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Madhya Pradesh High Court · body

2008 DIGILAW 1115 (MP)

Godawari Shridhar v. Union Bank of India

2008-09-05

S.K.GANGELE

body2008
ORDER 1. Petitioner has filed this petition challenging the notification of auction of a house, Annexure P-1, which was mortgaged with the respondent No.1, Bank. 2. Petitioner is a partner of a firm, named as 'M/s. Shridhar Radios'. The firm had been conducting business. In the year 1984 it had been provided facility of cash credit limit by the respondent Bank and it was extended time to time upto Rs.35 lacs. 3. As per the petitioner in the month of August 2005 there was a theft in the shop of the firm amounting to Rs.6,05,540/-. The theft amount could not be recovered and due to the aforesaid circumstances the firm could not continue its business and on account of this it could not pay cash credit limit which it had encashed from the Bank. Consequently, Bank issued a notice demanding an amount of Rs.33,85,0311- failing to pay the amount Naib Tehsildar also issued a revenue recovery certificate of Rs.30,56,371/- on 12.1.2006. The petitioner firm filed a petition before this Court challenging the notice. The petition was registered as WP No. 1256/2007. Initially, the Court granted stay in favour of the petitioner. Thereafter, vide order dated 13.8.2007 the Court disposed of the petition on the ground that there was a remedy available to the petitioner of filing appeal under section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Thereafter, the petitioner filed an appeal before the Tribunal. The member of Tribunal is not working at present, in the mean while the respondent Bank issued a notification with regard to auction of the house of the petitioner, hence the petitioner has filed this petition. 4. The respondent-Bank in the return stated that the firm had taken a loan and thereafter the bank initiated proceedings with regard to recovery of loan because the firm had not deposited the amount of loan. The total loan amount Rs.36,37,725/- had been due to the petitioner on 7.9.2007 when the notice to take possession of the house was issued to the petitioner. The house was mortgaged with the bank hence the bank has power and authority to auction the house. 5. Learned senior counsel for the petitioner has submitted that the Bank itself valued the property, the house, at Rs.60 lacs, and it is auctioning the house at near about Rs.50 lacs. The house was mortgaged with the bank hence the bank has power and authority to auction the house. 5. Learned senior counsel for the petitioner has submitted that the Bank itself valued the property, the house, at Rs.60 lacs, and it is auctioning the house at near about Rs.50 lacs. In view of the provisions of rule 8(c) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Rules, 2002 (hereinafter referred to as "the Rules of 2002") the property in question cannot be auctioned below the reserve price fixed by the Bank. Hence, the auction proceedings are contrary to law. Contrary to this, learned counsel for the respondent Bank has submitted that Bank has tried its best to fetch higher rates, however, it could not receive bid of more than Rs.50 lacs. It is not mandatory for the bank to sell the house at more than Rs.60 lacs. Bank has also offered the petitioner to sell the house for more than Rs.60 lacs but the petitioner has not answered about the aforesaid proposal of the Bank. Hence, there is no merit in this petition. 6. From the acts of the case, it is clear that the firm had taken a loan and there was a liability on the firm to deposit the loan as cash credit. The house which is going to be auctioned was mortgaged with the Bank. An appeal is pending before the Tribunal. There is no stay with regard to recovery of loan by the Tribunal and also with regard to auction of the house. 7. As per Annexure P-1 the Bank fixed the reserve price of the house at Rs.60 lacs. As per the Bank, it has tried its best but there are no buyer of the house of more than Rs.50 lacs. The Bank received a highest bid of Rs.50 lacs. It also informed the petitioner that if there is buyer who can purchase the property for more than Rs.50 lacs then the petitioner can sale the house. The learned counsel for the respondent Bank has also given an undertaking before the Court that petitioner is free to sell the property for a value more than Rs.50 lacs. 8. Parliament has enacted an Act named as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The learned counsel for the respondent Bank has also given an undertaking before the Court that petitioner is free to sell the property for a value more than Rs.50 lacs. 8. Parliament has enacted an Act named as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. In exercise of powers under section 38 read with sub-sections 4, 10, 12 and 13 of the aforesaid Act the Central Government framed Rules named as "the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as "the Rules of 