1 WP7901/2010 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE, BENCH AT AURANGABAD WRIT PETITION NO. 7901 OF 2010 Jalgaon Janta Sahakari Bank Ltd., “Seva”, 117/119, Navi Peth, Jalgaon, Branch Omkareshwar Mandir Road, Jalgaon, Through its Manager, Chandrashekhar s/o Ramdas Sant, Age 50 years, Occupation Service, Resident of 15-B, Mahabal Colony, Jalgaon Petitioner V E R S U S 1 Jalgaon Consumer Products Vitarak Credit Society Ltd. Jalgaon, 186, Polan Peth, Jalgaon, District Jalgaon Recovery Officer of said society Respondents 2 Deputy / Assistant Registrar, Co-operative Societies Jalgaon Taluka, Jalgaon, District Jalgaon 3 Jalgaon Consumer Products Vitarak Credit Society Ltd. Jalgaon, 186, Polan Peth, Jalgaon, District Jalgaon, Through its Manager 4 Gitabai w/o Gopal Agrawal, Age 56 years, Occupation Household, Resident of 11, Old S.B.I. Colony, Adarsha Nagar, Jalgaon 5 Gopal s/o Omkarlal Agrawal, Age 60 years, Occupation Business, Resident of as above 6 Namit s/o Gopal Agrawal, Age 34 years, Occupation Business, Resident of as above 7 Vrushab s/o Gopal Agrawal, Age 30 years, Occupation Business, Resident of as above 8 Ashok s/o Naganji Nagada, Age 50 years, Occupation Business, Resident of Shendurni, Taluka Jamner, District Jalgaon 9 Circle Officer, Jalgaon City, Jalgaon 10 The Tahsildar, Jalgaon 11 The Joint Registrar, Co-operative Societies, Nashik Division, Nashik 12 The State of Maharashtra, Through its Secretary, Co-operative Department, Mantralaya, Mumbai Shri V.J. Dixit, Senior Counsel, instructed by Shri A.N. Nagargoje, Advocate for the petitioner Smt. R.K. Ladda, AGP for respondent Nos. 2, 9 to 12 Shri V.D. Hon, Advocate, holding for Shri A.D. Shinde, Advocate for respondent No.3 Shri R.L. Kute, Advocate, holding for Shri V.R. Dhorde, Advocate for respondent No.4 Shri P.R. Katneshwarkar, Advocate for respondent No.8 2 WP7901/2010 CORAM : A.V. NIRGUDE, J. Reserved On : 29th July, 2011 Pronounced On : 4th August, 2011 ORAL JUDGMENT : 1. This writ petition filed under Articles 226 & 227 of the Constitution of India challenging the order dated 6th August, 2010, passed by the Divisional Joint Registrar, Nasik, in Revision Application No. 66 of 2009 confirming an auction sale and challenging the notice dated 29th December, 2009, directing delivery of possession of auctioned property. 2. The auctioned property -now referred as the petition-property- is a plot of land with bungalow, situated at Adarshnagar, Jalgaon. It is common ground that respondent Nos. 4 to 7 are members of one family. They have two firms by name Shri Traders and Shri Agro. These are the proprietary firms of respondent Nos. 5 and 6, respectively. It is common ground that the petition-property belongs to Geetabai, respondent No. 4. Respondent Nos. 4 to 7 borrowed certain amounts from respondent No. 1. In order to secure the loans, respondent No. 4 executed a mortgage-deed in respect of the petition-property in favour of respondent No.1 way back in 2001. It is further common ground that respondent Nos. 4 to 7 did not repay the amounts and respondent No.1 had filed proceedings under Section 101 of the Maharashtra Co-operative Societies Act against them and obtained recovery certificates on 8th May, 2006 of various amounts. On the other hand, the petitioner is also a co-operative bank and it is their case that respondent Nos. 5 to 7 had borrowed certain sums from them, and as a guarantor to such loan, respondent No. 4 executed a mortgage-deed by depositing title deeds of the petition-property in their 3 WP7901/2010 favour on 30th September, 2000. It is common ground that the petitioner- bank has also obtained certificates under Section 101 of the Maharashtra Co-operative Societies Act against the proprietary firms of respondent Nos. 5 and 6 and 7. The petitioner-bank did not obtain any certificate as against respondent No. 4-Geetabai, the owner of the petition-property. The petitioner bank has so far not started execution proceedings against respondent Nos. 5 to 7. On the other hand, respondent No. 1 initiated execution of the certificates as against respondent Nos. 4 to 7. It is also a common ground that pursuant to their action, an order was passed for attachment of the petition-property way back on 8th August, 2006. 