DEBT RECOVERY APPELLATE TRIBUNAL, MUMBAI
Raj Mani Chauhan, Chairperson
Coventry Spring and Engineering Co. Ltd. and Ors. —Appellants
versus
ARCI Ltd and Ors. —Respondents
Appeal No. 135 of 2011 with M.A. Nos. 625, 891 of 2011 and 71 of 2012
Decided on 13.1.2014

Headnote:Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Sections 13(2), 13(4) and 18 — Security Interest (Enforcement) Rules, 2002 — Rules 6, 8(2), 8(5)(a), (b), (c) — Credit facilities — Default in repayment — Modes of sale of secured movable and immovable assets — Sale by way of private treaty — Terms of sale by way of private treaty shall be settled and reduced in writing by the Authorized officer with the consultation of the borrower too — Sale conducted by the Authorized officer was premediated sale colluding with BMW Industries and respondent No.6 — Authorized officer did not conduct the sale in a fair and transparent manner — No evidence on record to show that the Authorized officer had published any notice informing the public at large to sell the secured asses by way of private treaty — Authorized officer had sold the secured assets in fragrant violation of Rules 6 and 8 of the Rules — Whether impugned sale of secured assets by the authorized officer was vitiated — (Yes) — Appellant is held entitled to get possession of secured assets restored back.

       Held: Although the Authorized Officer of the secured creditor has to conduct the sale under the SARFAESI Act without intervention of the Tribunal, but he had to conduct the sale in a transparent and fair manner. The Legislature although has empowered the Bank and Financial Institution to sell the secured asset under the SARFAESI Act to recover its dues but has put the certain cheques and balances laying down the rules to be followed by the secured creditor or his Authorized Officer while conducting the sale. The Authorized Officer is expected normally to conduct the sale by any of the three modes provided in Rule 6(1) (a) to (c), and Rule 8(5)(a) to (c) of the Rules. If the first three modes fail, only then the Authorized Officer should opt for sale by way private treaty. The purpose of sale of the secured asset to realize maximum sale price which will be in the interest of the borrower as well as in the interest of the secured creditor. The sale by way of public auction or by inviting tenders is meant to enable the public at large to participate in the sale, so that the secured asset can fetch the highest price. The Authorized Officer, in this case without opting other three modes, straightaway opted to conduct the sale by way of private treaty with consultation of the appellant No.1 borrower.

       The Rule 8(8) of the Rules provides that the sale by any method other than the public auction or public tender shall be on such terms as may be settled between the parties in writing. The learned Counsel for the appellants contended that the Authorized Officer before conducting the sale as per the requirements of the Rule 8(8) has to settle the terms of sale with the consultation of the parties which include the secured creditor, intending purchaser and the borrower. The borrower cannot be excluded for settling such terms of sale in writing. If the borrower is excluded he will be unable to know for what price the secured asset is going to be sold. The borrower in a sale by way of private treaty is, therefore, a necessary party to get the terms of sale settled in writing.

       It is well settled principles of law that the Authorized Officer while selling the secured assets has to sell the same in a transparent and fair manner which can fetch the best possible price. The borrower should be acquainted with the mode of sale, date of sale and reserve price of the property. If this principle is accepted, the principle of law laid down by the Hon’ble High Court of Madras in the two cases referred above appears to be correct. I am, therefore, of the view that the terms of the sale by way of private treaty shall be settled and reduced in writing by the Authorized Officer with the consultation of the borrower too.

       In this case, assuming that the borrower is not required to be a party in it settling the terms of the sale in writing, even the respondent No. 1 is required to show that the Authorized Officer has settled the terms of the sale in writing before selling the secured assets which was brought to the notice of borrower i.e. appellant No. 1. The respondents have not filed any document to show that the Authorized Officer had settled the terms of the sale in writing. The respondent No.1 thus has failed to prove that the impugned sale was conducted by its Authorized Officer after compliance of the Rule 8(8) of the Rules.

       The respondents have denied aforesaid notice. If respondents have disowned this notice, there is no other notice informing the public at large to approach the respondent No.1 for purchasing the secured assets. The respondent No.1 has alleged that it had issued a notice on 1st October, 2007 from a perusal of the aforesaid notice, it appears that it was confidential and meant for private circulation only inviting invitation of expression of intents. This notice cannot be termed as public notice. There is no evidence on record to show that the Authorized Officer had published any notice informing the public at large to sell the secured asset by way of private treaty so that the people may approach to the respondent No.1 and submit their offer to purchase the secured assets. In such a situation it can be inferred that the secured assets would have not fetched the best possible price.

       As observed above, it is established that the respondent No.1 had taken over the possession of the secured assets without following the statutory provisions and rules. The Authorized Officer of the respondent No.1 had sold the secured assets in fragrant violation of the Rules 6 and 8 of the Rules. Paras 78, 79, 84, 85, 94, 95.

       Result: Appeal Allowed.