1 IN THE HIGH COURT OF KARNATAKA CIRCUIT BENCH AT DHARWAD DATED THIS THE 21ST DAY OF NOVEMBER, 2011 PRESENT: THE HON ELE MR JUSTICE K.L.MANJUNATH AND THE HON’BLE MR. JUSTICE K.GOVINDARAJULU WA NO.6368/2011 (GM-DRT) BETWEEN: M/S HOTEL VANDANA PALACE, NO.73/3, 4 & 5, KANAKADASA CIRCLE ROAD, GANDHI NAGAR, BELGAUM. REPRESENTED BY ITS MANAGING PARTNER VITHAL S/O MUNDAPPA POONJA, AGE: 60 YEARS, 0CC: BUSINESS, R/O NOW AT 1388, VANTAMURI COLONY, SEC.NO,7, M.M.EXTENSION, BELGAUM-16. .APPELLANT (BY SRI.A.G.MULAWADMATH, ADV.) AND 1. THE AUTHORIZED OFFICER UNDER SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002, SYNDICATE BANK REGIONAL OFFICE, MARUTI GALLI, BELGAUM- 16. 2. SYNDICATE BANK, A COMPANY CONSTITUTED UNDER THE BANKING COMPANIES ACT, 1970, (ACQUISITION AND TRANSFER OF UNDERTAKING) HAVING ITS HEAD OFFICE AT MANIPAL-5761 19, 2 DIST. UDAPUI, REPRESENTED BY ITS MANAGING DIRECTOR. 3. SHRI. VASU P. SHETTY S/O PANKARA SHETTY, AGE: MAJOR, 0CC: BUSINESS, R/O AT EVEREST SHOPPING CENTRE, FIRST FLOOR, PLOT NO.105, NEHRU ROAD, SANT CRUZ EAST, MUMBAI-400 055. 4. THE DEBT. RECOVERY TRIBUNAL(KARNATAKA), KRISHI BHAVAN, NRUPATHUNG ROAD, BANGALORE-56000 1. RESPONDENTS (BY SRI.SURESH S.GUNDI, ADV. FOR Ri AND R2, SRI.S.B.SHAIKH, ADV. FOR C/R3 (CN:2112/2011)) THIS APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961 PRAYING TO SET ASIDE THE ORDER DATED 19.09.2011 IN W.P.NO.17372/2007 PASSED BY THE LEARNED SINGLE JUDGE REJECTING THE WRIT PETITION AND BY ALOWING THE WRIT APPEAL AS PRAYED IN WRIT PETITION NO.17372/2007. THIS APPEAL COMING ON FOR PRELIMINARY HEARING THIS DAY, K.L.MANJUNATH, J., DELIVERED THE FOLLOWING: - JUDGMENT The legality and correctness of the order passed by the learned Single Judge in W.P.No.17372/2007 dated 19.09.2011 is called in question in this petition. 2. Heard learned counsel for all the parties. 3 3. The appellant had borrowed loan from Syndicate Bank in order to construct a hotel in a prominent place in Belgaum. According to the petitioner, the hotel is constructed on the land measuring 1825.25 Sq. meters with a built up area of 4749.64 Sq. meters consisting of basement, ground, first, second, third and fourth floors. The basement used for car parking and utility. The ground floor used for reception hall, centrally air-conditioned Restaurant cum Bar and Restaurant. In the first floor a party hail and 24 rooms in each of the 2nd, 3rd and 4th floors. According to him, entire hotel building is well furnished. The appellant had availed a loan of Rs.1,84,70,000/-. At the time of sanctioning the loan, the premises was valued at Rs.3. 16 crores. On the ground that, appellant did not pay the dues payable to the bank, by invoking provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘SERFAESI Act, 4 2002) by issuing notice under Section 13(2) of the SERFAESI Act, 2002 to take formal possession of the property and later on the property was brought for sale, The appellant had challenged bringing the property for sale by filing W.P.No.41445/2004, which came to be dismissed on 28.02.20Q5. Thereafter, again the property was brought for sale by the bank by issuing sale notice dated 09.03.2005. Though paper publication was issued by the bank, the property was not sold on account of non participation of the prospective buyers. 4. The respondent No.2 again issued sale notice by publishing in Indian Express newspaper (English daily) on 28.04.2006 fixing the date for sale as 08.05.2006. Another paper publication was issued publishing in Marathi daily newspaper ‘Tarun Bharat’ on 05.05.2006 inviting the tenders from prospective buyers and the prospective buyers were required to submit their tenders on or before 06.05.2006 at 2.00 p.m. the appellant had challenging the paper publication dated 28.04.2006 by filing a writ petition, \rhich came to be dismissed as withdrawn since the said writ petition became infructuous, in view of sale having been held on 08.05.2006. 5. Pursuant to the paper publication dated 28.04.2006 and 05.05.2006 in Indian Express English daily newspaper and Tarun Bharat Marathi daily newspaper respectively, respondent No.3 became the successful bidder and his bid for Rs.2.16 crores was accepted by the Authorized Officer. Accordingly, sale certificate has been issued to respondent No.3 by the Authorized Officer. The legality and correctness of the order passed accepting the sale by the Authorized Officer in favour of respondent No.3, the appellant filed an application before the Debt Recovery Tribunal in ASA No.151/2006, which came to be dismissed by the Tribunal on 05.07.2007. The order passed by the DRT 6 was questioned by the appellant in W.P.No. 17372/2007. 6. The learned Single Judge considering that, on an earlier occasion, the writ petition filed by the appellant came to be dismissed, and rejected the writ petition without considering the grounds urged by the appellant. Therefore, the present appeal is filed by the appellant challenging the legality and correctness of the order passed by the learned Single Judge in W.P.No. 17372/2007. 