The main legal point established in the judgment is that the sale of a secured asset by private treaty without the consent of the guarantor and in violation of the prescribed rules is unconstitutional and ultra vires of the SARFAESI Act and the Rules.

D. MURUGESAN, J.

1. The instant writ petition raises the following questions:-

(1) Whether in terms of the second proviso to sub-rule (2) of Rule 9 of the Security Interest (Enforcement) Rules, 2002, the secured creditor could sell the secured asset below the reserve price mentioned in the sale notice without the consent of the borrower/guarantor?

(2) In the event the secured creditor obtains the consent of the borrower/guarantor to sell the secured asset for a price less than the reserve price, whether such consent would entitle the secured creditor to sell the secured asset by private treaty without following the conditions enumerated under the proviso to sub-rule (6) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?

(3) Whether the secured creditor could sell the secured asset by private treaty without there being a settlement containing terms between the borrower/guarantor in writing in terms of sub-rule (8) of Rule 8 of the Security Interest (Enforcement) Rules, 2002?

2. The facts giving rise to the above questions, in a nutshell, are as follows. The first respondent-Punjab National Bank (for short, “the Bank”) advanced certain loan facilities to various wine shops, namely, M/s Eswari Wines, Mahalakshmi Wines, Nanda Wines, Highway Wines, Raj Wines, Mini Pak Wines, Sri Easwari Wines, Annai Wines, Olympic Wines, Sri Sakthi Wines and Sri Balaji Wines during the year 1999, as the retail sale of Indian Made Foreign Liquor was allowed to individuals under licence as per the then policy of the Government, and the petitioner and her husband stood as guarantors for those loan facilities and the petitioner had offered the subject secured asset as a collateral security. Subsequently, the Government changed the policy and imposed a prohibition on the grant of licences to private individuals for the purpose of retail selling of Indian Made Foreign Liquor. By that policy, the licences granted to those individuals earlier ceased to operate and the rights came to be vested with the State Government run Corporation, namely, Tamil Nadu State Marketing Corporation Limited. In view of the above, the borrowers could not repay the loan amounts. Without the consent of the petitioner, guarantees were extended after the change of policy knowing fully well that the borrowers would not be in a position to repay the loan in view of the closure of business.

3. As the borrowers had not repaid the loan amounts, the Bank filed O.A.No.213 of 2004, impleading the individual borrowers as well as the petitioner and her husband, for recovery of a sum of Rs.2,05,52,585.25 together with further interest at the rate of 19 percent per annum from 8.7.2004 till the date of re-payment. The said O.A. was defended by the petitioner among others by filing a written statement and inter alia contending that the guarantees stood discharged for renewal of the facilities without the consent of the guarantor. While the said O.A. was pending, the Bank invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the SARFAESI Act”) and issued a notice dated 15.12.2004 under Section 13(2) to the petitioner demanding the payment of unpaid loan amount within a period of sixty days. Though the petitioner sent an elaborate reply, the Bank failed to consider the same and issued the notice dated 22.3.2005 under Section 13(4) and took symbolic possession of the secured asset on 24.7.2008. After the symbolic possession was taken, the Bank issued the sale notice, which was questioned by the husband of the petitioner before the Debts Recovery Tribunal-I in S.A.No.62 of 2009. The said sale notice was finally set aside by the Tribunal. Thereafter, the Bank again issued another sale notice dated 21.7.2009. Challenging the said notice, the petitioner filed S.A.No.171 of 2009 before the very same Tribunal and obtained an interim order of stay. In view of the grant of stay, the Bank wi