3. After the attachment order was passed, respondent No.1, through their Special Recovery Officer, appointed under Section 156 of the Maharashtra Co-operative Societies Act, initiated proceedings for auction sale of the petition-property. It is further common ground that in 2007, first attempt was made to put the petition-property on auction sale, but after the auction was made, the District Deputy Registrar cancelled the same on 15th March, 2008. Thereafter, respondent No. 1 initiated a fresh bid to put the petition-property on auction sale. The Special Recovery Officer then published a proclamation of sale in newspaper dated 12th December, 2008 (a copy of which is annexed at page No. 65). Thereafter, on 16th January, 2009, the auction was conducted, and amongst the bidders, respondent No. 8 succeeded in making highest bid (of Rs.18.60 lac) and the property was proposed to be sold to him. The Special Recovery Officer then made a report of this to the Deputy Registrar Co-operative, Jalgaon, seeking his confirmation to the auction sale on the same day -16th January, 2009. 4. The petitioner-bank thereafter raised a detail objection for confirming 4 WP7901/2010 the sale on various grounds. They interalia mentioned that the petition- property was mortgaged to them and that the auction sale was not conducted as per the rules. One Satish Bhole, a person who is not party to the proceedings, also approached the Deputy Registrar raising objection to the propriety of the auction sale. It was his case that the property was sold for a meager amount less than the market value. He pointed out that he was ready and willing to purchase the property for sum of Rs.30 lacs as against the proposed sale for Rs.18.60 lac. The learned Deputy Registrar however rejected these objections by his order dated 17th June, 2009. He held that “having considered the objections together with the submissions made by respondent No.1 – bank, he found that the objections raised were not proper and correct”. He held that the auction sale could be confirmed. As against this order, the petitioner-bank went in revision before the Divisional Joint Registrar, Nasik. It is pertinent to note here that the petitioner-bank did not implead the present respondent No. 8 to the revision. The revision was hotly contested and the learned Divisional Joint Registrar passed a detail order and held that the objections raised by the petitioner- bank regarding the auction sale deserved to be rejected. As against this order, the present writ petition is filed. 5. The challenge to the auction-sale by the petitioner-bank is based mainly on two grounds; first that the petition-property was mortgaged to them, and when they raised this objection before confirmation of the same, the same should not have been confirmed. The second objection is the propriety of the auction sale. The first question therefore is, whether prima facie there exists a lawful mortgage of the petition-property in favour of the petitioner-bank. The petitioner-bank has annexed copy of the mortgage-deed to this petition at 5 WP7901/2010 page No. 38. This document was printed on a stamp-paper of Rs.5,000/-. The stamp-paper is apparently purchased on 29th September, 2000, by the firm of respondent No. 6. The document is titled as “memorandum of deposit of title-deed by a person to secure the loan amount of another person”. Respondent No.4 has apparently executed this document agreeing to mortgage the petition-property to the bank for securing the loan taken by the proprietary firm of respondent No. 6. This document is not only signed by Geeta, respondent No.4, but is also counter-signed by respondent No. 6. Two witnesses have signed this document. However, in this document, detail description of the petition-property has not been mentioned. It is mentioned in the document that the original title-deeds of the petition- property were already handed over to the petitioner-bank when the property was mortgaged earlier with them. The apparent objection to the validity of this document is one of non registration. This document apparently is a mortgage-deed under Section 58 (f) of the Transfer of Property Act, 1882, which reads as under : 58 (f) Mortgage by deposit of title-deeds – Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds. 6. The question still arise, whether this document requires registration ? The learned senior counsel appearing for the petitioner-bank showed me a Notification issued under the provisions of Transfer of Property Act saying that Jalgaon is also notified as a city where a mortgage by deposit of title- 6 WP7901/2010 deeds is permissible without registration. Prima facie I hold that this document is a mortgage-deed. (This view is not binding on the authority which would ultimately examine the propriety of this deed vis-a-vis the preferential right as creditor of the petitioner-bank.) It is, therefore, prima facie clear that when the petitioner-bank raised objection to the confirmation of the auction sale, the learned Deputy Registrar ought to have taken such