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2024 Supreme(Cal) 1299
IN THE HIGH COURT AT CALCUTTA
SABYASACHI BHATTACHARYYA, J.
G. R. Associates and Others - Petitioners
Versus
Reserve Bank of India and Others - Respondents
WPA No. 12929 of 2024
Decided On : 22-05-2024
For the Petitioners: Mr. Jaydip Kar, Mr. Krishnaraj Thakker, Mr. Siddhartha Banerjee, Mr. Anindya Chowdhury.
For the Respondents: Mr. Ranojit Chowdhury, Mr. Sudipto Chowdhury, Ms. Aparupa Chakraborty, Mr. Purnendu Modak, Mr. Mainak Bose, Mr. Sanwal Tibrewal, Ms. Swastika Ray, Mr. Debashis Karmakar, Mr. Soumitra Ganguly, Mr. Arya Nandi, Mr. S. Ojha, Mr. Parikshit Lakhotia.
IMPORTANT POINT
The court established that the SARFAESI Act permits banks to prioritize offers based on the nature of the asset and the financial implications, affirming the bank's discretion in asset sales.
Headnote:
SARFAESI - Non Performing Assets - SARFAESI Act, 2002 Sections 2(1)(l), 2(1)(zc), 5, 13(4) - The court interpreted the provisions of the SARFAESI Act, emphasizing the distinction between financial assets and secured assets, and upheld the bank's discretion in accepting a higher bid from an ARC over a private treaty offer.
Fact of the Case:
The petitioners challenged the sale of NPAs to an ARC, claiming their higher private treaty offer should have been accepted by the bank instead of the lower bid from the ARC.
Finding of the Court:
The court found no violation of statutory provisions or arbitrariness in the bank's decision, affirming that the ARC's offer was superior and that the petitioners had no legal right to compel the bank to accept their offer.
Issues: Whether the bank acted arbitrarily in rejecting the petitioners' higher private treaty offer in favor of a lower bid from an ARC, and whether the petitioners had a legal right to compel the bank's acceptance.
Ratio Decidendi: The court held that the SARFAESI Act allows banks discretion in asset sales, and the petitioners' late offer could not compel the bank to disregard a concluded contract with the ARC.
Result: The court dismissed the petitioners' challenge, upholding the bank's decision to accept the ARC's offer.
JUDGMENT :
Sabyasachi Bhattacharyya, J.
1. The petitioners have challenged a request for bid for sale of Non Performing Assets (NPAs) to Asset Reconstruction Companies (ARCs)/NBFCs/FIs/Bank dated January 19, 2024 and consequential action.
2. The facts, in brief, are that the Union Bank of India through its authorized officer transferred its NPA accounts to respondent no. 6, an Asset Reconstruction Company(ARC) within the purview of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The petitioners contend that they had given an offer to the Bank by way of a private treaty to purchase the secured assets at a price higher than the respondent no. 6 and, as such, in order to ensure the highest benefit of the Bank, which deals with public money, the petitioners’ offer ought to have been accepted.
3. On several occasions, it is argued, the petitioner sought to revise its bid higher but those were thwarted by the Bank every time without giving any rhyme or reason. The petitioner hits at the alleged lack of transparency in such refusals. Learned senior counsel appearing for the petitioners argues that the purpose of auction sale is to fetch the highest value by the property concerned. Since the petitioners offered the highest value, although by private treaty, the same had to be accepted over the lesser bid of the respondent no. 6.
4. Learned senior counsel places strong reliance on Clause 8(5) of the Security Interest (Enforcement) Rules, 2002 (for short, “the 2002 Rules”). Clause 8 deals with sale of immovable secured assets in pursuance of measures taken under Section 13(4) of the SARFAESI Act. Four methods of transfer of immovable secured assets have been envisaged therein, which are as follows :
(a) by obtaining quotations from persons dealing with similar secured assets or otherwise interested in buying such assets; or
(b) by inviting tenders from the public; or
(c) by holding public auction including through e-auction mode; or
(d) by private treaty.
5. It is argued that the sequence in which the modes have been provided in the Rules is not indicative of the order of priority and as such operate on a parallel footing. Hence, neither of the clauses have precedence over the other in order of priority. The private treaty offered by the petitioners was on an equal footing with the quotations sought to be obtained from the ARCs.
6. Learned senior counsel appearing for the petitioners argues that the transfer which has been effected in favour of respondent no. 6 was under Clause (a) of Rule 8(5) which could not have any preference over Clause (d).
7. Learned senior counsel cites Ram Kishun and others v. State of Uttar Pradesh and others, reported at (2012) 11 SCC 511 where the Supreme Court held that Financial Institutions (FIs) are not property dealers and cannot dispose of secured assets in an unreasonable or arbitrary manner in fragrant violation of statutory provisions.
8. Learned senior counsel next cites Karnataka State Industrial Investment & Development Corpn. Ltd. v. Cavalet India Ltd. and others, reported at (2005) 4 SCC 456, where the concept of a sale of public property to obtain the best price was stressed. It was held that public auction is not the only mode but negotiations are also permissible in such sales. Reasonableness, it was held by the Supreme Court, is to be tested against the dominant consideration of best price.
9. It is argued that such tests have been overlooked in the present case.
10. Learned counsel appearing for the Bank cites Bijnor Urban Cooperative Bank Ltd., Bijnor and others v. Meenal Agarwal and others, reported at (2023) 2 SCC 805, where it was held that the Bank is to make a conscious decision regarding settlement of dues and cannot be compelled to accept a lesser One-Time Settlement (OTS) despite the pendency of recovery proceedings. In the said case, although there were seven years of failed attempts to transfer the property, the Supreme Court
