1 wp2218.10.sxw ssm IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2218 OF 2010 WITH NOTICE OF MOTION NO. 634 OF 2010 Goldie Sud .....Petitioner Vs. Punjab National Bank & Ors. ......Respondents Mr. Zal Andhyarujina with Ms. Duhita Lewis and Mr. Santosh S. Shetty for the Petitioner. Mr. Virag Tulzapurkar, Sr. Advocate with Mr. Chirag Balsara with Ms. Angeline Rodrigues, Ms. Jyoti Sinha, Ms. Savita Kandu, Mr. Vikrant Makhare and Mr. Uzair Kazi i/by M/s. Negandhi, shah & Himayatullah for Respondent No.1. Mr. Milind Sathe, Sr. Advocate with Mr. Cyrus Ardeshir i/by M/s. Kanga & Co. for Respondent No.3. Mr. Ulhas G. Kerkar for Respondent No.4. CORAM : DR. D.Y. CHANDRACHUD AND ANOOP V. MOHTA, JJ. DATE : JANUARY 10, 2011. ORAL JUDGMENT(PER DR. D.Y. CHANDRACHUD, J.):- By these proceedings, the Petitioner seeks to impugn the legality of the public auction that was conducted on 15 September 2010 by the First Respondent of land and building situated on Plot No. 494, 2 wp2218.10.sxw ssm CTS No. F/366, Linking Road, Bandra, Mumbai 400 050. The Petitioner is a co-owner and was co-mortgagor. At the outset, counsel appearing on behalf of the Petitioner stated before the Court that in these proceedings under Article 226 of the Constitution of India, the Petitioner impugns the validity of the auction sale purely in his capacity as a bidder at the auction. 2 On 21 May 2010, the First Respondent invited bids for a public auction of the immovable property in question. The notice inviting the tenders specifically stipulated that the reserve price was 14.62 crores, below which “the property will not be sold”. The Petitioner submitted a bid at the auction which was held on 28 May 2010 in the amount of Rs.15.05 crores. The Petitioner, however, failed to comply with his obligation of paying the balance of the sale consideration over and above Rs.3,76,25,000/-, upon which the auction sale was cancelled and the property was re-advertised. While issuing an advertisement for the public auction, the First Respondent once again stipulated a reserve price of Rs.14.62 crores below which, it was stated, the property would not be sold. At the second auction which was held on 15 September 2010, the Petitioner submitted a bid of Rs.5 crores, which was well below the reserve price of Rs.14.62 crores and 3 wp2218.10.sxw ssm below Rs.15.05 crores which was submitted at the first auction. Four bids were received by the bank. The highest bid was of Rs.14.77 crores of the Third Respondent whereas, the second highest bid was of Rs.14.63 crores. The minutes of the meeting that was held on 15 September 2010, record that on scrutiny, it was found that only two of the four bidders submitted bids in excess of the reserve price together with the earnest money of 10% of the reserve price, as required. The bid submitted by the Petitioner was rejected on the ground that (i) the bid submitted was below the reserve price of Rs.14.62 crores; and (ii) it was without furnishing earnest money deposit. The sale was knocked down in favour of the Third Respondent for an amount of Rs.14.77 crores. The sale was confirmed and a sale-certificate was issued which has been duly registered. A statement has been made before the Court by counsel appearing on behalf of the Bank and the auction purchaser that the title documents have been handed over and possession has been handed over on an “as is where is basis”. 3 On behalf of Petitioner, four submissions have been urged before the Court- (i) The jurisdiction under Article 226 of the Constitution is discretionary and even if it is held that an alternate remedy is available under Section 17 of the Securitization and Reconstruction of 4 wp2218.10.sxw ssm Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), this would not oust the extra ordinary jurisdiction of this Court; (ii) The remedy under Section 17 of SARFAESI Act, is not an efficacious remedy; (iii) The Petitioner was wrongly excluded from the bidding process on the ground that his bid was less than the reserve price. The Petitioner had a bonafide strategy to bid below the reserve price and it was not a condition of eligibility that every bid should be at least of an amount equal to the reserve price; (iv) The Petitioner was not allowed to bid on the ground that the earnest money deposit was found on the floor of the premises where the auction was conducted. The demand draft which was found on the floor was purchased by Megh Leasing & Investments Ltd. On the day following the auction sale, that company had addressed a letter to the issuing bank recording that the demand draft had been given by it to the Petitioner “as a business transaction”. 4 Insofar as the maintainability of the Petition is concerned, counsel appearing on behalf of the Respondents stated before the Court that in the facts and circumstances of this case and even on the assumption that the remedy of the appeal under Section 17 is available to an auction purchaser, it would be appropriate and proper 5 wp2218.10.sxw ssm for this Court to entertain the Petition on merits and deal with the challenge in order to render finality. In view of the joint request made by counsel for both the parties, the grievances of the Petitioner have been considered on merits by consent. 