IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE THIRTIETH DAY OF JUNE TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE GHULAM MOHAMMED and THE HON'BLE MR JUSTICE VILAS V. AFZULPURKAR WRIT PETITION NO : 5519 of 2008 Between: 1 Mohd.Abdul Rehman S/o.Late Shake Abdul Azeez R/o.D.No.43-12- 11 Subblakshmi Nagar New Colony Visakhapatnam 2 Ch.Nageswara Rao S/o.Kondala Rao R/o.D.No.40-14-19 Dharma Nagar Koncherapalem Visakhapatnam 3 Enti Venkateswara Rao S/o Late Narasimhulu R/o.Kancherpalem Visakhapatnam 4 Maddela Kondaiah S/o.late Kondaiah R/o.D.No.21-20/12 Kaveri Nagar N.A.D Kotha Road Visakhapatnam 5 Sri Gudipudi Govashowri S/o.Late Balashowri R/o.Qtr No.P2-35/1 N.A.D Colony Visakhapatnam 6 Sri P.Dilleswara Rao, S/o.Somaiah, R/o.D.No.21-95 Kakani Nagar N.A.D Colony Visakhapatnam Dist ..... PETITIONER(S) AND 1 The State of India Rep.by its Manager Stressed Resolution Centre Siripuram Junction Visakhapatnam 2 State Bank OF India Rep.by its Branch Manager,BHPV Branch Visakhapatnam .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to to issue writ order or direction more particularly one in the nature of writ of Mandamus or any other appropriate writ,declaring the action of the respondents in conducting the auction on 13-03-2008 in pursuance of the Auction Notice dt.06-3-2008 published on 7-3-2008 in Andhra Prabha news is illegal arbitrary and in violation of principles of natural justice and in violation of the Provisions of the Sarfaesi Act 2002 and consequently set aside the Auction Notification dt.06-3-2008 for the properties of the petitioners mentioned there under and pass Counsel for the Petitioners: MR.T.D.PANI KUMAR Counsel for the Respondents: MR.DEEPAK BHATTACHARJEE The Court made the following : THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE VILAS V. AFZULPURKAR W.P.No. 5519 of 2008 ORDER: (Hon’ble Sri Justice Ghulam Mohammed) 1. This writ petition is filed assailing the action of the respondents in conducting the auction on 13.3.2008 in pursuance of the auction notice dated 6.3.2008 published on 7.3.2008 in Andhra Prabha news paper is illegal., arbitrary and in violation of principles of natural justice and provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the Act”) and consequently set aside the auction notification dated 6.3.2008 for the properties of the petitioners mentioned therein. 2. There are six petitioners who availed home loan facility from the respondent-bank. According to the petitioners, all of them purchased different flats in Visakhapatnam by borrowing home loans from the respondent-bank and mortgaged their properties with the respondent-bank and they had to repay the home loan in monthly instalments. It is alleged that although the construction of flats was completed and registered sale deeds were executed in favour of the petitioners, but the builder of the apartment has not handed over the possession of the flats to them. Therefore, they filed cases before the District Consumer Forum at Visakhapatnam and they are pending and thus there was a dispute between the petitioners and their vendor and developer. It is submitted that the 2nd respondent filed different suits against the petitioners in a civil court for recovery of the loan amounts and criminal cases against the petitioners under Section 138 of the Negotiable Instruments Act by mis-utilising the blank cheques that were given by the petitioners at the time of availing the home loans. Apart from those civil and criminal proceedings, the respondent-bank initiated the proceedings under the Act by issuing notices under Section 13 (2) of the Act. It is alleged that the petitioners informed the respondent-bank that they were not in possession of the properties as the builder has not handed over the possession to them, even then the respondent-bank issued possession notices on 9.3.2007 and thereafter on 22.3.2007 the 1st respondent issued a sale notice to the petitioners under Section 13 (4) of the Act. It is submitted that the petitioner approached the respondent- bank and expressed their willingness to pay the loan amount, but the respondent- bank in collusion with the builder intended to sell the properties in auction. While the matter stood thus, the respondents issued a paper publication on 7.3.2008 in Andhra Prabha, Visakhapatnam edition proposing to sell the properties on 13.3.2008. The said publication was issued by the respondents without prior notice to the petitioners as contemplated under Rule 8 (6) and Rule 8 (5) of the Security Interest Enforcement Rules, 2002. 3. This Court, on 13.3.2008, while issuing notice before admission, passed an interim order directing that the proposed auction may go on, but let it be not confirmed for the next three weeks. 