objection seriously. The authorities below rejected this objection mainly on the ground that this document was not registered, and that there was no entry taken in record of rights regarding it. They held that there could not have been encumbrance on the petition-property due to this transaction etc. I think, this finding recorded by the Courts below was patently incorrect and illegal for the reasons mentioned above. The petition property was apparently encumbered when it was proposed to be sold in auction sale. The importance of encumbrance on such property is highlighted in subsequent paragraphs of this judgment. Since the authorities mentioned above paid scant attention to this aspect of the casethe entire proceeding got vitiated. 7. The question of propriety of the auction-sale, in my view, is more important. The ‘Special Recovery Officer’, who passes important orders of attachment and effects sale of attached properties in execution, is appointed under Section 156 of the Act. In order to appreciate the important position he holds one must read Section 156. It reads as under : 156. Registrar's powers to recover certain sums by attachment and sale of Property.- (1) The Registrar or any officer sub ordinate to hi m and empowered by hi m in this behalf or an officer of such society as 7 WP7901/2010 may be notified by the State Government, who is empowered by the Registrar in this behalf may, subject to such rules as may be made by the State Government, but without prejudice, to any other mode of recovery provided by or under this Act, recover-- (a) any amount due under a decree or order of a Civil Court obtained by a society; (b) any amount due under a decision, award or order of the Registrar, Co-operative Court or Liquidator or Co-operative Appellate Court; (c) any sum awarded by way of costs under this Act, (d) any sum ordered to be paid under this Act as a contribution to the assets of the Society; (e) any amount due under a certificate granted by the Registrar under sub section ( 1) or ( 2) of section 101 or under sub -section ( 1) of section 137: together with interest, if any, due on such amount or sum and the costs of Process according to the scales of fees laid down by the Registrar, from time to time, by the attachment and sale or by sale without attachment of the property of the person against whom such decree, decision, award or order has been obtained or passed. (2) The Registrar or the officer empowered by him shall be 8 WP7901/2010 deemed, when exercising the powers under the foregoing sub -section, or when passing any orders on any application made to him for such recovery, to be Civil court for the purposes of article 136 in the Schedule to the Limitation Act, 1963. 8. The petitioner-bank tried to challenge the authority of the said the Special Recovery Officer in this case. But, when I was shown proper authorization, I am convinced that he was properly appointed under Section 156 of the Act by the Registrar of the Co-operative Societies. While exercising the powers conferred under Section 156 of the Maharashtra Co-operative Societies Act, the Special Recovery Officer has to follow the provisions of Rule 107 of the Maharashtra Co-operative Societies Rules, 1961. Rule 107 of the Maharashtra Co-operative Societies Rules, 1961, is a long rule and I would quote only the relevant portion of the same as under : Rule 107 (11) - In the attachment and sale or sale without attachment of immovable property, the following rules shall be observed :- (a) The application presented under sub-rule (2) shall contain a description of the immovable property to be proceeded against, sufficient for its identification and in case such property can be identified by boundaries or numbers in a record of settlement of survey, the specification of such boundaries or numbers and the specification of the defaulters share or interest in such property to the best of the belief of the 9 WP7901/2010 applicant and so far as he has been able to ascertain it. (b) The demand notice issued by the Recovery Officer under sub- rule (3) shall contain the name of the defaulter, the amount due, including the expenses, if any, and the batta to be paid to the person who shall serve the demand notice, the time allowed for payment and in case of non- payment, the particulars of the properties to be attached and sold or to be sold without attachment, as the case may be. After receiving the demand notice, the Sale Officer shall serve or cause to be served a copy of the demand notice upon the defaulter or upon some adult male member of his family at his usual place of residence, or upon his authorised agent or, if such