5 The terms and conditions governing the first auction sale specifically provided that the reserve price would be Rs.14.62 crores below which the property would not be sold. During the course of the first auction, the Petitioner submitted a bid of Rs.15.05 crores. The Petitioner was unable to comply with the terms of the sale, following which the sale was cancelled and the property was re-advertised. On the second occasion, as well, the bank while inviting tenders, specifically stipulated the condition that the property would not be sold below the reserve price of Rs.14.62 crores. Despite this, the Petitioner submitted a bid of Rs.5 crores. There is merit in the submission urged by counsel for the Respondent that this bid of the Petitioner was clearly not bonafide. No bidder, in the face of a specific tender condition which stipulated that the property would not be sold below the reserve price, would come forward with a bid that represents a fraction of the reserve price. This assumes significance in this case where at the earlier auction with the same conditions of 6 wp2218.10.sxw ssm tender, the Petitioner submitted a bid of Rs.15.05 crores. 6 However, it was urged by counsel on behalf of the Petitioner that the submission of a bid in an amount equal to the reserve price or higher is not a condition precedent to eligibility. In other words, it has been urged that a bid below the reserve price would not dis-entitle the Petitioner from participating at the auction sale and it would be open to a bidder to quote below the reserve price, as a matter of strategy so as to await the process of inter-se bidding during the course of the auction. Reliance has been placed on the provisions of regulation 9 of the Security Interest (Enforcement) Rules, 2002. 7 Rule 8(5) of the Rules provides that before effecting sale of immovable property, the authorized officer is to approve valuation and fix the reserve price in consultation with the secured creditor. The property which constitutes a secured asset can thereupon be sold through one or more modes including amongst them, by inviting tenders from the public or by holding a public auction. In the event that the secured asset has to be sold either by inviting tenders from the public or by holding a public auction, a notice must be issued in two leading newspapers of wide circulation in the locality inter alia 7 wp2218.10.sxw ssm describing the terms of the sale. This includes the description of the immovable property, the secured debt for the recovery of which the property is to be sold, the price below which the property may not be sold, the time and place of auction and the deposit of earnest money stipulated. Rule 9(2) stipulates that the sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid and would be subject to confirmation by the secured creditor. The first proviso of Rule 9(2) stipulates that no sale shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under Sub-Rule 5 of Rule 8. The second proviso however, lays down that if the authorized 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. 8 In the present case, the terms and conditions of sale provided that the property would not be sold at a price less than the reserve price. There was, therefore, in this case a clear indication by the First Respondent that it would not agree to any amount less than the reserve price. No bidder was therefore entitled to assume that a bid at an amount less than the reserve price would possibly meet the consent of the secured creditor. The secured creditor had in advance clearly set 8 wp2218.10.sxw ssm forth its intent not to accept any bid below the reserve price. That apart, as a matter of fact, in the present case, the bank received two bids both in excess of the reserve price. If as submitted before the Court on behalf of the Petitioner, the Petitioner submitted a bid below the reserve price in the face of a clear stipulation to the contrary in the notice inviting tenders, he was taking a chance or wager. The Petitioner, by taking that chance must be conscious of the possibility of being outbid by others who quoted in excess of the reserve price. The submission of the Petitioner that every bidder is entitled to participate in the inter-se bidding at an auction sale, even if the bid is below the reserve price, cannot be accepted. If the submission is accepted, the sanctity of the process would be lost and the tendering process would be illusory. Taken to the logical conclusion, the submission implies that even a bidder with a bid of one rupee, in the face of a reserve price of Rs.14.62 crores would have to be considered in this tendering process. If this is allowed, the process would lose its sanctity and become a speculative exercise between bidders. When the bank notified to the intending bidders that the property would not be sold below the reserve price, this was clear notice of the fact that bids below the reserve price would not be considered. The second proviso to Rule 9 makes an enabling provision by which a bid below the reserve price 9 wp2218.10.sxw ssm may be accepted by the authorized officer if he fails to obtain a price higher than the reserve price. This situation can arise only if a bid higher than the reserve price is not obtained. Moreover, even in such a case, the consent of the borrower and the secured creditor to effect a sale at such a price has to be obtained under the enabling provision of the second proviso to Rule 9. There is no vested right in a bidder to participate in an auction sale by submitting a bid which is lacking in bonafides as in the present case. 9 In view of the aforesaid findings which we have arrived at on the second ground, the Petition is liable to fail. In addition, we must note that the other ground on which the bid submitted by the Petitioner was not considered, was that the Petitioner failed to deposit the earnest money of Rs. 14.62 crores together with the bid. 10 In the minutes of the meeting of 15 September 2010, it has been recorded that the staff of the bank had found a crumpled piece of paper on the floor of the hall where the auction was taking place. Upon being unfolded it contained a demand draft of the Indian Overseas Bank dated 15 September 2010, for Rs.1,46,20,000/-. The Petitioner pointed out that the demand draft may be his draft. 