Fixation of reserve price by hc for auction under sarfaesi
Querist :
Anonymous
(Querist) 31 August 2011
This query is : Resolved
Dear Members,
I seek a legal opinion on the following.
The CC account of our client has become a NPA and the bank has taken action under sarfaesi.
The reserve price of the property has been fixed at 50 crores by the bank.
We went to HC and after arguements by both sides the court appointed a valuer.
The valuer fixed the reserve price at 100 crores.
The bank called for bidders twice in news paper ie 1st call and 2nd call.
Now the bank has approached the HC once again to review the reserve price to 50 crores.
Can you please guide me as
1. What would be the likely judgement of the court.?
2. Are there any case laws for reviewing the reserve price? like how much the court can reduce?
thanks in advance
ajay sethi
(Expert) 31 August 2011
the court will call for fresh valuation report as property could not be sold on 2 occassions . it is not necessary that reserve price will be 50 crores .
prabhakar singh
(Expert) 31 August 2011
A review petition lies but the Bank has least chances to succeed unless there is some mistake apparent on the face of record overlooked by High Court which if looked into changes the conclusion arrived at.
In practice Reviews are dismissed in ration of 100000 : 01
M/s. Y-not legal services
(Expert) 31 August 2011
Don't worry.. Court will not reduce the property's worth price. May be you file a petition for appoint an advocate commissioner to fix the property's price as per market value of your locality.
Advocate. Arunagiri
(Expert) 31 August 2011
I will be failing in my duty if I dont appreciate your sincere efforts in attending the queries.
Nice work, Keep it up.
Raj Kumar Makkad
(Expert) 31 August 2011
Though I could not trace out direct ruling on the matter in dispute but there are various favourable points in one citation meant in present case. I submit the same as under:
OFFICE OF THE RECOVERY OFFICER
DEBTS RECOVERY TRIBUNAL
(Kerala & Lakshadweep)
8th Floor, K.S.H.B. Building, Panampilly Nagar, Cochin – 682036
I.A. No.2761/2009 in DRC No. 327 in TA No. 219/1998 in the matter of Indian Bank Vs. K. S. Govindan Nair & Others.
Lijumon, S/o Raju:Petitioner / 3rd party
Residing at TC 16/10001(1),
CS Road, Jagathy, Thycaud P.O.
Vs.
1. Indian Bank, Balaramapuram Branch:Respondent no.1 / Certificate
Thiruvananthapuram, represented byholder bank
Its Manager.
2.K. Santhosh Kumar, Advocate:Respondent no.2 /
TC 28/1292, SARATH villaAuction purchaser
Kunnumpuram, Thiruvananthapuram.
O R D E R
This is a petition filed by a third party under Rule 61 of the Second Schedule to the Income Tax Act, 1961 for setting aside the sale conducted on 18.11.2009. The averments made by the petitioner are that he is in possession of an extent of 3.29 Ares of land in survey no.226/1 of Athiyannoor Village in Thiruvananthapuram District; that on the strength of the power given to one Govindan Nair (principle debtor in the DRC), he executed two sales favouring the petitioner through sale deed no.1809/07 and 1810/07 of Balaramapuram SRO; that
before purchasing the property the petitioner had enquired in the Sub Registrar’s Office and the Village Office to ascertain as to whether there were any subsisting encumbrances or attachments of recovery proceedings relating to the properties; that thereafter the petitioner had mortgaged the property to secure a loan availed by him from the Thiruvananthapuram Taluk Taxi Drivers Co-operative Society; and that the petitioner is a bonafide purchaser for value and that there are other valuable unencumbered properties available as security; that the reserve price of 45/- lakhs fixed in the proclamation is much less than the reserve price fixed in the earlier proclamation; that there was no proper publicity of the sale; that no attachment was made before sale; that petitioner’s property was put to sale with the properties belonging to others in one single lot; that there is material irregularity in the conduct of the sale which has vitiated the sale; that no notice was given to the petitioner; and that there was no proper publication of the proclamation and so also there was no affixture.
2.The Certificate holder Bank has filed a counter affidavit and raised serious objections and stated that the petition is not maintainable; there was no alleged infirmity in publishing and conducting the sale.
3.The auction purchaser has also filed his objection statement.
4.The matter was listed in the daily cause list on 31.12.2009. Adv. K.S. Dilip appeared for the petitioner. Adv. S. Easwaran appeared for the Certificate holder Bank. Heard parties. I have considered the petition, the counter filed by the Certificate holder Bank and the objection statement filed by the auction purchaser.
