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2019 Supreme(Bom) 2217
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Pradeep Nandrajog, Bharati Dangre, J.
Rockline Construction Company, Mumbai - Appellant
Versus
Doha Bank, Mumbai - Respondent
Writ Petition No. 8572 of 2014, 9078 of 2014, 10703 of 2014; Civil Application No. 2214 of 2014; Interim Application No. 1 of 2019
Decided On : 17-12-2019
Parimal Shroff, Advocate, D.V. Deokar, Advocate, Sachin Pandey, Advocate, Siddhi Paradkar, Advocate, Parimal K Shroff, Advocate, Pravin Samdani, Advocate, Rajeev Panday, Advocate, Rushabh Sheth, Advocate, Sakshi Sharma, Advocate, C.J. Doveson, Advocate, Poornnima Utekar, Advocate, Vijay Nene, Advocate
A cartel agreement between bidders at an auction, the purpose of which is to peg down the price of the property being sold, is void as being opposed to public policy.
Headnote:
AUCTION SALE - CARTEL AGREEMENT - PUBLIC POLICY - VALIDITY - ESCROW AGREEMENT - INTERPRETATION - FRAUD - SALE CONFIRMATION - RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 - SECTION 20 - WRIT PETITION - MAINTAINABILITY.
Fact of the Case:
The petitioner, Rockline Construction Company, participated in an auction conducted by the Debt Recovery Tribunal (DRT) to purchase a property mortgaged to a bank. The petitioner emerged as the highest bidder and the sale was confirmed in its favor. However, an application was filed by one Mahendra Kumar Kawad, alleging that the petitioner had entered into a cartel agreement with four other parties to peg down the auction price and that the sale was therefore vitiated by fraud. The Recovery Officer set aside the sale, but this order was reversed by the DRT. The DRAT restored the order of the Recovery Officer, and the petitioner filed a writ petition challenging this order.
Finding of the Court:
The court held that the escrow agreement was not for any consultancy being offered but to keep the four parties to the agreement who are in the business of development out of the competition. This clearly falls within the catch situation perceived by the Apex Court in case of Gurmukh Singh (supra). Such an agreement being opposed a public policy and against public interest, is therefore, hit by Section 23 and is void.
Issues: 1. Whether the cartel agreement entered into by the petitioner and the four other parties was valid and enforceable? 2. Whether the escrow agreement entered into by the petitioner and the four other parties was valid and enforceable? 3. Whether the sale of the property to the petitioner was vitiated by fraud? 4. Whether the Recovery Officer was justified in setting aside the sale? 5. Whether the DRT was justified in reversing the order of the Recovery Officer? 6. Whether the DRAT was justified in restoring the order of the Recovery Officer?
Ratio Decidendi: 1. A cartel agreement between bidders at an auction, the purpose of which is to peg down the price of the property being sold, is void as being opposed to public policy. 2. An escrow agreement entered into in furtherance of a cartel agreement is also void. 3. A sale of property conducted by the DRT can be set aside if it is vitiated by fraud. 4. The Recovery Officer is justified in setting aside a sale if it is vitiated by fraud. 5. The DRT is justified in reversing the order of the Recovery Officer if it finds that the sale was not vitiated by fraud. 6. The DRAT is justified in restoring the order of the Recovery Officer if it finds that the sale was vitiated by fraud.
Final Decision: The court dismissed all three writ petitions, upholding the impugned order of the DRAT.
JUDGMENT
Bharati Dangre, J. - The three Writ Petitions revolve around same set of facts and, therefore, are disposed of by this common judgment. Writ Petition No.8572 of 2014 is filed by the auction purchaser - M/s. Rockline Construction Company and the credit holder bank, the guarantor - M/s. Lodestar Slotted Angels Limited and the intervener Mahendra Kawad are the Respondents in the said Writ Petition. Writ Petition No.10703 of 2014 is filed by M/s. Lodestar Slotted Angels Limited. Writ Petition No.9078 of 2014 is filed by the creditor bank. In order to appreciate the controversy involved, we deem it appropriate to glean the facts from Writ Petition No.8572 of 2014.
2. Exactly two decades back, the Doha Bank QSC, formerly known as HSBC Bank, Oman, SAOG instituted two suits against Mrugank Investment Limited and one Geekay Exim Limited which came to be transferred to the DRT-II, Mumbai and numbered as O.A. Nos.1144/1999 and 1139/1999, for recovery of its dues and enforcement of the securities. The bank was accoutered with Recovery Certificate No.99/2002 and 100/2002 dated 30th April 2002 by the Debt Recovery Tribunal, Mumbai in the aforesaid Original Applications. Lodestar Slotted Angels Limited, being owner of a piece and parcel of land admeasuring 5635 sq. yards (equivalent to 4961 sq.m) bearing Survey No.36, Hissa No.52 and CTS No.689 at Village, Marol, Mumbai had mortgaged the property and acted as a Guarantor to the credit availed by the Investment company.
3. Recovery Proceedings No.100 of 2002 before the Recovery Officer in the Debt Recovery Tribunal-II at Mumbai resulted into issuance of a public notice dated 26th February 2007 for recovery of sum of Rs. 16,45,032,827.46 + interest @ 15 % per annum till its realization from the certificate debtor, the same being recoverable together with interest, cost, charges as per the recovery certificate. As on the date of sale i.e. 29th March 2007, the due under recovery certificate was in the sum of Rs. 35,27,83,613.16 inclusive of cost and interest thereon. The public notice declared that some third party is in possession of the building as tenant on the subject land which has been sold by the Special Court to one M/s. Gama Construction (Pvt.) Ltd and the proposed sale was made subject to encumbrances of M/s.Oman International Bank on land only. The property was valued by the Recovery Officer at Rs. 4,57,72,405/- and the reserve price was fixed at Rs. 5 crore whereas Rs. 1 crore was stipulated as earnest money deposit.
4. The proclamation of sale was published in the newspaper on 14th March 2007 and 29th March 2007 was slated to be the date for sale of the property mortgaged with the Oman International Bank. On the said date, the Recovery Officer received four bids for the auctioned property from the following bidders; (a) Ms.Shobha Kapoor, (b) Rajat Pharma Limited, (c) Mahendra Jain and (d) M/s.Aims Promoters. The highest offer received was from Ms.Shobha Kapoor for Rs. 5.05 crores. The bidders were given opportunity to raise their offer by minimum amount of Rs. 10 lakhs and the final offer of M/s.Aims Promoters was accepted as the highest bid.
5. The petitioner, Rockline Construction Company, a sole proprietary firm came on the scene at this stage, as it submitted its "on the spot" offer of Rs. 5.50 crores. An inter-se bidding was held between the rival bidders and the petitioner emerged as the highest bidder for Rs. 8.50 crores. The petitioner was directed to deposit 25% of the bid amount including Earnest Money Deposit and the remainder was directed to be deposited within 15 days. The petitioner deposited amount of Rs. 1,12,30,000/- on 30th March, 2007 and balance on 12th April 2007. The second highest bidder was restricted from withdrawing his EMD till 30th March 2007 by making it clear that in case the highest bidder did not deposit the amount, the opportunity would be afforded to him.
6. On 30th April 2007, one M/s.Screen Test India Co. submitted an offer of Rs. 9.35 cro
