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2010 Supreme(Bom) 1636
High Court of Judicature at Bombay
D.Y. CHANDRACHUD & ANOOP V. MOHTA
Asha Mehta & Another
Versus
Allahabad Bank & Others
WRIT PETITION NO.6465 OF 2010
Decided on : 24-11-2010
For the Petitioners:V.R. Dhond with Mayur Khandeparkar, T.N. Tripathi & Ms. Sapna Rachure i/b T.N. Tripathi & Co., Advocates.
For the Respondent:R1, Naresh S. Fadia, R7, Harihar Bhave i/b Bhave & Co., R10, Sanjay Jain with Devanshu P. Desai, Nivit Dhruva, Prakash Shinde, Avinath S. Gautama & G.K. Tripathi i/b Anoopkumar Sharma, R11, Purav Damania, Advocates, Prakash Mehta Director of M/s. Bulls – Ventura Pvt. Ltd. & Uttam Bagadi – Bidders present in person.
The main legal point established in the judgment is that failure to disclose material particulars and lack of transparency in the auction process warrant intervention by the Court under Article 226 of the Constitution.
Headnote:
Sale of Property - Recovery of Debts Due to Banks and Financial Institutions Act 1993 - Sections 28, 29 - Income Tax Act 1961 - Rules 52, 53 - Failure to disclose material particulars and lack of transparency in auction sale process - Intervention by the Court under Article 226 of the Constitution warranted
Fact of the Case:
The case involved a challenge to an order of the Debt Recovery Appellate Tribunal regarding the confirmation of a sale of properties in recovery proceedings initiated by a bank. The petitioners objected to the confirmation of the sale, alleging non-disclosure of encumbrances and lack of transparency in the auction process.
Finding of the Court:
The Court found that the auction process lacked transparency due to the failure to disclose material particulars, including the participation of another bank in the sale. The Court held that the lack of fair disclosure and ambivalence affected public confidence and financial institutions' interests.
Issues: The main issues were the non-disclosure of encumbrances, lack of transparency in the auction process, and the intervention of the Court under Article 226 of the Constitution.
Ratio Decidendi: The Court held that the failure to disclose material particulars and lack of transparency in the auction process warranted intervention by the Court under Article 226 of the Constitution.
Final Decision: The Court set aside the order of the Debt Recovery Appellate Tribunal, quashed the auction sale, and directed the properties to be readvertised for sale in accordance with the law. The Court accepted the bids of two willing bidders and directed the return of the amount paid by the successful bidders. The rule was made absolute in these terms, and there was no order as to costs. The operation of the judgment and order was stayed for six weeks to enable the auction purchasers to have recourse to their remedies.
(DR. D.Y.CHANDRACHUD, J.)
1. Rule. The Learned Counsel for the Respondents waive service. On the request of the Learned Counsel and with their consent, the Petition is taken up for hearing and final disposal.
2. The challenge in these proceedings under Article 226 of the Constitution is to an order dated 2 August 2010 of the Debt Recovery Appellate Tribunal. The Recovery Officer by an order dated 20 November 2009 dismissed an application filed by the Petitioners objecting to the confirmation of a sale. The order of the Recovery Officer was upheld by the Tribunal and in appeal by the Appellate Tribunal.
3. The First Respondent, Allahabad Bank filed Original Application 183 of 2004 against the Petitioners for the recovery of its dues. The Application was allowed by the Debt Recovery Tribunal on 1 September 2005 in the amount of Rs.33.51 Crores together with future interest at 12% per annum. On 17 October 2005 a recovery certificate was issued in pursuance of the order of the Tribunal. On 17 December 2007 the Recovery Officer issued an order of attachment of three properties, among them being Flat 603 situated in a building known as Ruby Apartments at Walkeshwar, Mumbai. The attachment was levied in recovery proceedings 248 of 2005 which was in execution of the order of the Tribunal in O.A. 183 of 2004. On 9 April 2009 the First Respondent filed an affidavit before the Recovery Officer stating that another flat being Flat No.402 together with two appurtenant garages situated in a building known as Pleasant Park at Peddar Road, Mumbai had been mortgaged in its favour.
4. The terms and conditions of sale were settled in pursuance of the provisions of Rules 52 and 53 of the Second Schedule to the Income Tax Act 1961 which is made applicable by virtue of the provisions of Sections 28 and 29 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993. The terms of sale provided that the three properties were being sold on an ‘as is where is and what is’ basis. Two of those properties which form the subject matter of these proceedings are : (i) Flat No.402, Pleasant Park Co-operative Housing Society Limited, Peddar Road, Mumbai 400 006 with a carpet area of 1540 sq. ft. together with garage Nos. 17 and 18 each admeasuring 165.75 sq. ft; and (ii) Flat No.603 in Ruby Apartments at Walkeshwar Road, Mumbai 400 006 with a carpet area of 450 sq ft. Under the column entitled “Details of encumbrances to which the property is liable” the disclosure that was made was “not known”. The First Respondent did not disclose details of encumbrances of which it had knowledge. The First Respondent was part of a consortium of banks led by the State Bank of India. The State Bank of India had in turn moved an application before the Debts Recovery Tribunal in which on 20 March 2007 a final order had been passed decreeing the claim and in pursuance of which a recovery certificate was issued on 20 April 2007. The recovery certificate in favour of the State Bank of India was in the total amount of Rs.35.68 Crores with interest @ 12% per annum. The recovery certificate stated that the outstandings were secured by a mortgage of several properties in which the First Respondent and Bank of Baroda had a pari pasu charge. Among the properties secured by the mortgage are the two properties which have been adverted to earlier. The statement that the details of encumbrances were not known was untrue to the knowledge of the First Respondent, for the First Respondent had knowledge of the charge in favour of State Bank, with whom it ranked pari pasu.
5. Following the attachment of the property and the finalization of the terms and conditions of sale, the aforesaid properties were listed for public auction on 25 September 2009. The sale was advertised in the Times of India, the Economic Times and Navshakti. The reserved price of the property in Pleasant Park at Peddar Road was fixed at Rs.4.25 Crores. A challenge by the Petitioners to the valuation