7. The main contention of the appellant before this Court is that the learned Single Judge committed an error in not considering that the Authorized Officer of the bank without issuing notice as contemplated under Sub Rule 6 of Rule 8 and Rule 9 of SURFACI Act, 2002 has sold the property in favour of respondent No.3 for a meager amount. According to him, the DRT also committed the same mistake in not considering the 7 aforesaid provisions. The learned Single Judge without referring to the aforesaid provisions rejected the writ petition solely on the ground that the writ petition filed on carlier occasion has been rejected. Therefore, he contends that, the order passed by the learned Single Judge and the order passed by the DRT and confirmation of the sale by the respondent Nos. 1 and 2 in favour of respondent No.3 has to be set aside. 8. According to him, there was no sufficient time was granted to the prospective buyers to participate in the proceedings. Therefore, he contends that, though as per the provisions of Rule 8 and 9, the bank was required to publish the notice in Kannada language, which is the vernacular and official language of Belgaum. According to him, when the value of the premises was more than Rs.3.OO crores as on the date of sanctioning the loan and when due to improvements were made by the appellant and on account of escalation in the real estate business, considering that 8 the locality of the hotel of the appellant, acceptance of sale consideration for Rs.2. 16 crores is against the principles of natural justice. He further contends that, when the property worth several crores together has to be brought for sale, the Authorized Officer and the bank was required to give proper publicity inviting the tenders from the prospective bidders. Without doing so, by. taking paper publication in Indian Express daily newspaper in English, which was published on 28.04.2006 and in Tarun Bharat daily newspaper in Marathi which was published on 05.05.2006 by fixing the last date of receiving the tenders as 2.00 p.m. of 06.05.2006, within 24 ,hours from the date of publication in Marathi l4guage newspaper has been accepted by the bank, whiqh is contrary to the Sub-Rule 6 of Rule 8 and 9 of SERFAESI Act, 2002. Therefore, he requests the Court to allow the appeal and set aside the other orders of the DRT and learned Single Judge and direct the bank to take action in accordance with law by 9 directing the bank to take up paper publication both in English and Kannada language which is vernacular language of Belgauin.( by giving 30 days notice as required under law. He also contends that the payment of E.M.D. by respondez4 No.3 is very doubtful, because paper publication m4de in Marathi language on ‘A 05.05.2006 by fixing thç last date of receiving the tender as 2.00 p.m. on 06.0542006 and when respondent No.3 is a resident of Mumbi having purchased the demand draft on 06.05.2006 could not have been produced the demand draft in the Sjrndicate bank by 2.00 p.m. on the same day at Belgaum which is at distance of 500 Kms from Mumbai. He fu4her contends that, even without intimating the appellbnt, the Authorized Officer has received the sale consideration beyond stipulated period of 15 days, which according to him is erroneous and illegal. He further contends that, even if, the Authorized Officer has power to àtend time beyond 15 days, he has to give reasons for extending the time and no 10 documents are produced by respondent Nos. 1 to 3 in regard to the acceptance of the sale consideration beyond 15 days time from the date of confirmation of sale. On these grounds, he requests the Court to allow the appeal and set aside the sale. 9. The learned counsel appearing for respondent Nos. 1 to 3 contend that the appeal filed by the appellant is not maintainable, because the appellant had a right to file an appeal before the appellate authority against the order passed by the DRT under Section 18 of the SERFAESI Act, 2002. Without exhausting the remedy of appeal provided to him under the statute, writ petition filed by him is not maintainable. Therefore, they contend that, he cannot maintain the appeal also. They further contend that when the property is brought for sale for the second or third time, there is no necessity for the Authorized Officer to take out publication by giving 30 days notice notifying the purchasers to participate in the bid. 11 According to them the Rule 8 is applicable only when the sale is conducted by respondent Nos, 1 and 2 for the first time, and when the sale was postponed on two occasions and on the first occasion on account of pendency of the writ petition and on the second occasion on account of the non participation of bidders and the sale conducted by respondent Nos. 1 and 2 is well within the provisions of the Rules. Therefore, they contend that, either Sub Rule 6 of Rule 8 and 9 are not applicable to the facts and circumstances of this case. To support their case, they have relied upon the judgement of DRT, Allahabad in Progressive Enterprises & Others Vs. Nainital Bank Ltd., [(2009(2) D.R.T.C.390(DRAT, All.)]