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High Court of Judicature at Bombay
THE HONOURABLE DR. JUSTICE D.Y. CHANDRACHUD & ANOOP V. MOHTA
Goldie Sud
Versus
Punjab National Bank & Others
WRIT PETITION NO. 2218 OF 2010 WITH NOTICE OF MOTION NO. 634 OF 2010
Decided on : 10-01-2011
In view of the finding that 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 Court has 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.
Constitution of India - Article 226-Security Interest (Enforcement) Rules 2002, Rules 8 and 9-Auction sale-Terms and conditions of sale-Property not to be sold at less than reserve price-Bid, below reserve price, submitted by petitioner-Two bids in excess of reserve price received by Bank-Petitioner’s bid cannot be considered.-In the present case, the terms and conditions of sale provided that the property would not be sold at a price less than that 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 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 be considered. The second proviso to Rule 9 makes an enabling provision by which a bid below the reserve price 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 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 bona fides as in the present case.
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, 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 readvertised. 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 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 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 Resp
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