HON’BLE SRI JUSTICE GHULAM MOHAMMED AND HON’BLE SRI JUSTICE K.G. SHANKER W.P. No. 3051 of 2011 DATED: 13.04.2011 Between: Parvathi .. Petitioner And 1. Indian Bank 2. M/s.Calibre Advertisers Pvt. Ltd. 3. Mr.Anjaneyulu Gupta .. Respondents O R D E R:- (Per Hon’ble Sri Justice Ghulam Mohammed) The petitioner asserts that the 2nd respondent – M/s.Calibre Advertisers Private Limited, which is engaged in the business of advertisement, availed certain credit facilities from the 1st respondent – Indian Bank, for which the petitioner stood as guarantor for an amount of Rs.30.00 lakhs by offering her immovable property i.e. house bearing H.No.8-3-229/D/1/15, Mega City No.135, situated at Sravanthi Nagar, Venkatagiri, Yousufguda, Hyderabad, which is worth more than Rs.8.00 crores. While so, it is stated that as the 2nd respondent, the principal borrower, defaulted in repayment of the loan, the Authorized Officer of the 1st respondent-Bank, issued a notice dated 18.08.2009 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity “the SARFAESI Act”) to the petitioner demanding her to pay an amount of Rs.1,53,89,878/- which was outstanding as on 31.07.2009, within a period of 60 days. As the petitioner did not pay the outstanding amount, within the stipulated time, the 1st respondent- Bank issued Possession Notice dated 20.11.2009 indicating that he has taken possession of the schedule property belonging to the petitioner. Thereafter, the 1st respondent issued Auction Sale Notice dated 18.10.2010 which was published on 19.10.2010 in Andhra Jyothi Telugu Daily proposing to hold auction on 20.11.2010 whereby the reserve price for the sale of the petitioner’s property was fixed at Rs.71,83,400/-. It is further stated that before the auction proceedings, the petitioner offered to pay Rs.10.00 lakhs promising to pay the balance amount of Rs.62.00 lakhs within a period of 1 to 2 months, but the 1st respondent, in collusion with the 3rd respondent, ignored her request and conducted auction on 20.11.2010 wherein the 3rd respondent became the successful bidder at a meager price of Rs.71,83,400/-. It is further stated that the present market value of the schedule property is Rs.3.00 crores and the Government registration value is Rs.1.10 crores, but the 1st respondent-bank has fixed the reserve price at Rs.71,83,400/- only. Now, the grievance of the petitioner is that though she offered to pay Rs.10.00 lakhs even before the auction proceedings were conducted, the 1st respondent-bank, without considering her request, issued the Auction Sale Notice dated 19.10.2010, which according to the petitioner, is illegal. Challenging this Notice, the petitioner has filed the present writ petition. The 1st respondent-Indian Bank filed counter inter alia denying the averments made in the affidavit filed in support of the writ petition and stated that the 1st respondent-Bank obtained valuation of the property from the approved valuer as prescribed under the SARFAESI Act, and based on the valuation report, fixed the reserve price at Rs.71,83,400/-. It is stated that the 1st respondent – bank issued a demand notice dated 18.08.2009 under Section 13(2) of the Act, which was duly served on the writ petitioner. When she failed to discharge the liabilities as demanded, this respondent issued Possession Notice on 20.11.2009. Challenging the Possession Notice, the writ petitioner filed W.P. No. 25941 of 2009, which was dismissed by this Court, by order dated 08.12.2009 giving liberty to the petitioner to avail alternative remedy of appeal available under Section 17 of the SARFAESI Act. The 2nd respondent and another filed S.A. No.336 of 2009 on the file of the Debts Recovery Tribunal, Hyderabad challenging the possession notice, but the Tribunal dismissed the appeal, by order dated 26.08.2010, and that order as become final as the 2nd respondent has not challenged the order of the Tribunal. Subsequently, the 1st respondent issued proclamation of sale of the property by way of auction to be conducted on 20.11.2010. At that juncture, the petitioner filed another writ petition in W.P. No. 26918 of 2010 seeking to declare the Auction Sale Notice, dated 18.10.2010 as arbitrary and illegal, and this Court dismissed the same following the judgment of the Hon’ble Supreme Court with a liberty to approach the D.R.T. under Section 17 of the SARFAESI Act. Further, the 2nd respondent also filed a writ petition in W.P. No. 30827 of 2010 seeking to set aside the auction conducted on 20.11.2010, however the same was dismissed. The petitioner, suppressing all the above facts, filed the present writ petition. It is further averred that the petitioner has never approached the 1st respondent-bank for any settlement nor has paid any amount towards repayment of the loan. The 1st respondent issued a sale certificate in favour of the 3rd respondent in accordance with the provisions of Section 13(8) of the SARFAESI Act and the petitioner is not entitled to challenge the action of the Bank as she failed to redeem the mortgage before the date of the auction. The 3rd respondent filed counter affidavit inter alia stating that when the auction of the property was confirmed on 20.11.2010 in his favour, and after the