personal service is not possible, shall affix a copy thereof on some conspicuous part of the immovable property about to be attached and sold or sold without attachment, as the case may be. Provided that where the Recovery Officer is satisfied that a defaulter with intent to defeat or delay the execution proceeding against him is about to dispose of the whole or any part of his property, the demand notice issued by the Recovery Officer under sub-rule (3) shall not allow any time to the defaulter for payment of the amount due to him and the property of the defaulter shall be attached forthwith. (c) If the defaulter fails to pay the amount specified in the demand notice within the time allowed, the Sale Officer shall proceed to attach and sell, or sell without attachment, as the case may be, the immovable 10 WP7901/2010 property noted in the application for execution in the following manner. (d) Where attachment is required before sale, the Sale Officer shall, if possible, cause a notice of attachment to be served on the defaulter personally. Where personal service is not possible, the notice shall be affixed in some conspicuous part of the defaulters last known residence, if any. The fact of attachment shall also be proclaimed by beat of drum or other customary mode at some place on, or adjacent to, such property and at such other place or places as the Recovery Officer may consider necessary to give due publicity to the sale. The attachment notice shall set forth that, unless the amount due with interest and expenses be paid within the date therein mentioned, the property will be brought to sale. A copy shall be sent to the applicant. Where the Sale Officer so directs, the attachment shall also be notified by public proclamation in the Official Gazette. (e) Proclamation of sale shall be published by affixing a notice in the office of the Recovery Officer and the taluka office at least thirty days before the date fixed for the sale and also be beat of drum in the village (on two consecutive days previous to the date of sale and on the day of sale prior to the commencement of the sale). Such proclamation shall, where attachment is required before sale, be made after the attachment has been effected. Notice shall also be given to the applicant and defaulter. The proclamation shall state the time and place of sale and specify as 11 WP7901/2010 fairly and accurately as possible :- (i) the property to be sold; (ii) any encumbrance to which the property is liable. (iii) the amount for the recovery of which sale is ordered; and (iv) every other matter which the Sale Officer considers material for a purchaser to know in order to judge the nature and value of the property. (f) When any immovable property is sold under these rules, the sale shall be subject to the prior encumbrances on the property, if any. The applicant shall, when the amount for the realisation of which the sale is held exceeds Rs.100, furnish to the Sale Officer within such time as may be fixed by him or by the Recovery Officer, an encumbrance certificate from the Registration Department for the period of not less than twelve years prior to the date of attachment of the property sought to be sold, or in cases falling under the proviso to sub-rule (10), prior to the date of the application for execution. The time for production of the encumbrance certificate may be extended at the discretion of the Sale Officer or the Recovery Officer, as the case may be. The sale shall be by public auction to the highest bidder : Provided that it shall be open to the Sale Officer to decline to accept the highest bid where the price offered appears to be unduly low or 12 WP7901/2010 for other adequate reasons : Provided further that the Recovery Officer or the Sale Officer may, in his discretion, adjourn the sale to a specified day and hour, recording his reason for such adjournment. Where a sale is so adjourned for a longer period than seven days, a fresh proclamation under clause (e) shall be made, unless the defaulter consents to waive it. The sale shall be held after the expiry of not less than thirty days calculated from the date on which notice of the proclamation was affixed in the office of the Recovery Officer. The time and place of sale shall be fixed by the Recovery Officer and the place of sale shall be the village where the property to be sold is situated or such adjoining prominent place of public resort as may be fixed by the Recovery Officer : Provided that in cases where an encumbrance certificate is not obtainable owing to the destruction of the connected records, an affidavit from the village Talathi or corresponding officer in