. The petitioners preferred Ext. P2 statement of objections on 12.11.2007, pointing out some alleged defects with regard to the absence of proper/sufficient notice and also as to the omission to note the various encumbrances over the property. However, the sale was conducted on 09.11.2007 in favour of the 3rd respondent for a total sum of Rs. 1.65 crores, which was the 'reserve price' noted in Ext.P1 sale notification, as against the outstanding liability of Rs. 1,05,34,941/- with amounts due under W.P. (C) No. 37498 of 2007 : 4 : such other heads. The sale was confirmed and Ext. P4 sale certificate was issued, which is under challenge in this Writ Petition. 5. The respondent Bank has filed a statement, followed by a detailed counter affidavit, producing copies of the relevant documents to substantiate their stand and the course of events. The third respondent/successful bidder has also filed a counter affidavit pointing out the sequence of events and contending that the sale is not liable to be interfered under any circumstances. The fourth respondent/Revenue has filed a counter affidavit mainly with regard to the liability due to the State and the petitioners have filed a reply affidavit in respect of the counter affidavit filed by the respondents 1 and 2, re-iterating the contentions raised in the Writ Petition. 6. The learned counsel for the petitioners submits that, the sale conducted by the respondents 1 and 2 and the confirmation of the sale, issuing Ext. P4 sale certificate, are per se wrong and illegal in all respects, in so far as various provisions under the W.P. (C) No. 37498 of 2007 : 5 : relevant rules with regard to the sale have been caused to be violated, particularly with regard to the notice of 30 days to be given before sale. It is also stated that, much liability is there towards the State, in respect of the sales tax arrears and also to the Income Tax Department, by way of direct taxes. It is further pointed out that, there were some attachments over the property, (ordered by the concerned Civil Courts, in respect of different transactions) and these aspects, as shown in Ext. P3 'encumbrance certificate', were not disclosed in Ext. P1 sale notification and this being the position, the sale and all further proceedings are liable to be interfered with. It is also stated by the learned counsel that the 'second proviso' to rule 9 (2) of the Rules clearly stipulates that, if the authorized officer fails to obtain a price higher than the reserve price, sale is possible only with the consent of the borrower and the secured creditor. In the instant case, the property has been sold for Rs. 1.65 crores, which is the 'reserve price' itself and not a price higher than the reserve price and since the consent of the borrower has not been obtained, the W.P. (C) No. 37498 of 2007 : 6 : sale is stated as liable to be set aside, in view of the mandate under the 'second proviso'. It is contended that, since there is a statutory bar for effecting the sale for a price lesser than the reserve price, which is separately taken care of by virtue of the 'first proviso' to Rule 9 (2), the situation contemplated under the 'second proviso' specifying to obtain the consent of the borrower and the secured creditor, if the authorised officer is not in a position to procure higher price than the reserve price, is very much crucial and has to be given effect to. Since there is no case for the first and second respondents, that they had obtained the consent of the borrower as stipulated under the 'second proviso' to Rule 9 (2), the sale has to be set aside; submits the learned counsel. Reliance is also sought to be placed on the decision rendered by the Apex Court in Sundaram Pillai Vs. Pattabiraman (1985 (1) SCC 591) as to the scope of interpreting a 'proviso'. 7. With regard to the incidental aspects, the learned counsel for the petitioners submits that, the name of the village, W.P. (C) No. 37498 of 2007 : 7 : survey number, boundaries and such other particulars have not been correctly given in Ext. P1 sale notification, nor has it been correctly given in Ext. P4 sales certificate as well. Similarly, the factum of non-mentioning of the encumbrances in Ext. P1 sale notification; lack of proper/wide publication (but for the publication in only one daily) availability of only one bidder i.e 3rd respondent etc. are also pointed out as the reasons, seeking to set aside the sale. 8. The learned counsel for the first and second respondents/Bank submits that, there is absolutely no merit or bonafides in the contentions raised by the petitioners as to the alleged defects. It is contended that, the petitioners had pursued different rounds of litigations, at different points of time and many an opportunity was given to have the liability cleared by way of installments and otherwise including by way of private sale, in spite of which, no earnest effort was taken to utilize the same. It is also stated that, the only idea of the petitioners is to protract things somehow or the other. After approaching this Court and W.P. (C) No. 37498 of 2007 : 8 : losing the battle (and also not complying with the condition imposed with regard to the deposits ordered to be made), the petitioners chose to approach the DRT, invoking the statutory remedy available under Section 17 of the SARFAESI Act, by filing S.A. No. 49 of 2007, which was also finally dismissed as withdrawn. It is thereafter, that the petitioners have turned up before this Court again, which cannot but be deprecated, more so, in view of the categoric observations made by this Court, on an earlier occasion, while declining interference, but granting time to clear the liability on or before 15.09.2007, as per the judgment dated 01.08.2007 in W.P. (C) 20787 of 2007 [Annexure R1 (e)]; however sparing the cost for the time being. 