entire auction amount was already paid by him, the petitioner cannot be permitted under any law to deposit the auction amount of Rs.71,83,400/- within a period of four to eight weeks, and there are no bona fides on her to file this writ petition. Sri B. Purushotham Reddy, learned counsel for the petitioner, has vehemently contended that only two bidders participated in the auction, and as per the valuation certificate dated 06.02.2007 issued by the Approved Valuer, the property was assessed at Rs.1,04,65,000/-, but the 1st respondent-Bank fixed the reserve price for the schedule property at Rs.71,83,400/- which is contrary to the valuation certificate, and the entire transaction is not bona fide transaction. He has further contended that once the petitioner gave a hand-written letter on 09.11.2010 requesting the 1st respondent-Bank to grant time to pay the entire amount, they ought not to have proceeded with the auction on 20.11.2010, and this itself shows that they hurriedly proceeded with the sale, as such, the Auction Sale Notice dated 18.10.2010 which was published on 19.10.2010 in Andhra Jyothi Telugu Daily and the subsequent auction conducted on 20.11.2010 are illegal, as such, he prays to set aside the Notice and consequential auction proceedings. In support of his contentions, has relied upon the judgment rendered by the Supreme Court in Divya Manufacturing Company (P) Ltd. v. Union Bank of India[1] wherein it is held to the following effect: “In our view, on facts, it is apparent that the Division Bench of the High Court has considered all the relevant facts including the fact that at the initial stage, the appellant “Divya” offered only Rs.37 lakhs to purchase the properties. That means, the appellant wanted to purchase at a throwaway price. Thereafter, at the intervention of the Court, the price was increased to Rs.1.3 crores by the appellant. This indicates that the appellant was keen to purchase the property, however by paying only the base minimal amount and to take advantage of sale by the Liquidator in the hope that if there are no other purchasers, it would purchase the Company at a price which is abnormally below the market price. It is also true that on 02.07.1998, the offer made by the appellant was accepted and it was ordered that sale in its favour be confirmed, but at the same time, before possession of the property could be handed over, or before the sale deed could be executed in its favour, respondents 7 and 8 pointed out that the assets and properties could be sold at Rs.2 crores. For showing their bona fides, they were directed to deposit Rs.40 lakhs each and also to pay Rs.70 thousand each as damages to the appellant. Further, the application for setting aside the sale was filed within a few days of the order accepting the bid of the appellant. In this set of circumstances, when correct market value of the assets was not properly known to the Court and the sale was confirmed at a grossly inadequate price, it was open to the Court to set it at naught in the interest of the company, its secured and unsecured creditors and its employees. In Gordhan Das Chuni Lal Dakuwala v. T. Sirman Kanthimathinatha Pillai (AIR 1921 Mad 286) it was observed that where the property is authorized to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed is the best that could be expected to be offered. That is because the Court is the custodian of the interests of the company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the company and its creditors as well. This principle was followed in Ratnasami Pillai v. Sabapathy Pillai and S.Soundararajan v. Khaka Mahomed Ismail Saheb of Roshan & Co. In A.Subbaraya Mudaliar v. K.Sundararajan it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud” From the aforesaid observation, it is abundantly clear that the court is the custodian of the interests of the company and its creditors. Hence, it is the duty of the court to see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. As stated above, in the present case, the sale proceedings have a chequered history. The appellant started its offer after having an agreement with the Employees’ Samity for Rs.37 lakhs. This was on the face of it under bidding for taking undue advantage of court sale. At the intervention of the learned Single Judge, the bid was increased at Rs.85 lakhs. Subsequently, before the Division Bench, the appellant increased it to Rs.1.30 crores. At that stage, respondent 7 “Sharma” was not permitted to bid because it had not complied with the requirements of the advertisement. It is to be stated that on 26.06.1998, the Division Bench has ordered that offers of Eastern Silk Industries Ltd. and Jay Prestressed Products Ltd. would only be considered on 02.07.1998 and confirmation of sale would be made on the basis of the offers made by the two parties. Further, despite the fact that the appellant “Divya” had withdrawn its earlier offer, the Court permitted it to take part in making further offer as noted in the order dated 02.07.1998. In this set of circumstances, there was no need to confine the bid between three offerors only. He has also relied upon a judgment rendered by the Supreme Court in Shalimar Cinema v. Bhasin Film