4. The respondents filed their counter contending that demand notice under Section 13 (2) of the Act was issued on 9.1.2007 to the petitioners, but the petitioners did not choose to give a reply and did not come forward to liquidate the liability. In view of the same, the respondent-bank issued notice under Section 13 (4) of the Act on 9.3.2007 and subsequently sale notice. On 13.3.2008, 18 flats out of 24 were sold and for the remaining 6 flats the auction could not be conducted because of the stay granted by this Court. However, the auction took place after expiry of the stay granted by this court and 25% of the sale consideration was paid on the date of auction and sale confirmation letter was issued in favour of auction purchasers. It is submitted that all the petitioners have committed default in repayment of the regular monthly instalments to the bank and despite several reminders, they allowed their accounts to be classified as NPAs. 5. The learned counsel for the petitioners submitted that the petitioners have orally requested the respondent-bank to grant one time settlement so as to enable them to repay the home loan amount, but the respondent-bank went ahead in conducting the sale and no notice was given to them before publication of auction notice as contemplated under Rule 8 (6) and Rule 8 (5) of the Security Interest Enforcement Rules, 2002 and as such the auction notice is not sustainable. He submitted that even now the petitioners are ready to agree for one time settlement and repay the entire home loan amounts, if sufficient opportunity is given to them. 6. The learned standing counsel for the respondents contended that notices under Sections 13 (2) and (4) of the Act were issued and served on the petitioners and since they failed to give any reply and they have committed default in payment of regular monthly instalments, possession notice was issued and thereafter auction notice was issued. He submitted that sale of properties was conducted thrice as the highest bid amount was less than the upset price and subsequently they were able to sell the flats except the six flats which are subject matter of this writ petition because of the stay granted by this Court, however those six flats were also sold in public auction after expiry of the stay and 25% of the sale consideration was paid on the date of auction and sale confirmation letter was issued in favour of auction purchasers. He also submitted that prior notice under Rule 6 (6) and Rule 8 (5) of the Security Interest Enforcement Rules, 2002 is of no relevance as no further notice is contemplated under Section 13 (4) of the Act. 7. In view of the pleadings and submissions of the learned counsel for the parties, the point for consideration is whether the petitioners can be shown any indulgence in this matter? 8. It is submitted that as in 2007 the following home loan amounts are due from the petitioners, 1st petitioner - Rs.7.35 lakhs 2nd petitioner - Rs.6.28 lakhs, 3rd petitioner - Rs.6.88 lakhs, 4th petitioner - Rs.5.54 lakhs, 5th petitioner - Rs.5.63 lakhs, 6th petitioner - Rs.5.56 lakhs. 9. It is to be noted that on account of default committed by the borrowers, the respondent-bank has proceeded further by taking appropriate measures under section 13 (4) of the Act by auctioning the secured assets of the petitioners. It is represented by the learned standing counsel for the respondents that in the said auction the highest bidders have deposited 25% of the bid amount, but on account of pendency of these proceedings, neither the balance amount is deposited by the auction purchasers nor the sale could be confirmed. The petitioners asserted that on account of actions of their builder, their properties were put to auction and they have already instituted appropriate cases under Consumer Protection Act against the builder. Apart from that, the petitioners have also offered to repay the entire outstanding amount to the respondent-bank. With a view to protect the interest of the petitioners and keeping in view all these circumstances in mind, we feel it appropriate to permit the petitioners to deposit with the respondent-bank the total outstanding amount in two instalments as follows, (1) The petitioners are permitted to deposit half of the total outstanding amount as on today within a period of three weeks from today; (2) The petitioners shall be permitted to further deposit the remaining outstanding amount within two months from the date of first deposit under clause (1) above; (3) The petitioners shall also be liable to deposit all the legal expenses and other incidental charges incurred by the respondent-bank for safeguarding as well as auctioning the secured assets; (4) In the event of the petitioners complying with the above, the respondent-bank shall cancel the auction conducted by it by refunding 25% amount to the respective auction purchasers together with interest at savings bank rate; (5) The petitioners shall also be liable to reimburse to the respondent-bank such interest component which the respondent-bank would be compelled to pay to the respective auction purchasers on their 25% bid amount; (6) It is needless to mention that in the event of the petitioners complying with the conditions as above, the entire outstanding loan amount would stand repaid and the proceedings under the Act shall stand terminated. In default of any of the above conditions, however, the respondent-bank is at liberty to proceed further in the matter so as to confirm the sale in favour of auction purchasers. 10. The writ petition is accordingly disposed of. No order as to costs. _____________________________ JUSTICE GHULAM MOHAMMED ________________________________ JUSTICE VILAS V. AFZULPURKAR Dt. 30.6.2009 KR ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1) 2 CD copies Form-NIC-OGS/WP{BMR} THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE VILAS V. AFZULPURKAR W.P.No. 5519 of 2008 ORDER: (Hon’ble Sri Justice Ghulam Mohammed) Dt. 30.6.2009