Introduction:

A company borrows, and another company mortgages its property to secure the loan. Two NRI directors, wife and husband, own both the companies. Default committed, the Bank brings four secured properties for sale. The sale becomes the bone of contention.

2. The companies contend that the upset price in auction is ludicrously low; they also maintain that one property answers the description of agricultural land. So S.31 of the SARFAESI Act bars its sale. We will examine both these contentions.

Facts:

3. The 1st and the 2nd petitioners are the Private Limited Companies. The 3rd petitioner, an individual, is a Director in both the Companies. In fact, both the Companies are closely held family ventures. Of the respondents, the first respondent is the Bank; the second, the purchaser who purchased two of the four secured assets; and the third, the Tribunal.

4. The 1st petitioner—M/s.Sharada Flour Products Pvt. Ltd—initially took two term loans of Rs.6 crores and Rs.1.5 crores, besides a cash credit facility for Rs.6.5 crores. When the loans were renewed, the cash credit was brought down to Rs.5.5 crores. When Sharada took the loan, the second petitioner— M/s.Thekkemukkalil Properties Pvt., Ltd.,— mortgaged one among the four properties as collateral security. All the accounts turning Non-Performing Assets, the Bank began recovery proceedings. By 31.07.2017, the overdue amount stood at Rs.10,80,58,608/-.

5. Neither the debtor nor the guarantor—that is, Sharada or Thekkemukkalil—responded to the Bank’s notices, statutory or otherwise. So after completing the stages under Ss.13 and 14 of the SARFAESI Act, the Bank brought all the four secured assets for sale, through the auction notice dated 20.12.2017. In the sale held on 05.02.2018, it sold two items.

6. To claim the fourth item, that is 67.45 Ares of land, one Roy Cheriyan filed W.P.(C) No.2264 of 2018 in January 2018 and obtained an interim order. This Court held that the Bank may go ahead with the sale of the properties, but it should take up the fourth asset as the last item—only if the bank could not realise the loan amount with the sale of the other three items. In the end, the Bank tried to sell the last item, too; but no bidder came forward. True, the Bank also failed to sell both the third item.

7. First and second items, however, were sold to the 2nd respondent. All the three petitioners—the two companies and one Director—filed S.A.No.90 of 2018, taking various pleas. Principal among them are these: that the reserve price in the auction is abysmally low, that the sale consideration was woefully inadequate; that as the third item is an agricultural land, the SARFAESI Act cannot be invoked to sell it.

8. The Debt Recovery Tribunal-II, Ernakulam, through Ext.P5, a well-reasoned order, dismissed the S.A.Though the petitioners have an efficacious alternative remedy—an appeal before DRAT—they filed this Writ Petition. True, the petitioners do plead that this Writ Petition is maintainable.

9. In the above factual background, both the petitioners and the respondents advanced their arguments.

Submissions:

Petitioners’:

10. Sri. S.Sreekumar, the learned Senior Counsel for the petitioners, has assailed the Bank’s action on two counts: (i) that the value of the properties brought for sale was fixed too low; and (ii) that the Bank brought to sale, among other properties, even the agricultural land, and this violated S.31 of the SARFAESI Act.

11. First, the learned Senior Counsel contended that after pre-auction notice on 20.12.2017, the Bank sold the first item on 05.02.2018. In the sale the reserve price was fixed at Rs.2,92,33,000/-. But the Bank’s approved valuer earlier put the property value at Rs.5,73,78,000/-. To have the breakup, the valuer estimated the land cost at Rs.3,62,70,000/- and that of the building at Rs.2,11,000/-. The petitioners’ grievance, according to the Senior Counsel, is that the sale was knocked down for Rs.2,92,33,000/-, far below the valuer’s estimat