Corporation[2] wherein it is held thus: “Material irregularity or fraud in publishing or conducting” auction sale of immovable property – Auction proceedings adjourned by auctioneer after receiving some bids but without announcing the next date for continuing the auction – Sale concluded on a later date in which previous bidders failing to participate being unaware of the date – Final bid accepted by the auctioneer inadequate for the property – Held on facts, fraud perpetrated by decree-holder and auction purchaser on appellant judgment-debtor – Hence, sale held on the subsequent date set aside.” In the view that we propose to take on the second question, we do not consider it necessary to express our view on the first question. But we do wish to say that the court has a duty to see that the requirements of Order 21 Rule 66 are properly complied with. In the words of the Judicial Committee, “In sales under the direction of the court, it is incumbent on the court to be scrupulous in the extreme”. Though it may not be necessary for the court to make a valuation and enter it in the sale proclamation in every case, it is desirable at least in cases of sale of valuable property that the court make its valuation and enter it in the sale proclamation. We think it necessary to add that no action of the court or its officers should be such as to give rise to the criticism that it was done in an indifferent or casual way. We are constrained to make these observations because it was found by the learned Single Judge in the present case that there actually was no application under Order 21 Rule 66 and that the sale proclamation was prepared in a routine fashion. Having said this much, we now proceed to consider the second question. The bid list prepared by the court auctioneer on August 29, 1977 shows that each of the bidders who participated in the auction on August 29, 1977 put his signature against the bid offered by him. For example, Sardar Charanjit Singh, who at one stage offered a bid of Rs.1,70,000/- and later raised it to Rs.2,50,000 and again to Rs.2,90,000 has put his signature at three places against the three bids offered by him. Similarly, Gian Chand Sharma, who originally offered a bid of Rs.1.00 lakh and later raised it to Rs.2.00 lakhs has put his signatures at two places and Tejwant Singh, who initially offered a bid of Rs.1,80,000/- and later raised it to Rs.2,80,000/- has put his signature at two places against the bids offered by him. At the end of the document, there is to be found a note by the court auctioneer stating, “It is one o’clock, considering that some good bids may come, the auction will be continued on September 1, 1977 from 10.00 a.m. to 1.00 p.m.” It is seen that the bidders who participated in the auction on August 29, 1977 put their signatures against the respective bids offered by them, but not at the end of the document. If the signatures had been put at the end of the document, it would have established that the court auctioneer had indeed announced that the auction was adjourned to September 1, 1977. The question whether the sale was adjourned to September 1, 1977 and announcement made on the spot on August 29, 1977 was expressly raised and put in issue. One would have thought that the auction purchaser would have called the court auctioneer as a witness on his behalf to prove the statement contained in the bid list. The auction purchaser refrained from calling him as a witness on his behalf. On the other hand there is one telling circumstance in favour of the case put forward by the judgment debtors. We find from a perusal of the bid lists prepared on August 29, 1977 and September 1, 1977 that as many as eight persons participated in the auction on August 29, 1977 and offered their bids while only four persons participated in the auction on September 1, 1977 and offered their bids, and what is more important, not one of the eight persons who offered their bids on August 29, 1977 was present to offer his bid on September 1, 1977. It is a very curious and significant circumstance. It could not be that those persons who exhibited the desire to purchase the property on August 29, 1977 en masse decided no to participate in the auction on September 1, 1977. In our opinion, the legitimate inference to be drawn from the circumstance is that the bidders who participated in the auction on August 29, 1977, were not aware that the auction was being continued on September 1, 1977. This could only be if as alleged by the judgment debtors there was no announcement on August 29, 1977 by the court auctioneer that the auction would be continued on September 1, 1977. One of the bidders, who participated in the auction August 29, 1977, was examined as a witness by the judgment debtors. His bid was in fact the highest bid that was offered on August 29, 1977. He stated in his evidence that after he made his bid for Rs.2,90,000, he was informed that the time for the auction was over and that the auction would be held again after notice for the same was published in the newspaper. He said, “My last bid was for Rs.2,90,000/- when I was informed that as the time is over, the auction would be re-held after notice for the same as published