10 wp2218.10.sxw ssm However, when the authorized officer asked the Petitioner to incorporate the details of the demand draft in his bid form, the Petitioner refused to do so. On 15 September 2010, the First Respondent returned the demand draft to the issuing bank, on the ground it had not been claimed. The issuing banker declined to accept the draft following which the First Respondent addressed a letter dated 16 September 2010. The issuing bank by its letter dated 23 September 2010, stated that the purchaser of the draft, Megh Leasing and Investments Limited had informed it that there were certain irregularities in the auction conducted by the First Respondent and that the issuing bank was advised not to accept the draft. The issuing bank stated that since there was a dispute between the purchaser of the draft and the First Respondent, the draft had not been accepted by the bank. On 16 September 2010 Megh Leasing and Investments Limited addressed a letter to the issuing banker stating that it had purchased a draft and furnished it to the Petitioner ‘as a business transaction’. 11 The contention which has been urged on behalf of the Petitioner is that Megh Leasing and Investments Limited had financed the earnest money deposit on the occasion of the earlier auction and it 11 wp2218.10.sxw ssm would have been known to the bank that the demand draft which was alleged to be found on the floor of the auction hall, in fact, belonged to the Petitioner. Counsel submitted that the tender form had no column where there was a provision for a bidder to incorporate the details of the demand draft. Moreover, reliance was sought to be placed on an FIR lodged by the bank on 15 September 2010 with the Senior Inspector of Police, Marine Drive Police Station, where the bank is alleged to have recorded having refused to allow the bidder to write the number of the demand draft in the tender form. The contents of the FIR, it was urged, are not consistent with what is recorded in the minutes of the meeting held on 15 September 2010. 12 On the other hand, it is urged on behalf of the Respondent that the demand draft was found on the floor of the auction hall and there was nothing wrong with the bank requiring the Petitioner to certify the ownership of the draft by incorporating the details in the bid form. According to the bank, the Petitioner refused to do so, in view of which the bank was justified in proceeding on the basis that the bid was not accompanied by the requisite payment of the earnest money deposit. 12 wp2218.10.sxw ssm 13 In view of the finding that we have arrived at on the first question, the second submission would cease to have practical relevance. Even on the assumption that the Petitioner submitted a demand draft of earnest money, the bid which was submitted by the Petitioner was below the reserve price and was therefore not a valid bid that was required to be considered. In any event, the rival contentions on the second issue to which we have made a reference earlier, raise disputed questions of fact. Even if the Petitioner, as contended by him, submitted a demand draft for the earnest money deposit, the bid, which was below the reserve price was liable to be rejected and has been correctly rejected on that ground. 14 Above all, this Court must be guided by the principle that a party who seeks equitable relief in the exercise of the extra ordinary jurisdiction under Article 226, should not be dis-entitled to reliefs on the ground of its conduct. In this case, as the record before the Court shows, the conduct of the Petitioner was not bonafide. Even on the first occasion the Petitioner sought and was granted time by the Debts Recovery Appellate Tribunal by its order dated 14 May 2010, to come forward with a settlement of the dues of the bank. On a statement made by the Petitioner, the auction that was scheduled was stayed. 13 wp2218.10.sxw ssm Subsequently, on 17 May 2010, the Appellate Tribunal noted that the request made before the Tribunal on the previous date, was not honest and was made only to secure a stay. The interim order staying the auction was vacated. The Petitioner participated in the first auction and was unable to pay the remaining balance of the purchase price upon which the auction had to be cancelled and the property was re- advertised. Despite having knowledge of the fact that the reserve price was Rs.14.62 crores, below which the property would not be sold, and having quoted a price of Rs. 15.05 crores in the first auction, the Petitioner submitted a bid only of Rs.5 crores, on the second occasion. 15 The Petitioner has taken a chance on a speculative assumption that bids at the auction would be below the reserve price. In fact, the submission of the Petitioner is that this was a part of a strategy. The bank having received bids in excess of the reserve price and having confirmed the highest bid, we have not found any merit in the grievance of the Petitioner. 16 For all these reasons, we do not find any reason to entertain the grievances of the Petitioner in the exercise of the extra ordinary 14 wp2218.10.sxw ssm jurisdiction under Article 226 of the Constitution. The Petition shall stand dismissed. No costs. 17 In view of the disposal of the Writ Petition, Notice of Motion No. 634 of 2010 does not survive and is disposed of, accordingly. (ANOOP V. MOHTA, J.) (DR. D.Y. CHANDRACHUD, J.)