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2011 DIGILAW 210 (KAR)

Canara Tile Works v. Canara Bank

2011-02-23

MOHAN M.SHANTANAGOUDAR

body2011
Judgment : 1. Petitioner has sought for quashing the auction notice dated 12.6.2010 issued by the respondent and published in The Hindu, (Mangalore Edition), dated 13.6.2010 and all further proceedings held pursuant thereto. 2. The copy of the auction sale notice is produced at Annexure-‘C’ to the writ petition. The property in question is 97 cents of land in T.S.No.503, R.S.No.193 of Mangalore Thota Village in Mangalore City Corporation, consisting of building bearing Nos.974,975,976-08 of 92. The boundaries are also mentioned in the very notice. The auction was scheduled to be held on 15.7.2010 at 3.30 P.m. The reserve price was shown as Rs.55 Lakhs. However, as per the terms and conditions, the intending bidders would have to deposit earnest money (EMD) of Rs. 55,000/- being 10% of the reserve price. 3. The sale notice is questioned on the ground that the reserve price fixed in the sale notice was abnormally low and is less than the Government’s valuation which has resulted in serious prejudice to the petitioners; that the Bank is not justified in showing 1% of the reserve price i.e. Rs.55,000/-only; that EMD though was required to be at 10%, the same is shown as Rs.55,000/- instead of Rs. 5,55,000/-; that one of the partners died subsequent to the notice dated 8.7.2010 and therefore the auction ought to have been postponed in order to give an opportunity to the petitioner to clear the debts; and that the petitioners has found out another purchaser who has filed an affidavit before this Court agreeing to purchase the property for Rs. 85 lakhs. 4. The writ petition is opposed by learned advocates appearing on behalf of the respondents on the ground that the loan is outstanding since 1990 and is not repaid by the petitioner since then in spite of repeated requests and the decree of the Debt Recovery Tribunal; that there is no hard and fast rule that the EMD should be at 10% only and that it could be 1% of the reserve price also; that the reserve price is fixed based on the two valuation reports submitted by two independent Valuers; that both the Valuers have taken into account the situation of the property while evaluating the property; that the property in question comes under CRZ and therefore no construction activity can be carried over the property in question and therefore necessarily the property would not fetch Rs. 1 lakh per cent as contended by the petitioner; that the Government’s valuation relied upon by the petitioner will not come to the aid of the petitioner, inasmuch as, the property is not situated at Hoige Bazar area, but is situated at Bolar area; that the property is already auctioned and that the respondent No.2 is the highest bidder; and that if the property is allowed to be auctioned again and again, the same would fetch lesser price than the present auction amount. A memo is filed on 17.2.2011 before this Court by respondent No.2 and respondent No.2 has offered to increase the bid amount by 20% of the original bid amount and that such increased bid amount would be Rs. 68,40,000/-. 5. At the time of granting of interim order in this writ petition, this Court had directed the petitioner to deposit a sum of Rs. 25,00,000/- within four weeks from 23.7.2010. The said amount of Rs. 25,00,000/- was deposited by the petitioner before this Court. 5. Though during the course of arguments, Sri Udaya Holla, learned Senior Counsel has filed a memo stating that respondent No.2 offers to increase the bid amount by 20% of the original bid, the same is not accepted by the petitioner’s counsel. According to the petitioners’ counsel, the property fetches much more than Rs. 68,40,000/-, which is sought to be paid by the successful bidder. Since the proposal given by respondent No.2 is not accepted, the matter is considered and decided on merits. 6. As aforementioned, the impugned auction notice reveals that the reserve price fixed is Rs. 55 lakhs. The said reserve price is fixed based on two valuation reports i.e., dated 20th May 2008 and 31st December 2009. Both the valuation reports are prepared on the presumption that the property in question is an agricultural property which is not converted to diverted for residential purposes. In both the valuation reports, the property is valued at Rs. 53,49,000/-. On the said basis, the Bank has fixed the reserve price at Rs. 55 lakhs. As could be seen from the valuation report dated 20th of May 2008, it is clear that the postal address of the property is Bolar Cross Road, Bolar Mangalore and that the location of the property is Hoige Bazar Ward, Mangalore Thota village, Mangalore city. On the said basis, the Bank has fixed the reserve price at Rs. 55 lakhs. As could be seen from the valuation report dated 20th of May 2008, it is clear that the postal address of the property is Bolar Cross Road, Bolar Mangalore and that the location of the property is Hoige Bazar Ward, Mangalore Thota village, Mangalore city. In the valuation report dated 31.12.2009, it is stated that the property is situated at Mangalore Thota village in Mangalore and that the postal address of the property is Bolar Cross Road, Mangalore. 7. From the above, it is clear that the property situated at Mangalore Thota village, Mangalore. It may be either at Bolar Cross Road to at Hoige Bazar Ward. Since there is a confusion on that aspect, this Court does not want to wish to probe into that aspect of the matter, as the same does not make much difference so far as this writ petition is concerned. From the reports it is clear that the Valuers have observed that the land in question is not converted for non-agricultural purposes. Thus, they have treated the land as an agricultural property and valued the same. It is also not in dispute that the land comes within the limits of industrial zone in CDP and that the same is in CRZ, and is abutting the Netravathi river. Based on these facts, the property is valued. 