9. With regard to the alleged discrepancies as to the omission to show the encumbrances in Ext. P1 sale notice, it is stated that, absolutely no prejudice has been caused to the petitioners in this regard and that, by virtue of the subsequent turn of events, since the petitioners did not satisfy the conditions imposed by this Court, in the concerned Writ Petition/I.As., the W.P. (C) No. 37498 of 2007 : 9 : sale price procured was apportioned and the liability to the State towards sales tax arrears has also been cleared by the Bank, which is liable to be set off against the sale price. It is pointed out that, the alleged mistakes with regard to the name of village/survey number in respect of the properties concerned (which actually consists of two items), have not caused any loss or prejudice to the petitioner. With regard to the absence of proper notice and as to the fixation of 'reserve price', it was submitted, with reference to the contents of the counter affidavit and the materials on record that, the notice of sale was issued in conformity with the statutory prescription and that the 'reserve price' was fixed after getting the 'valuation report' as prescribed and that there was no infringement of any statutory prescription in this regard. With regard to the alleged violation of the 'second proviso' to Rule 9 (2), it is contended that the contention of the petitioners is rather 'hyper technical' and is contrary to the Scheme of the Statute. 10. The learned counsel appearing for the 3rd respondent W.P. (C) No. 37498 of 2007 : 10 : submits that, the 3rd respondent has acted in tune with the notification issued by the respondents 1 and 2 and parted with the money to an extent of Rs. 1.65 crores. After effecting the necessary modifications to the building, on the strength of valid permit issued by the local authority, the 3rd respondent is stated as enjoying the same, which is not liable to be intercepted under any circumstances. The challenge raised against the sustainability of the sale and also as to the alleged infringement of the statutory prescriptions, are seriously opposed from the part of the said respondent as well. It was also pointed out by the learned counsel that, the orders/verdicts passed by this Court in the connected/incidental proceedings have never been violated by the said respondent causing to demolish the building or to cause any damage, so as to reduce the value of the building and on the other hand, has acted only in conformity with the permitted extent, effecting the constructions/modifications at the cost and risk of the said respondent as ordered by a Division Bench of this Court vide judgment dated 25.05.2009 in W.A No. 955 of 2009, on the W.P. (C) No. 37498 of 2007 : 11 : strength of the permit issued by the local authority; which is stated as virtually contributing more value to the building/asset. 11. Heard the learned Government Pleader, who appeared on behalf of the other respondents as well. 12. Going by the sequence of events, as observed earlier, the petitioners had availed different loans from the respondent Bank, on the strength of security interest created over two different items of properties and when the petitioners turned to be defaulters, there was no other alternative for the Bank, but to declare the accounts as N.P.A. and to proceed with further steps under the SARFAESI Act, issuing notice under Section 13 (2) of the Act on 22.6.2006. The petitioners immediately rushed to this Court by filing W.P. (C) Nos. 24586 of 2006, 24587 of 2006 and 24763 of 2006, in respect of the three different concerns and all the three cases were disposed of as per Annexure R1 (a) judgment dated 16.10.2006, whereby the petitioners were directed to deposit a sum of Rs. 20 lakhs, 10 lakhs and 5 lakhs respectively and to approach the Bank by filing representations W.P. (C) No. 37498 of 2007 : 12 : seeking for appropriate accommodation for payment of the balance amount. The petitioners did not satisfy the amount as ordered above and filed an I.A. for extension of time, which was allowed. Since the amounts were not satisfied, even after the extension of time as aforesaid, the Bank proceeded with further steps and took possession of the properties on 02.12.2006, when the petitioners approached this Court again, by filing W.P. (C) 34649 of 2006. As borne by Ext. R1 (b) judgment, interference was declined, observing (in opening sentence itself) that, the Writ Petition was not maintainable, the petitioner having already approached this Court, in respect of the same subject matter and suffered a judgment, however making it clear that, it was without prejudice to approach the Bank directly. Still, the petitioners did not choose to liquidate the liability, by approaching the Bank, proposing any concrete measures as to the repayment; under which circumstances, the sale was notified to be held on 15.3.2007. This made the petitioners to file another Writ Petition (W.P(C) 8572 of 2007) wherein Ext. R1 (c) interim order was W.P. (C) No. 37498 of 2007 : 13 : passed, directing the petitioners to remit a sum of Rs. 35 lakhs on or before 30.03.2007 and a further sum of Rs. 15 lakhs on or before 12.4.2007, holding that the impugned step shall not be proceeded further till 30.6.2007, and that, if there was any default, the benefit granted as per the interim order would stand automatically withdrawn. Since, no payments were effected as ordered in Ext. R1 (c), interference was declined in the Writ Petition and it was later dismissed as per Ext. R1(d), however, without prejudice to the rights of the petitioners to avail the statutory remedy under Section 17 of the Act. 13. Pursuant to Ext. R1 (d) verdict, the petitioners approached the DRT, Ernakulam, by filing S.A. 49 of 2007, challenging the steps taken under the SARFAESI Act. During the pendency of the above proceedings, the petitioners chose to approach this Court again by filing W.P.