5.The present petition has been filed under Rule 61 of the Second Schedule to the Income Tax Act, 1961 for setting aside the sale conducted on 18.11.2009. Rule 61 of the Second Schedule to the Income Tax Act, 1961 provides filing of petition to set aside sale by the defaulter / an interested person. There are only two grounds available under Rule 61 of the Second Schedule to the Income Tax Act, 1961 to set aside a sale and they are (i) Notice was not served on the defaulter to pay the arrears as required by the schedule and (ii) there was material irregularity in publishing or conducting the sale. In the present matter notice of demand under Rule 2 of the Second Schedule to the Income Tax Act, 1961 was served on the certificate debtors on 21.01.2008. The petitioner cannot therefore contend that no notice was given to the Certificate Debtors. The word publishing refers to the acts done after an order for sale has been made and those prior to the actual conduct of the sale; and the word conducting refers to the acts of the Officer in carrying out the order for sale, but does not refer to the things done prior to the order made for sale. In order to sustain an application for setting aside sale on the ground of material irregularity, it has to be seen that if there has been a fraud or material irregularity, the alleged material irregularity or fraud must have been in respect of publishing or conducting the sale. The following may be taken as instances of material irregularity in publishing or conducting a sale:- (i) Non-service of notice upon proper party (ii) Omission to determine the estimated value of the property necessary to be entered in the Proclamation of Sale or to specify proclamation of sale the extent of the property to be put up for sale (iii) Sale held at time earlier than that stated in the Proclamation of Sale or at a place different than that stated in the Proclamation of Sale (iv) Omission to state the pending litigation on the property to be sold (v) The Proclamation of Sale is not being in accordance with Rules, though when the Proclamation is totally absent, the sale is absolutely nullity (vi) Non-compliance with the Rule relating to mode of
Proclamation, provided it has caused substantial injury (vi) Holding sale before expiry of 30 days from date on which copy of proclamation had been affixed on the office of the Recovery Officer (vii) Adjournment of sale without fixing subsequent date for sale (viii) Non-specification of time to which a sale has been adjourned (ix) Conducting of sale on day other than that to which the sale was adjourned (x) Deviation made from the order in which lots had been mentioned in proclamation (xi) Non-issue of fresh Proclamation in case of an adjourned sale unless the issue of such fresh Proclamation has bee waived, though in such a case, the sale can be set aside only on proof of substantial laws (xii) Non-payment of 25% of the auction purchaser (xiii) Non-payment of balance of purchase price within the prescribed limit of time which cannot be extended (xiv) Reduction of the upset price during the course of sale without notice to defendant / debtor. An application for setting aside sale on ground of one or other of above material irregularities in the Proclamation is competent under Rule 61 of the Second Schedule to the Income Tax Act, 1961, corresponding to Rule 90 of Order XXI of the Civil Procedure Code.
6. The mortgage of the property in question was created in favour of the Certificate holder Bank on 29.01.1974. Admittedly the sale of the property in favour of petitioner as per the sale deed is in 2007. The Certificate holder Bank has rightly stated that once the creation of equitable mortgage is admitted then there is absolutely no scope for adjudication of any of the dispute raised in the application.
7. In the present matter Notice for settling the terms of a sale proclamation dated 13.05.2006 was published in ‘Mathrubhumi’ daily dated 20.05.2008, Trivandrum edition. By the said notice for settling the terms of a Sale
Proclamation the Certificate Debtors were informed that at 10.30 A.M. on 19.06.2008 has been fixed for settling the terms of a Sale Proclamation in respect of the decree schedule properties. The Certificate Debtors were directed to bring to the notice of the Recovery Officer any encumbrances, charges, claims or liabilities attaching to the said properties or any portion thereof and also the revenue, if any, assessed upon the properties or any part thereof. The Certificate Debtors were further directed to furnish any relevant information along with supporting documents which would be useful in fixing the reserve price of the properties. In pursuance of the said notice none of the Certificate Debtors appeared in person or through counsel. There was no representation for the Certificate Debtors. Nor any statement giving out the material details and / or the encumbrances and charges on the schedule properties has been filed by the Certificate Debtors. The intransigent attitude of the Certificate Debtors had revealed that they wanted the execution proceedings protracted. The encumbrance / charge etc. on the schedule properties should have been brought on record by the Certificate Debtors and for the said purpose notice was given to the Certificate Debtors. The property was put to public auction sale on ‘as is where is’ condition in terms of Rule 6 of the Second Schedule to the Income Tax Act, 1961. The Hon'ble Supreme Court of India in Dhirendranath Vs. Sudhir Chandra, AIR 1964 SC 1300 has held that the contents of the Sale Proclamation are meant only for the benefit of the defendant-debtor, and could, therefore, be waived, and in case he fails to appear at the time of settlement of Sale Proclamation and raise any objection as to the terms thereof, he must be taken to have waived them and cannot be allowed to raise them in proceedings for setting aside sale. Here, in fact speaking the petitioner is a stranger and he cannot assail the sale on the grounds mentioned in the petition. None of the Certificate Debtors filed any petition to set aside the sale under rule 60 or 61 of the Second Schedule to the Income Tax Act,
1961. It was held by the Hon'ble Supreme Court of India in Samir K. Shah Vs. Union of India & Others (reported in 2005 AIR SCW 3172) that provisions of the Second and the Third Schedules to the Income Tax Act, 1961 are made applicable with necessary modifications to the proceedings for recovery of debt under the Act and that Rule 52 and 53 of the Second Schedule to the Income Tax Act, 1961 do not require the grant of any opportunity to the debtor for being heard before the valuation is made and the reserve price is fixed and that there is no requirement for the creditor to consider any alternative valuation filed at the instance of the debtor.