. 10. They further contend that, Authorized Officer has the liberty to extend the time beyond 15 days for payment of balance sale consideration from the date of confirmation of sale. The appellant cannot be permitted to contend that the acceptance of balance 12 sale consideration by the Authorized Officer as illegal. In the circumstances, they request the Court to dismiss the appeal. 11. Having heard the counsel for the parties, we consider the following points in this appeal: i) Whether the sale made by respondent Nos. 1 and 2 in favour of respondent No.3 is in conformity wit the Rule 8 and 9 of the Security and Interest (Enforcement) Rules, 2002? ii) Whether the writ petition was maintainable without filing the appeal to appellate authority as provided under Section 18 of the Act? iii) Whether learned Single Judge has committed an error in order to interfere with his order? 12. Having heard the counsel for the parties, the following points are not in dispute in this appeal: That the appellant had borrowed loan of Rs.1,84,70,000/- from respondent No.2-bank. He has 13 constructed a hotel by name Vandana Palace in a prominent place in Belgaum City, which is considered to be a second capital of Karntaka. The description of the area and the nature of construction has already been stated by us in the earlier paragraphs. Therefore, there is no necessity for us to reiterate the same. 13. It is also not in dispute that, for non payment of dues payable by the appellant, the property in question had brought for sale by the bank and the same was questioned by the appellant by filing a writ petition No.41445/2004, which petition came to be rejected on 28.02.2005. Again the property was brought for sale and the sale could not be materialized on account of non-participation of the bidders. It is also not in dispute that, the offer made by the appellant for one time settlement has not been materialized on account of non-performance by the appellant. 14 14. Sub Rule 6 of Rule 8 of the Security Interest (Enforcement) Rules, 2002 including proviso reads as hereunder: “Rule 8 Sale of immvable secured assets: (6) The authonsed fficer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule(5): Provided that f the sale of the 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 descrztion 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; 15 (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 ecured 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.” 15. Rule 9 of the Security Interest (Enforcement) Rules, 2002 reads as hereunder: “9. Time of same, issues of sale certificate and delivery ofpossession, 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 16 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. (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 property shall forthwith be sold again. (4) The balance amount of purchase price payable shall 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 17 claim to the property or to any part of the sum for which it ipay 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 the 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: [Provided that f after meeting the cost of removing encumbrances and contingencies there is any surplus available out of the money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days from the date of finalisation of the sale.] 18 (8) On such deposit of money for discharge of the encumbrances, the authorised officer shallj 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. (9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on dep4dit of money as specified in sub-rule (7) abou. (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.’ 16. From the plain reading of these two rules, it is clear that the respondent-bank was required to serve notice of 30 days for the sale of immovable property by following the sub Rule 5 of Rule 8, which reads as hereunder: 19 “Rule 8 Sale of immovable secured assets: (5) Before effecting sale of the immovable property referred to in sub-rule(1) of nile 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 arid 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. 