regard to the encumbrances known to him supported by a certificate from the Registration Department that the encumbrance certificate cannot be granted owing to the destruction of the connected records shall be accepted in place of an encumbrance certificate. (g) (h) (i) (j) (k) ......... Rule 107 (13) – (i) Where immovable property has been sold by the Sale Officer, any person either owning such property or holding any 13 WP7901/2010 interest therein by virtue of a title acquired before such sale may apply to have the sale set aside on his depositing with the Recovery Officer :- (a) for payment to the purchaser a sum equal to 5 percent of the purchase money; and (b) for payment to the applicant, the amount of arrears specified in the proclamation of sale as that for the recovery of which the sale was order together with interest thereon and the expenses of attachment, if any, and sale and other costs due in respect of such amount, less amount which may since the date of such proclamation have been received by the applicant. (ii) If such deposit and application are made within thirty days from the date of sale, the Recovery Officer shall pass an order setting aside the sale and shall repay to the purchaser, the purchase money so far as it has been deposited, together with the 5 per cent deposited by the applicant : Provided that if more persons than one have made deposit and application under this sub-rule, the application of the first depositor to the officer authorised to set aside the sale, shall be accepted. (iii) If a person applies under sub-rule (14) to set aside the sale of immovable property, he shall not be entitled to make an application under this sub-rule. Rule 107 (14) - (i) At any time within thirty days from the date of the sale 14 WP7901/2010 of immovable property, the applicant or any person entitled to share in a rateable distribution of the assets or whose interests are affected by the sale, may apply to the Recovery Officer to set aside the sale on the ground of a material irregularity or mistake or fraud in publishing or conducting it : Provided that no sale shall be set aside on the ground of irregularity or fraud unless the Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of such irregularity, mistake or fraud. (ii) If the application be allowed, the Recovery Officer shall set aside the sale and may direct a fresh one. (iii) On the expiration of thirty days from the date of sale, if no application to have the sale set aside is made or if such application has been made and rejected, the Recovery Officer shall make an order confirming the sale : Provided that if he shall have reason to believe that the sale ought to be set aside notwithstanding that no such application has been made or on grounds other than those alleged in any application which has been made and rejected, he may, after recording his reasons in writing, set aside the sale. (iv) Whenever the sale of any immovable property is not so confirmed or is set aside, the deposit or the purchase money, as the case 15 WP7901/2010 may be, shall be returned to the purchaser. (v) After the confirmation of any such sale, the Recovery Officer shall grant a certificate of sale bearing his seal and signature to the purchaser, and such certificate shall state the property sold and the name of the purchaser. 9. As indicated above, the petitioner, within 30 days from the date of sale of the petition-property, approached the Deputy Registrar, who was considering as to whether the sale should be confirmed or not. The application moved by the petitioner-bank fell within the frame work of Rule 14, because, they stated that they were entitled to share in rateable distribution of assets and that the sale was irregular etc. In the light this objection, the authorities below ought to have examined the aspect of propriety of the auction sale minutely. 10. The first and foremost objection that can be raised against the sale and the manner in which its proclamation was made. I found that the proclamation was not made as per the provisions of Rule 11 (e). The proclamation did not mention the amount for recovery for which the sale was ordered. This information in the proclamation was mandatory. The learned Advocate for the Society could not show any Judgment which exempted such information being given in the proclamation. 11. The second objection that can be raised about the proclamation of sale is that it does not contain the upset price. It has come on record that on earlier occasion, the sale was proposed and upset price of the petition-property was 16 WP7901/2010 determined way back in 2006. When this time the sale was proposed in