8.So far as fixation / reduction of reserve price is concerned, the Certificate Debtors did not furnish any document which was relevant for the purpose of fixing the reserve price of the property. In pursuance of the initial Sale Proclamation in respect of 46 cents of land with the reserve price of Rs.46/- lakhs could not be materialized for want of bidder(s), and the sale had to be adjourned for seven times. Consequently the Certificate holder Bank had filed an application to increase the extent of the property to be sold and reduce the reserve price and fix the reserve price in consonance with the expert valuation report. Notice of the petition was issued time and again to the Certificate Debtors. The Certificate Debtors did not bother to take care of the said notice. Ultimately the said petition was allowed and 1 acre 10 cents out of 2.52 acres of land which forms as item no.8 of the decree schedule in O.S. No.1/1981 in Village-Athiyannoor and in survey no.226/1 was put to auction sale in order to realize the certificate amount of debt. The excess money, if any, realized in the auction sale is liable to be paid to the owner of the property in terms of Rule 8 of the Second Schedule to the Income Tax Act, 1961. The Hon'ble High Court of Kerala in the matter of Dhanalakshmi Bank Ltd Vs. Saritha Furniture Mart (reported in 2006 (1) KLT 86) has held that execution Court which originally fixed an upset price or reserve price, for the
property proposed to be sold, could reduce the same on the ground that, there are no bidders to purchase the property for the price so fixed, after hearing the judgment debtor in that regard.
9.The property in question was identified and a location sketch of the property in Village-Athiyannoor, Block 21, admeasuring 14.05 Ares in Re-Sy. No.109/4, 2.05 Ares in Re-Sy. No.109/8, 1.62 Ares in Re-Sy. No.109/9, 1.62 Ares in Re-Sy. No.109/5, 1.62 Ares in Re-Sy. No.109/7 and 20.33 Ares in Re-Sy. No.109/3 has been furnished by the Village Officer, Village-Athiyannoor vide his report No.504/09 dated 05.09.2009. Hence there is proper identification of the property.
10.The Hon'ble High Court of Kerala in Writ Petition(C) No.38689 of 2004 (L) P.M. Abdul Gafoor Vs. UCO Bank and Others, vide judgment dated 30.03.2005 has been pleased to hold that Rules do not contemplate any prior notice of sale being given to any person who has come into occupation of the mortgaged properties after the mortgage. Hence no notice was required to be served on the strangers including the present petitioner.
11.In Appeal no.12/04 in DRC No.1057 in OA 167/2000 filed by Cochin Malabar Estates and Industries Ltd against Federal Bank and Another, the Hon'ble Presiding Officer of the Debts Recovery Tribunal, Ernakulam vide order dated 12.07.2004 has held—“Item No.1 in ‘A’ schedule was sold for an amount in excess of the reserve price fixed. I do not think the fact that there was only one bidder to bid the property is a ground for adjournment of the sale. Therefore, I do not find any merit in the contention of the appellant that the Recovery Officer ought to have adjourned the sale as there was only one bidder”. The said order dated 12.07.2004 passed by the Debts Recovery Tribunal, Ernakulam was challenged before the Debts Recovery Appellate Tribunal, Chennai vide Appeal
MA-107/04, and the said Appeal was dismissed by the Hon’ble Debts Recovery Appellate Tribunal, Chennai vide order dated 12.10.2004. Though the present petitioner has no locus-standi to raise such objection, the auction sale conducted with only one bidder is always valid, and the relevant rules do not preclude the Recovery Officer to sell the property to the sole bidder who bid for the property.