17. In the instant case, no material is placed before the Court that, before bringing the property for sale, sale notice dated 28.04.2006 and 05.05.2006, fresh valuation of the property from the approved valuer was obtained by the bank when the property worth 20 crores has to be sold. Sub Rule 5 of Rule 8 is mandatory and without complying mandatory provisions, the property could not be brought for sale. Accordingly, provisions of Sub Rule 6 of Rule 8, the bank is required to issue public notice in two leading newspapers (1) in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include: (a) The descrztion f 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 L5e sold; (c) reserve price, below which the property may not be sold; (d) time and place ofpublic auction or the time after which sale bj any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (It? any other thing which the authorised officer considers it material for a purchaser to know in 21 order to judge the nature and value of the property. 18. In the instant case, such public notice is not issued by giving notice of 30 days as required under rule. The English paper publication was published on 28.04.2006, fixing the time to receive the tenders from the prospective buyers as 2.00 p.m. on 06.05.2006. Another publication in Tarun Bharat Marathi language is just one day prior to the receiving the tenders from the prospective buyers. The plain reading of Sub Rule 6 of Rule 8, the paper publication in Marathi language cannot be considered as vernacular language, as the Belgaum is in Karnataka and the vernacular language is Kannada and not Marathi. Even if, some people speak in Marathi language, the paper publication published in Tarun Bharat by the respondent Nos. 1 and 2 cannot be considered as sufficient compliance of provisions of Sub Rule 6 of Rule 8. These facts are not disputed by the learned counsel for the respondent Nos. 1 to 3. 22 19. The respondent Nos.1 and 2 being in possession of the property of the appellant as custodian or trustees, were required to take sufficient care before selling the property in public auction. In the instant case, respondent Nos. 1 and 2 have failed to discharge their duties as trustees while selling the property worth several crores. Respondent Nos. 1 and 2 have not placed any material to show how and when payment was made by respondent No.3 after the confirmation of the sale. As per the sale notice, respondent No.3 was required to deposit entire sale consideration within 15 days from the date of conformation of the sale. In the counter, the respondent-bank has stated that the respondent No.3 has made the payment within the time allowed by the Authorized Officer. When the sale consideration is Rs.2.16 crores, the bank was required to give details of the payment made by respondent No.3 in order to hold whether the payment was made within the time stipulated in the sale and whether the time was 23 extended by the Officer by accepting the reasonable cause shown by the purchaser and whether the purchaser is bonafide purchaser or not. Unfortunately, the bank has failed to produce these documents. Therefore, on the face of it, sale effected by respondent Nos, 1 and 2, based on the paper publication dated 28.04.2006 and 05.05.2006 and acceptance of bid of respondent No.3 on 06.05.2006 is held to be bad in law. 20. As stated supra, learned counsel for the respondents have relied upon the judgment of of DRT, Allahabad in Progressive Enterprises & Others Vs. Nainital Bank Ltd., [(2009(2) D.R.T.C.390(DRAT, AZl.)j, we are of the view that the said decision is not applicable to the facts and circumstances of this case, because, the Tribunal has not considered the relevant rules properly, without application of mind hurriedly the Tribunal held that, there is no necessity to issue sale notice of 30 days in advance in the second sale. Rule 8 and 9 contemplates the issuance of paper publication of 24 I 30 days and the same cabnot be dispensed with either for second or subsequentsale. It is mandatory on the part of respondent Nos, 1 and 2 to follow the mandatory rules as contemplated under Rule 8 and take action in accordance with law. Therefore, we are of the view that, the decision relied upon by the respondents counsel, cannot be made applicable to the facts and circumstances of this case. 21. The contention of the respondents that, under Section 18 of the Security Interest (Enforcement) Rules, 2002, the appellant is required to file an appeal and without exhausting the statute remedy, he cannot be permitted to approach the High Court under Articles 226 and 227 of the Constitution of India. The Section 18 of the Act reads as hereunder: Section 18 of the SERFAESI Act, 2002: 18. Appeal to Appellate TribunaL- (1) Any person aggrieved, by any order made by the Debts Recovery Tribunal [under section 17, may prefer 25 an appeal] along with such fee, as may be prescribed] to an Appellate Tribunal within thirty days from the date of recezt of the order of Debts Recovery Tribunal. [Provided that different fees may be prescribed forfiling an appeal by the borrower or by the person other than the borrower:J [Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent. of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent, of debt yeferred to in the second proviso.] 26 (2) Save as otherwiç provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the