(C) 20787 of 2007, stating that the DRT was not sitting and obtained an interim order of stay. The matter was heard finally on 01.08.2007 and observing that it W.P. (C) No. 37498 of 2007 : 14 : was the '6th Writ Petition' filed by the Writ Petitioner, without mentioning anything about the earlier Writ Petitions except 'one' and also about the petitioners' failure to comply with the directions issued by this Court, interference was declined. However, taking note of the persuasive submissions on behalf of the petitioners that the petitioners would immediately arrange 'private sale', it was held that the auction could be pursued by the Bank only after 15.9.2007, if the petitioners failed to satisfy the liability in the meantime. Taking note of the turn of events and the various opportunities granted at different points of time, it was clearly observed and ordered that the petitioners should not be allowed to drag the matter before the DRT and that the petitioners were being spared from payment of 'cost' for the time being, making it clear that, if they ventured into untenable litigations, they should be made to pay heavy cost. In spite of the said verdict, as borne by Ext. R1 (e), the petitioners did neither satisfy the liability, nor make any arrangement to have the property to be sold by way of private sale. Subsequently, the S.A. 49 of 2007, preferred by W.P. (C) No. 37498 of 2007 : 15 : the petitioners before the DRT, Ernakulam availing the alternate remedy under Section 17 of the Act was sought to be withdrawn and accordingly, the same was dismissed as withdrawn on 03.09.2007, based on the endorsement made by the learned counsel for the petitioners who was appearing before the Tribunal. 14. In the above circumstances, the 'reserve price' was fixed as Rs. 1.65 crores, based on the valuation report and fresh proceedings were taken to have the properties sold by issuing Ext. P1 sale notice dated 08.10.2007. The said notification was published in the 'Indian Express Daily' and 'Mathrubhoomi' Daily dated 08.10.2007 as borne by Exts. R1 (f) and R1(g). As it stands so, the contentions raised by the petitioners that Ext. P2 sale notice was published only in 'one Daily' and that there is violation of the statutory prescription in this regard does not hold any water at all. 15. While so, one of the alleged creditors of the petitioners, a Chitty/Kuri Company, who had filed some civil suit for recovery of W.P. (C) No. 37498 of 2007 : 16 : the due amount, had approached this Court by filing W.P (C) 33036 of 2007 to adjourn the sale scheduled on 09.11.07. This Court passed Ext. R1(h) interim order, making it clear that the sale could go on; however the sale proceeds were ordered to be kept in tact, subject to further orders to be passed as to the appropriation. 16. The sale was conducted on 09.11.07, as scheduled and on the very next day, the petitioners were informed of the position as per Ext. R1 (i) communication, sent by registered post, enabling them to redeem the property by liquidating the dues, including interest/expenses payable to the successful bidder, within 15 days, as specified, which however evoked no response. It was in the said circumstances, that the sale was confirmed in favour of the 3rd respondent and Ext. P4 sale certificate was issued. 17. Meanwhile, the Income Tax Department had issued Ext. R1 (j) dated 12.11.07 as to the liability of the petitioners to an extent of Rs. 34 lakhs, which was sought to be cleared. The W.P. (C) No. 37498 of 2007 : 17 : State Government had also put in a claim of Rs.4,26,855/- towards the sales tax arrears. The position was immediately let known to the petitioners; more so, since the respondent Bank was not in a position to satisfy the said liability from the sale price, in view of Ext. R1 (h) interim order passed by this Court in the Writ Petition filed by the Chitty Co. In the said circumstances, the Bank filed I.A. 4616 of 2008 in the said case, wherein Ext. R1 (k) order was passed on 31.03.2008, directing to keep a sum of Rs. 43,26,885/- in a separate account (in respect of the liability to the Income Tax Department and the State) and permitted the Bank to appropriate the balance amount towards the liability of the defaulters. 18. While so, the Bank approached the concerned Civil Court, in the suit filed by the Chitty Company (Petitioner in W.P. (C) 33036 of 2007) and on substantiating the factual and legal position, the attachment was lifted, holding that, the Bank was having the 'first charge' over the property. On bringing the above factual position to the notice of this Court, W.P.(C) 33036 of 2007 W.P. (C) No. 37498 of 2007 : 18 : filed by the Chitty Company was disposed of as per Ext. R1 (m) judgment dated 09.02.2009, making it clear that, the Bank was free to appropriate the amount in deposit, also recording the submission that the liability towards the Income Tax Department and the Sales Tax Department had already been cleared - though there is an averment in paragraph 2 of the counter affidavit filed by the 4th respondent in the present Writ Petition that a further sum of Rs.14,514/- plus interest and collection charges is still due to be realized, for which a letter dated 25.3.2010 has been issued to the Bank in this regard. 19. Going by the sequence of events, as narrated above and also in view of the specific observations made by this Court in Ext. R1 (e) judgment in W.P.(C) 20787 of 2007, no further interference is warranted, exercising the discretionary jurisdiction of this Court, under Article 226 of the Constitution of India. The alternate remedy availed by the petitioner under Section 17 of the Act, filing S.A. 49 of 2007 in