12.In Appeal No.7 of 2005 filed before the Debts Recovery Tribunal, Ernakulam by one Nimmy John Chakola against Catholic Syrian Bank Ltd & 5 Others, vide final order dated 29.08.2005, the Hon'ble Presiding Officer of the Debts Recovery Tribunal, Ernakulam has held that the contention that publication of Proclamation is in English, therefore, cannot be treated as publication in terms of sub-rule (2) of Rule 54 of the Second Schedule to the Income Tax Act, 1961, cannot be accepted for two reasons; first, sub-rule (2) of Rule 54 of the Second Schedule to the Income Tax Act, 1961 is not mandatory but only directory; secondly, Rule 3 of the Debts Recovery Tribunal (Procedure) Rules, 1993 as amended in 2003 says that the proceedings of the Tribunal shall be in English or
Hindi and Section 29 of the Recovery of Debts due to Banks and Financial Institutions' Act 1993 has not made the Second Schedule to the Income Tax Act, 1961 as such applicable but has made applicable as far as possible and with necessary modifications to recovery of debt under the Act. Therefore I do not find any merit in the contention that the publication was made in English and therefore there is material irregularity / illegality.
13.So far as publication is concerned copy of the Sale Proclamation dated 30.09.2009 alongwith the conditions of sale had been affixed by the Recovery Officer personally on the property on 03.10.2009 at 11.30 A.M. in presence of witnesses accompanied by beat of drum in terms of Rule 54 of the Second
Schedule to the Income Tax Act, 1961. A copy of the Sale Proclamation was published in ‘Malayala Manorama’ daily news paper, Thiruvananthapuram edition dated 05.11.2009. Simultaneously, a copy of the Sale Proclamation and ‘conditions of sale’ has been affixed on the Notice Board of the Office of the Recovery Officer, Debts Recovery Tribunal, Ernakulam. Hence there is no alleged infirmity in publishing and/ or conducting the public auction sale in question.
14.The petitioner in the petition was presumably having notice of the fact of mortgage / lis-pendens. As per Section 3 of the Transfer of Property Act “ a person is said to have notice” of a fact when he actually know that fact, or when but for willful abstention from an enquiry or search which he out to have made, or gross negligence, he would have known it (substituted by Act 20 of 1929, Sec. 4 as amended by Act 5 of 1930, Sec.2 for the original paragraph). In Usha Siha Vs. Dina Ram [(2008) 7 SCC 144] the Hon'ble Supreme Court of India has held that a transferee from a judgment-debtor is presumed to be aware of the proceedings before a Court of law. The petitioner should have seen / verified all the parent title deeds of the property in question before purchasing the property.
15.In the present matter an I.A. No.84/08 came to be filed by the Certificate holder Bank before the Recovery Officer stating therein that there were construction activities going on in the 2.52 acres of land which is a mortgaged property in favour of the Certificate holder Bank and said construction works are being done by (1) Mr. Harisankar, Lekshmi Bhavan, Temple Road, Sasthamangalam, Thiruvananthapuram; (2) Mr. Shibu Kumar, TC 16/10001 (1), CS Road, Thycaud P.O., Thiruvananthapuram; (3) Mr. Liju Mon, TC 16/10001 (1), CS Road, Thycaud P.O., Thiruvananthapuram; and (4) Mrs. S. Sandhya, Lekshmi Bhavan, Temple Road, Sasthamangalam, Thiruvananthapuram. Consequently a status-quo order dated 21.01.2008 was also passed restraining the
above-named persons from carrying out the construction work on the property in question.
16.The Hon'ble High Court of Kerala in KSFE Ltd Vs. Meenachil Co-operative Agricultural and Rural Development Bank Ltd (reported in 2004 (3) KLT 369) has held that a mortgagor is disabled from encumbering the properties in any case without the junction of the mortgagee.
17. The property in question is admittedly in the property which was mortgaged by Shri Govindan Nair in favour of the Certificate holder Bank. The mortgage gives rise to a right in rem. The mortgagee can follow his security in whosoever hands it goes.
18.For the reasons mentioned above, the present petition to set aside the sale is hereby rejected.
Given under my hand and the seal of this Tribunal on this the 04th day of January 2010.
[Sd/-]
(VIJAY KUMAR PILLAI)
RECOVERY OFFICER
