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IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. MANIKUMAR, V. BHAVANI SUBBAROYAN, JJ.
State Bank of India, Stressed Assets Recovery Branch, Rep. by its City Case Officer - Petitioner
Versus
M/s. Madhavi Food Products, Represented by its Managing Partners, N. Thangaraj & B. Madhaiyan, Dharmapuri & Others - Respondents
C.R.P. (PD) No. 3239 of 2017 & W.P. No. 7700 of 2017 & C.M.P. No. 15161 of 2017
Decided On : 19-03-2018
Writ petition filed by the borrower challenging the auction sale conducted by the bank under the SARFAESI Act, 2002. The bank had offered a one-time settlement (OTS) scheme to the borrower, and the borrower had agreed to the terms of the OTS and had made payments towards the settlement amount. However, the bank proceeded with the auction sale despite the OTS agreement. The borrower contended that the auction sale was in violation of the OTS agreement and sought a declaration that the auction sale was null and void. The court held that the auction sale was contrary to the OTS agreed upon between the parties and declared the auction sale as null and void. The court also directed the bank to repay the auction bid amount with interest at 10% simple interest and to pay the actual registration charges and stamp duty paid by the auction purchaser. The court further directed the bank to pay litigation expenses to the borrower and to place the order before the DRT for disposal of the OA as per the terms and conditions of the OTS agreement.
Fact of the Case:
The borrower, M/s. Madhavi Food Products, had availed a loan from the bank and had defaulted in repayment. The bank had filed an OA before the DRT for recovery of the loan amount. The bank also issued a sale notice under the SARFAESI Act, 2002 for sale of the secured assets. Subsequently, the bank offered an OTS scheme to the borrower, and the borrower agreed to the terms of the OTS and had made payments towards the settlement amount. However, the bank proceeded with the auction sale despite the OTS agreement.
Finding of the Court:
The court held that the auction sale was contrary to the OTS agreed upon between the parties and declared the auction sale as null and void. The court also directed the bank to repay the auction bid amount with interest at 10% simple interest and to pay the actual registration charges and stamp duty paid by the auction purchaser. The court further directed the bank to pay litigation expenses to the borrower and to place the order before the DRT for disposal of the OA as per the terms and conditions of the OTS agreement.
Issues: Whether the auction sale conducted by the bank was in violation of the OTS agreement entered into between the parties.
Ratio Decidendi: The court held that the auction sale was contrary to the OTS agreed upon between the parties and declared the auction sale as null and void. The court observed that the bank had offered an OTS scheme to the borrower, and the borrower had agreed to the terms of the OTS and had made payments towards the settlement amount. However, the bank proceeded with the auction sale despite the OTS agreement. The court held that the bank's action was in violation of the OTS agreement and that the auction sale was therefore null and void.
Final Decision: The court allowed the writ petition filed by the borrower and declared the auction sale conducted by the bank as null and void. The court also directed the bank to repay the auction bid amount with interest at 10% simple interest and to pay the actual registration charges and stamp duty paid by the auction purchaser. The court further directed the bank to pay litigation expenses to the borrower and to place the order before the DRT for disposal of the OA as per the terms and conditions of the OTS agreement.
S. Manikumar, J.
1. M/s. Madhavi Food Products, represented by its Managing Partners, Mr. N. Thangaraj & Mr. B. Madhaiyan, Dharmapuri District, was sanctioned loan to the tune of Rs.125.93 lakhs, but the amount disbursed was a sum of Rs.65 lakhs, by State Bank of India, Chennai, first respondent herein, for which, the petitioner company offered their valuable properties i.e.(i) Factory land and building in S.No.411/2, 4082, Perianahalli Village, Palacode Taluk, measuring to an extent of 1.92 acres; (ii) Land at S.No.408/1-A and 409/3A, Perianahalli Village, Palacode Taluk, measuring an extent of 1.42 acres; (iii) land at Poultry shed st S.No.410/3, Perianahalli, measuring an extent of 0.36 cents; and (iv) land and poultry shed at S.No.407/2 and 411/3, Perianahalli Village, Palacode Taluk, measuring an extent of 1.56 acres. According to borrower, lands in S.No.408/1-A and 409/3A, are agricultural lands.
2. According to the petitioner though a request was made to State Bank of India, Chennai, for disbursement of the entire amount, the same was not done. As the private borrowers insisted for payment with huge interest, the cost of machineries and their installation and due to the financial crisis caused, the writ petitioner could not repay the loan amount, within the time schedule.
3. Bank has issued a sale notice dated 26.12.2016, fixing the auction on 18.01.2017. In order to avoid the proposed auction of the petitioner's agricultural property, during the first week of January 2017, the writ petitioner approached the first respondent/State Bank of India, to settle the dues by way of one time settlement. Responding to the same, bank has sent a communication dated 09.01.2017, offering one time settlement.
4. Writ Petitioner has further submitted that, on receipt of the communication, petitioner had to mobilize a sum of Rs.3,56,000/- being the payment of 5% of the minimum amount on the outstanding, as on 31.03.2016. Therefore, the writ petitioner met the Authorised Officer/Assistant General Manager, Stressed Assets Recovery Branch, State Bank of India, Chennai, first respondent herein, and was informed that the period of OTS Scheme would be extended, if the petitioner makes the payment of 5% of the OTS amount.
5. Accordingly, the Authorised Officer/Assistant General Manager, Stressed Assets Recovery Branch, State Bank of India, Chennai, first respondent herein, issued a letter dated 07.02.2017, extending the OTS Scheme, along with the above upfront payment at 5% of the OTS amount, up to 15th February 2017.
6. Thereafter, writ petitioner deposited a sum of Rs.3,56,000/- being the 5% upfront on the very next day, i.e.8.2.2017 itself, with the Senior Manager, State Bank of India, Palacode Branch, Palacode, Dharmapuri, the second respondent herein. Subsequently, vide letter dated 10.02.2017, the Authorised Officer/Assistant General Manager, Stressed Assets Recovery Branch, State Bank of India, Chennai, first respondent herein, addressed the writ petitioner, stating that the letter dated 8.2.2017 of the petitioner, for settlement of dues to the bank, under the scheme of “SBI OTS Manufacturing, Trade and Services – 2016”, has been accepted by the appropriate authorities.
7. Writ Petitioner was also informed that the total amount payable under the scheme, would be Rs.56,86,424/-, application money of Rs.3,56,000 paid by the petitioner, would be appropriated towards OTS. 25% of the OTS amount be deposited by the writ petitioner, as upfront money within 30 days from the letter dated 10.2.2017 (i.e. within 12.03.2017), and this would include the amount deposited by the petitioner along with the application. The balance amount paid within 6 months from the date of the letter dated 10.8.2017 (the validity period) together with interest at 7.95% (documented rate/MCLR whichever was lower) for 6 months, failing which OTS sanction, would be rendered infructuous, and no interest will be charged, if the entire OTS amount is paid within 3 months from
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