in the newspaper. I do not remember whether the date for the next auction was announced on that day or not. The auctioneer who was present there had told the bidders that as the time was over, the sale will be held at a later date after notice for the sale is published”. Relying on the sentence that he did not remember whether the date of the next auction was announced on that date or not, it was sought to be made out that the witness was prevaricating and that an announcement must have been made on that very date about the next date of auction. We do not think that there was any attempt by the witness to prevaricate. What the witness meant was made very clear in the very next sentence when he stated that the auctioneer told the bidders that the sale would be held at a later date after the notice for the sale was published. When he was further questioned in cross-examination, he stated. “Thereafter we were talking amongst ourselves about the next date on which the auction was to be held. However, the next date was not announced. I had come to know about the auction to be held on August 29, 1977 from the publication in the newspaper as well as from my personal friends… The next date was not informed to me by Mr.Suraj Prakash. It is wrong to suggest that the auctioneer had announced the date after the bidding was over on August 29, 1977… In fact, no date was announced on that date”. The evidence of this witness is strongly supported by the circumstance already noticed by us that none of the bidders who participated in the auction on August 29, 1977, participated in the auction on September 1, 1977. There is no conceivable reason as to why this witness who was the highest bidder on August 29, 1977 should have refrained from participating in the auction on September 1, 1977. The evidence of this witness is practically unrebutted since neither the auctioneer nor any of the bidders who participated in the auction on August 29, 1977 was examined on behalf of the auction purchaser. The auction purchaser examined himself and stated that he was present at the auction on August 29, 1977 and that at that time, the auctioneer announced that the auction would be continued on September, 1, 1977. We do not have the slightest doubt that he is not a truthful witness. He was unable to explain why he did not offer any bid if he was present at the auction on August 29, 1977. He was also unable to give the name of a single person who offered a bid on August 29, 1977.” Sri Ambadapati Satyanarayana, learned counsel appearing for the 1st respondent-Indian Bank, has strenuously contended that the 2nd respondent - principal borrower filed W.P. No.30827 of 2010 seeking to set aside the auction, but it was dismissed. However, the petitioner herein filed W.P. No. 25941 of 2009 and 26918 of 2010 seeking similar reliefs as sought for by the 2nd respondent, and these writ petitioners were also dismissed, as such, the present writ petition, which is filed with similar prayer, is not maintainable, and the action of the Indian Bank in conducting the auction is fair and reasonable and the same cannot be interfered with. The learned counsel for the 1st respondent, in order to fortify his contention, has relied upon a judgment delivered by the Supreme Court in Mardia Chemicals Ltd. Vs. Union of India[3] wherein it is held as follows: “However, to a very limited extent, the jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India, namely, V. Nrasimhachariar (AIR at pp. 141 and 144, a judgment of the learned Single Judge where it is observed as follows in para 22: (AIR p. 143) “22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are two-fold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent or improper contrary to the terms of the mortgage. But the pleadings in an action of restraining a sale by mortgagee must clearly disclose a fraudulent irregularity on the basis of which relief is sought: Adams vs. Scott ((1859) 7 WR 213, 249). I need not point out that this restraint on the exercise of the power of sale will be exercised by courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely.” He has further relied upon a judgment of the Apex Court in Authorised Officer, Indian Overseas Bank & Anr. V. M/s. Ashok Saw Mill[4] wherein it is held as under: “The intention of the legislature is, therefore, clear that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under Sub-Section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The Legislature by including Sub-Section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Altaf Ahmed that the DRT has no jurisdiction to deal with a post 13(4) situation, cannot be accepted. The dichotomy in the views expressed by the Bombay High Court and the Madras High Court has, in fact, been resolved to some extent in the Mardia Chemicals Ltd. case itself and also by virtue of the amendments effected to Sections 13 and 17 of the principal Act. The liberty given by the learned Single Judge to the appellants to resist S.A. No.104 of 2007 preferred by the respondents before the DRT on all aspects was duly upheld by the Division Bench of the High Court and there is no reason for this Court to interfere with the same.” The learned counsel for the