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2023 Supreme(Ker) 2
IN THE HIGH COURT OF KERALA AT ERNAKULAM
Bechu Kurian Thomas, J.
M/s Annam Steels (P) Ltd. And ors. – Petitioners
Versus
M/S. Canara Bank Ltd. And ors. – Respondents
W.P.(C) NO. 24561 of 2022
Decided On : 04-01-2023
Advocate Appeared:
For the Petitioner: Sri. S. Easwaran, Sri. P. Muraleedharan (Irimpanam), Smt. K.V. Rajeswari
For the Respondent: Sri. A.V. Thomas (Sr.), Sri. C. Ajith Kumar, Sri. Praveen Hariharan, Smt. K.S. Smitha, Smt. T.T. Shaniba, Sri. Amal Dev D, Smt. Nikita Nair C.S.
Point of Law : Merely because petitioners had deposited amount fixed as the reserve price as directed by this Court, that by itself is not a reason to set aside the auction, especially when secured creditor had not agreed to defer the auction based on deposit.
Headnote:
Constitution of India,1950 - Article 226 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002- Recovery of Debts and Bankruptcy Act, 1993 - Company - Auction notice - Challenged - An amount of Rs.190 Crores was borrowed by petitioners from a consortium of two banks comprising the first and second respondents. When repayment was defaulted, proceedings for recovery were initiated apart from filing an application under Recovery of Debts and Bankruptcy Act, 1993, as O.A. No.147/2016 - In meantime, proceedings were initiated under Act, which was challenged in S.A. No. 111/2017 before the DRT, Ernakulam - Later, when possession of the secured asset was proposed to be taken, W.P.(C) No.21892 of 2021 was filed by petitioners, which was dismissed by judgment dated - Whether remedy under Article 226 of the Constitution of India is available to the petitioners to set aside the sale? - Whether EMD paid by the promoter of the Company can be treated as a valid payment when the bid was subsequently made by the Company incorporated after the date of payment of EMD? - Payment made pursuant to direction of Court cannot be a reason to set aside auction sale - Sanctity of an auction sale cannot be interfered with lightly - Though the action notice was issued, writ petition was filed only on the eve of auction - Even then, Court had not interdicted the auction. Para 32
Finding of Court :
Merely because petitioners had deposited the amount fixed as reserve price as directed by Court, that by itself is not a reason to set aside auction, especially when secured creditor had not agreed to defer the auction based on deposit - Depositing amount as directed by this Court was a chance that petitioners took to persuade the secured creditor from avoiding auction - Secured creditor or the auction purchaser cannot be bound by direction of this Court to deposit the reserve price and nor can auction be set aside on that count - By interim order dated, Court had directed the petitioners to deposit the amount of Rs. 7.90 Crores - Auction was, however, not stayed - Amount deposited by petitioners was later directed to be kept in a non-lien account - Amount is allegedly stated to have been borrowed from other persons and was raised only on basis of directions of this Court - Since an act of Court shall not prejudice a person and as amount is kept in a non-lien account, Court of view that interest of justice demands that said amount be returned back to petitioners with nominal interest.
Result : Writ petition fails and is dismissed.
JUDGMENT :
Can the earnest money deposited by the promoter of a company prior to its incorporation, be treated as an earnest money deposit made on behalf of a bidding company at an auction? The aforesaid question primarily arises for consideration in this writ petition under Article 226 of the Constitution of India. The challenge is against an auction sale held under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, 'the Act').
2. Initially, the writ petition was filed, challenging the auction notice issued under the Act. During the pendency of the writ petition, since the auction took place, an amendment was effected assailing the auction sale itself.
3. The facts, in a nutshell, are as follows :
An amount of Rs.190 Crores was borrowed by the petitioners from a consortium of two banks comprising the first and second respondents. When repayment was defaulted, proceedings for recovery were initiated apart from filing an application under the Recovery of Debts and Bankruptcy Act, 1993, as O.A. No.147/2016. In the meantime, proceedings were initiated under the Act, which was challenged in S.A. No. 111/2017 before the DRT, Ernakulam. Later, when possession of the secured asset was proposed to be taken, W.P.(C) No.21892 of 2021 was filed by the petitioners, which was dismissed by judgment dated 03.01.2022. Thereafter, petitioners submitted a proposal for a one-time settlement, and since the initial proposal was not acceptable to the consortium of banks, a revised proposal was submitted, all of which ended in rejection. While so on 14.06.2022, the impugned sale notice was published, notifying the sale of one of the secured assets to be held on 30.07.2022 at 11.30 am.
4. A day before the date of sale, this writ petition was preferred challenging the sale notice. By an interim order dated 29.07.2022, a learned Single Judge of this Court directed the petitioners to deposit Rs.1 Crore on the date of sale (i.e. on 30.07.2022) and a further amount of Rs. 6.9 Crores to be deposited on or before 10.08.2022, and directed the confirmation of sale scheduled on 30.07.2022 to be deferred. Since the learned Single Judge had not stayed the auction, though petitioners complied with the condition of deposit of Rs. 1 Crore, the auction of the property took place on 30.07.2022 as notified. In the meantime, petitioners deposited Rs.6.9 Crores also within the time stipulated.
5. Later, on 01.09.2022, the interim order staying the confirmation of sale was vacated by this Court, after noticing the amendment brought into section 13(8) of the Act. The decision of the Supreme Court in Bank of Baroda v. Karwa Trading Company and Another [(2022) 5 SCC 168] and that of this Court in Sree Gokulam Chit and Finance Co. Pvt. Ltd. v. Emil and Eric Hospitality Services (2021 (6) KLT 673) were relied upon. While vacating the stay against the confirmation of sale, it was observed that the amount of Rs. 7.9 Crores deposited by the petitioners will be kept in a non-lien account and shall be subject to final orders in the writ petition. It was also clarified that petitioners will have the liberty to approach the appropriate forum if they are aggrieved by the auction sale.
6. A writ appeal was preferred by the writ petitioners against the said interim order as W.A. No.1355 of 2022. The Division Bench of this Court by judgment dated 06.10.2022, while affirming the order, observed that the direction to approach the Debts Recovery Tribunal is in effect, a final relief, and since the same could not have been granted as an interim measure, that portion of the order directing the writ petitioners to pursue their alternative remedies was interfered with. A further direction was issued to the learned single Judge to dispose of the writ petition itself on merits. It was pointed out that though petitioners had challenged the judgment of the Division Bench before the Supreme Court, by order dated 18.11.2022, the SLP was dism