2002"). Rule 9 of the aforesaid Rules of 2002 prescribes procedure of time of sale, issue of sale certificate and delivery of possession of an immovable property. As per proviso of rule 9(2) no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price. However, proviso to aforesaid Rules given power to the authorised officer that if authorised officer fails to obtain a price higher than the reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price. The relevant rule is as under : "9. Time of sale, issues of sale certificate and delivery of possession, etc. -- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor : Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9 : Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price." Rule 8 thereof prescribes procedure for sale of immovable secured assets, which is as under : "8. Sale of immovable secured assets. Sale of immovable secured assets. -- (1) Where the secured assets is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as an owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods : (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5)." 9. From the aforesaid provision of the Rules of 2002 it is clear that it is the duty of the authorised officer to obtain valuation of the property from an approved valuer and thereafter he can sale the property in accordance with the provisions prescribed in rule 8(5) of the Rules of 2002. One of the mode is by holding public auction. 10. One of the mode is by holding public auction. 10. In the present case, the Bank invited bids for sale of the house and as per the Bank it has received highest bid of Rs.50 lacs and reserve price of the house has been fixed at Rs.60 lacs by the Bank. Now, the question is that whether the Bank can sale the house in a price less than the reserve price? As per proviso of rule 9(2) no sale under this rule shall be confirmed if the amount offered by sale price is less than the reserve price, however, the proviso to the aforesaid rule further provides that if the authorised officer fails to obtain a price higher than reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price. Now, the question is that whether authorised officer is bound to sale the immovable property with the consent of the borrower and secured creditor, if he fails to obtain higher price than reserve price or it is the discretion of the authorised officer to obtain the consent of the borrower and secured creditor or without consent he can effect the sale lower than the reserve price? 11. The Act of 2002 has been enacted by the Parliament with the object of providing assistance to the banks and other financial institutions for recovery of loans. It is clear from the object of the Act, which is as under: "Ever since we opened the doors for the multinationals to step in and, consequently, made out comparatively puny domestic industries stand against the deluge of mighty world players with immense resources and formidable worldwide reputation, the nation has become a productive, ever churning whirlpool of fierce economic competition. And when money moves as fast as it has been for a decade or so, it needs extremely pragmatic regulations to check irregularities on one hand and to safeguard public exchequer on the other. There was an acute need being felt for assistance to the banks and other financial institutions in the recovery of loans, for there were heavy losses being incurred on account of unpaid debts. To regulate securitisation and reconstruction of financial assets and enforcement of security interest the President, on 21st day of June, 2002, promulgated the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002. To regulate securitisation and reconstruction of financial assets and enforcement of security interest the President, on 21st day of June, 2002, promulgated the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002. To replace the said Ordinance by an enactment a Bill was introduced in the house of the people but it could not be passed. Whereas the Parliament was not in session and the President was satisfied that circumstances exist which render it necessary for him to take immediate action to give continuous effect to the provision of said Ordinance. In exercise of the powers conferred by clause (1) of Article 123 of the Constitution the President, on 21st August, 2002, promulgated the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 (Order 3 of 2002). The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002 was introduced and passed by both the House of Parliament in the winter sessions of 2002." 