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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
SANJIB BANERJEE, M. DURAISWAMY, JJ.
The Industrial Development Bank of India – Appellant
Versus
Sree Narayana Textile Private Limited – Respondent
Review Application (MD) No. 83 of 2021, W.P. (MD) No. 5119 of 2020
Decided On : 01-10-2021
Review Application - Debt Recovery - Recovery of Debts due to Banks and Financial Institutions Act, 1993, Section 19 - The court discussed the proceedings under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, and the orders passed by the Debt Recovery Appellate Tribunal and the Debts Recovery Tribunal. The court highlighted the abuse of writ jurisdiction by the borrowers and the consequences of their actions on the auction-purchaser and the Recovery Officer. The court ultimately modified the previous order and left the sale in favor of the auction-purchaser undisturbed.
Fact of the Case:
The review application pertains to a common order dated August 23, 2021, regarding two petitions filed by borrowers who had defaulted in making payment to the respondent bank. The review was filed by the bank, challenging the court's observation that the matter would be governed by the order passed by the Debt Recovery Appellate Tribunal and the Recovery Officer would be permitted to sell the property at an auction.
Finding of the Court:
The court found that the borrowers had abused the writ jurisdiction and engaged in dishonest and harassing conduct, leading to prejudice for the highest bidder at the auction. The court also noted that the sale stood confirmed in favor of the highest bidder at the 2016 auction, and there was little scope for interference with the orders passed by the Debt Recovery Appellate Tribunal and the Debts Recovery Tribunal.
Issues: The issues involved the abuse of writ jurisdiction by the borrowers, the consequences of their actions on the auction-purchaser and the Recovery Officer, and the interpretation of the orders passed by the Debt Recovery Appellate Tribunal and the Debts Recovery Tribunal.
Ratio Decidendi: The court held that the borrowers' conduct had caused prejudice to the highest bidder at the auction and that the sale stood confirmed in favor of the highest bidder at the 2016 auction. The court also emphasized that there was little scope for interference with the orders passed by the Debt Recovery Appellate Tribunal and the Debts Recovery Tribunal.
Final Decision: The court modified the previous order, leaving the sale in favor of the auction-purchaser undisturbed and disposing of the petitions without any further order. The review application was allowed, and there was no order as to costs.
ORDER :
PRAYER: Review Application filed under Order XLVII Rule 1 & 2 read with Section 114 of CPC to review the order passed by this court in WP (MD) No. 5119 of 2020 dated 23.08.2021.
1. This review application pertains to a common order dated August 23, 2021 by which WP (MD) Nos.1113 of 2020 and 5119 of 2020 were disposed of. Both petitions were filed by the borrowers who had defaulted in making payment to the respondent bank. The review has been filed by the bank.
2. The solitary ground raised in the review is that while passing the order dated August 23, 2021, this court observed that the matter would be governed by the order passed by the Debt Recovery Appellate Tribunal and the Recovery Officer would be permitted to sell the property at an auction, though the records would reveal that the sale had already been concluded in March, 2020 in favour of the auction-purchaser who was also impleaded in both the writ petitions disposed of on August 23, 2021.
3. Following the debt due to the respondent bank being adjudicated by the Debts Recovery Tribunal-II, Chennai in proceedings under Section 19 of the then Recovery of Debts due to Banks and Financial Institutions Act, 1993, recovery proceedings were initiated. On or about March 30, 2016, the Recovery Officer of the Debts Recovery Tribunal-II, Chennai conducted an auction. The third respondent in either writ petition, S.V. Gandhi, was the highest bidder and quoted an amount of Rs.6.61 crore for the property. A sum of Rs.66 lakh had been deposited by way of earnest money and the would-be purchaser remitted a further 15 per cent amounting to Rs.99,25,000/-. However, despite demands by the Recovery Officer to pay the balance amount of Rs.5,02,36,010/- the highest bidder did not take appropriate steps. That culminated in the Recovery Officer forfeiting the amount deposited by an order dated April 12, 2016.
4. It may be noticed that even before the auction was conducted on March 30, 2016, the borrowers had filed WP (MD) No. 6240 of 2016 before this court and, for reasons that are not clear from the relevant order, obtained an order on March 29, 2016 to the effect that the auction could go on but the confirmation of the sale would remain stayed until further orders. It appears that since the sale could not have been confirmed, the highest bidder was not keen in depositing such a huge sum which would remain blocked, while the borrowers, true to the Indian style, made the creditor run around in circles. The appeal preferred by the highest bidder against the Recovery Officer's order dated April 12, 2016 by which a sum in excess of Rs.1.65 crore was sought to be forfeited was dismissed by the relevant Debts Recovery Tribunal on November 7, 2017. Against such order, the highest bidder carried MA No. 20 of 2018 to the Debt Recovery Appellate Tribunal in Chennai. During the pendency of such appeal, the Recovery Officer issued a further auction notice for sale of the same property. The reserved price was enhanced to Rs.8,77,37,000/-.
5. It may be mentioned that, in the meantime, on September 28, 2016, WP (MD) No. 6240 of 2016 was withdrawn by the borrowers upon seeking liberty to proceed before the appropriate Debts Recovery Tribunal. As a consequence, the order of March 29, 2016 staying the confirmation of the sale stood vacated. It is evident that the purpose of filing the writ petition was merely to interdict the auction that was to be conducted by the Recovery Officer and once the purpose was served in the highest bidder failing to pay the balance consideration in view of the stay and the Recovery Officer forfeiting the substantial payment already tendered, the borrowers did not proceed with the writ petition.
6. In the appeal carried by the highest bidder before the Debt Recovery Appellate Tribunal, such Appellate Tribunal noticed that the borrowers had abused the writ jurisdiction of this court. Paragraph 9 of the relevant order dated January 2, 2020 is apposite in the context:
The central legal point established in the judgment is the abuse of writ jurisdiction by the borrowers and the consequences of their actions on the auction-purchaser and the Recovery Officer, leading....
The judgment emphasizes the finality of sale transactions, the need to balance the interests of defaulters and creditors, and the importance of following the statutory provisions for challenging the ....
The impact of communication from the bank on the actions of auction purchasers and the compliance with the Security Interest (Enforcement) Rules were central to the court's decision.
A bona fide purchaser at auction is protected, and a writ petition challenging the confirmation of sale is not maintainable if filed beyond the statutory period.
(1) Auction sale of mortgaged property – Objective of recovery proceedings is not merely to complete sale but to realise maximum value of secured asset so as to balance interests of creditor and borr....
The High Court cannot entertain a writ petition under Article 226 when an effective alternative remedy exists under the SARFAESI Act, emphasizing the need for exhaustion of statutory remedies.
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