The central legal point established in the judgment is the requirement for fair and transparent conduct in the sale of secured assets under the SARFAESI Act, emphasizing the need for correct valuation, reserve price, and maximum public participation in the auction process.

K.K.SASIDHARAN, J -

Introductory:

1. This case is a classic example of misuse of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by the secured creditor, by purchasing the secured asset in the absence of bidders, after reducing and refixing the market value and upset price, notwithstanding the offer made by two bidders in the earlier auction quoting substantial amount.

2. The petitioner challenges the sale notice dated 21 April, 2010 and the subsequent sale certificate issued in favour of the respondent Bank on 9 July, 2010 on the ground that the Bank deliberately reduced the market value and the upset price of the secured asset for the purpose of snatching away the valuable property for a paltry sum.

The Background Facts:

3. The petitioner is a Software Development International Company started in the year, 1997. The petitioner provides services in the Internet, Wireless, ERP and E-Government Technologies for Japanese Companies and Indian Educational Institutions including Anna University, Dr.M.G.R. Medical University, Stanley Medical College, Kilpauk Medical College and JIPMER Medical College at Pondicherry. The petitioner, for the purpose of their business, took financial assistance from the respondent. Since the petitioner company suffered losses on account of general recession, the loan amount was not re-paid as per schedule. This resulted in initiating action by the Bank to recover the amount.

4. The Bank by invoking the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") issued a notice under Section 13(2) on 29 November, 2007 claiming a total amount of Rs.4,26,43,519/-. Though the petitioner submitted a reply to the said notice, the Bank took further action by issuing possession notice under Section 13(4) of the Act on 29 January, 2008.

5. The petitioner unsuccessfully challenged the proceedings before the Debts Recovery Tribunal. The Bank in the meantime took steps to auction the property by fixing the reserve price at Rs.3,10,00,000/-. Though the successful bidder offered Rs.3,15,00,000/-, the amount was not paid and as such, the auction was cancelled. Thereafter, the Bank reduced the reserve price from Rs.3,10,00,000/- to Rs.2,42,00,000/-. The auction was thereafter scheduled to be held on 26 May, 2010. There were no bidders. Therefore, the Bank by quoting a sum of Rs.2,42,00,000/-purchase the property. The said auction is challenged in this writ petition.

6. The Bank filed a counter in answer to the contentions raised in the writ petition. The Bank admitted that the property was purchased by quoting the reserve price. According to the Bank, there was no fraud or illegality in the matter of sale and it was a bona fide transaction. The subsequent valuation and fixation of reserve price cannot be termed as arbitrarily.

7. The Bank subsequently filed an additional counter affidavit wherein it was indicated that before taking part in the auction, intimation was given to the petitioner about their intention.

Submissions:

8. The learned Senior Counsel for the petitioner contended that the Bank deliberately obtained a fresh valuation certificate indicating a lesser market value and the reserve price was fixed at a still lower price. The low amount was fixed deliberately, as their intention was to purchase the property for a song. No notice was issued to the petitioner before effecting the sale in favour of the Bank. The sale was in violation of first proviso to Rule 9 (2) of the Security Interest (Enforcement) Rules, 2002. According to the learned Senior Counsel the Authorised Officer has no authority to sell the property, in case, he fails to obtain the price higher than the reserve price. It was further contended that in the event of not getting the price higher than the reserve price, the consent of the borrower is absolutely necessar