12. Although as per the aforesaid rule the Bank is obliged not to auction-sale the property below the reserve price, however, in the aforesaid rule the word 'may' has been used and the word 'may' in the facts of the case cannot be interpreted as a mandatory dictate to the Bank not to sell the property below the reserve price. The Hon'ble Supreme Court in Madanlal Fakirchand Dudheliya v. Shri Changdeo, Sugar Mills Ltd. and others [ AIR 1962 SC 1543 ], has held as under with regard to interpretation of rule : "The words used in a section must be given their plain grammatical meaning. Where the Court is dealing with two sub-sections of a section (for example, S.76, Companies Act, 1956) it is necessary that the two sub-sections must be construed as a whole "each portion throwing light, if need be, on the rest". The two sub-sections must be read as parts of an integral whole and as being inter-dependent; an attempt should be made in construing them to reconcile them if it is reasonably possible to reconcile them if it is reasonably possible to do so, and to avoid repugnancy. If repugnancy cannot possibly be avoided, then a question may arise as to which of the two should prevail. But that question can arise only if repugnancy cannot be avoided. If repugnancy cannot possibly be avoided, then a question may arise as to which of the two should prevail. But that question can arise only if repugnancy cannot be avoided. (Para 17) **** **** **** It is not legitimate for the Courts to re-write the sub-sections, particularly when on the alternative construction it is found that there is no repugnance between the two sub-sections. That clearly is the function of the Legislature which enacts laws and not of the Court which interprets them. (Para 22)" The Hon'ble Supreme Court in Chinnamarkathian alias Muthu Gounder and another v. Aayyavoo alias Periana Gounder and others [ AIR 1982 SC 137 ], has further held as under with regard to interpretation of rule which have govern 'May' : "In this situation it must be held that while the opportunity of depositing the arrears of rent cannot be denied to a cultivating tenant during the course of proceedings under sub-section (3), the same is not available as of right under clause (b) of sub-section (4). The difference in the language used by the legislature is significant and not without purpose. The intention of the legislature appears to be that normally a defaulting tenant must seek the help of the Court all by himself and that if he does so he must be protected; but that a defaulting tenant who waits for payment of rent till he is sought to be evicted by the landlord is not necessarily entitled to the same protection. Circumstances may exist which may place him at per with a tenant covered by sub-section (3) but then it may not necessarily be so. That is why it is left to the discretion of the RDO to grant time to the cultivating tenant or to deny him that opportunity. An example of a case in which no time should be allowed would be that of a tenant who, although in affluent circumstances at all relevant points of time, has failed to make payment of rent year after year in spite of repeated demands from an otherwise indigent landlord and whose conduct is, therefore, contumacious calling for no sympathy or concession. The extension to him of the same facility which is afforded to a willing tenant under sub-section (3) would be uncalled for and in fact unjust. The extension to him of the same facility which is afforded to a willing tenant under sub-section (3) would be uncalled for and in fact unjust. Nor do I find why the word "may" occurring in clause (b) of subsection (4) be not given its ordinary meaning as denoting the conferment of a discretion on the RDO and be equated with "shall" so as to make it obligatory on him to grant time to the cultivating tenant." 13. From the above principle of law laid down by Hon'ble Supreme Court it is clear that when the word 'may' has been used in statute or rule it cannot always be interpreted that it is a mandatory provision and in view of the provisions of the aforesaid rule the word 'may' cannot be construed as mandatory because the Act has been enacted to facilitate recovery of loan by the financial institutions. It may be possible that in certain circumstances, as in the present case, financial institution is not in a position to fetch or receive the reserve price, hence it has a discretion to sell the property below the reserve price of the property. 14. In the present case, the Bank has fairly offered the petitioner to sell the property on a higher price i.e. more than Rs.50 lacs. From the aforesaid act of the Bank it is clear that the Bank is acting fairly and reasonably. The petitioner herself is not able to sell the property for more than Rs.50 lacs. Hence, in my opinion, the auction proceedings and notification cannot be held to be arbitrary and illegal. 15. Consequently, the petition of the petitioner is disposed of with the following directions : (1) That the petitioner is granted two months time from the date of this order to find out a purchaser for more than the value which has been received by the Bank in auction proceedings. (2) If the petitioner failed to find out purchaser within the aforesaid period then the Bank is free to auction the house as per bids received by it in the auction proceedings. (3) No order as to cost.