8. It is the contention of the learned counsel for the petitioner that both the valuation reports cannot be accepted, inasmuch as, the same are prepared on the assumption that the property in question is not converted land, but is an agricultural land. He relies upon the document at Annexure-‘P’ to show that the land is converted for non-agricultural purposes. 9. The document at Annexure- ‘P’ dated 6.10.2008 clearly reveals that the property in question is converted/diverted for non-agricultural purposes under the provisions of Karnataka Land Revenue Act, 1964, read with Rule 106-A of Karnataka Land Revenue Rules, 1966. Petitioner has paid the conversion fine. Mutation is also made in the revenue records to the effect that the property in question is converted/diverted for non-agricultural purposes by virtue of the order vide Annexure-‘P dated 6.10.2008. 10. Petitioner has paid the conversion fine. Mutation is also made in the revenue records to the effect that the property in question is converted/diverted for non-agricultural purposes by virtue of the order vide Annexure-‘P dated 6.10.2008. 10. Sri Udaya Holla, learned Senior Counsel appearing on behalf of the respondents submits that the conversion order needs to be made by the Deputy Commissioner and not by the Tahsilday and therefore, the order vide annexure- ‘P’ is illegal and therefore the same cannot be relied upon at all. The said submission cannot be accepted. It is no doubt true that under Section 95(2) of Karnataka Land Revenue Act, it is for the Deputy Commissioner to consider the application for conversion/diversion of the land for non-agricultural purposes. However, exception is made in respect of day lands, we lands and garden lands of Dakshina Kannada District. Second proviso to Section 95(2) of the Act makes it clear that the occupant of day land, we land and garden land situated at Dakshina Kannada District, subject to building laws, for the time being in force, may without obtaining the permission from the Deputy Commissioner as required under sub-section (2) of Section 95,divert such land to part thereof to any other purposes after sending a prior notice in that behalf in the prescribed form to the Tahsildar and paying in the prescribed manner, the fine prescribed. Thus, it is clear that the lands situated at Dakshina Kannada District are exempted from taking permission of the Deputy Commissioner for conversion. The occupants of the lands at Dakshina Kannada District may divert such lands for non-agricultural purposes after sending prior notice in the prescribed from to the Tahsildar. Thus, for all practical purposes, the jurisdictional Tahsildar is the concerned authority for grant of permission in Dakshina Kannada District. The occupants of the lands at Dakshina Kannada District may divert such lands for non-agricultural purposes after sending prior notice in the prescribed from to the Tahsildar. Thus, for all practical purposes, the jurisdictional Tahsildar is the concerned authority for grant of permission in Dakshina Kannada District. In this context, it is relevant to quote Section 95(2) of the Karnataka Land Revenue Act which reads thus : “ Section 95 (2): If any occupant of land assessed to held for the purpose of agriculture wishes to divert such land to any part thereof to any other purpose, he shall notwithstanding anything contained in any law for the time being in force apply for permission to the Deputy Commissioner who may, subject to the provisions of this section and the rules made under this Act, refuse permission to grant it on such conditions as he may think fit: Provided xxx xxx xxx Provided further that in Dakshina Kannada District, subject to any law for the time being in force regard erection of buildings to the construction of wells or tanks, an occupant of day (punja) land, wet land to garden land who is not;- (a) a person registered or liable to be registered as an occupant of such land under Section 48-A of the Karnataka Land Reforms Act, 1961 ( Karnataka Act 10 of 1962 ); to (b) a grantee of such land under Section 77 of the said Act, may, without obtaining the permission required under this sub-section and notwithstanding anything contained therein, divert such land to part thereof to any other purpose after sending a prior notice in that behalf, in the prescribed form to the Tahsildar and paying in the prescribed manner, the fine prescribed under sub-section (7).” (Emphasis Supplied) Rule 106-A of the Karnataka Land Revenue Rules deals with the notice to be given by the occupant of the land to the Tahsildar for diversion of day (punja) land and the same reads thus: “Rule 106-A: Notice for diversion of day (punja) Land: - The prior notice for diversion of dry (punja) Land under the proviso to sub-section (2) of Section 95 of the Act shall be in Form 21-A. The occupant shall enclose to the said notice a challan for having credited the fine computed in accordance with Rule 107 to the concerned Treasury”. From 21-A is the form prescribed relating to notice to be issued by the occupant of the land praying for conversion before the Tahsildar. In this matter, the Tahsildar after completion of the entire procedure, has issued the order as per Annexure-‘P’ dated 6.10.2008 permitting the petitioner to divert/convert the land for non-agricultural purpose. 11. If it is so, the Bank is not justified in ignoring the conversion order. As aforementioned, the petitioner has paid the conversion fees and got the entries mutated to show that the property is converted for non-agricultural purposes. The entries are made in the revenue records. The Bank should have gone through the entries made in the revenue records before proceeding further. It should have verified the revenue records to find out the actual fact situation. Instead of doing so, the Bank has got the two valuation reports from two Valuers treating the property as an agricultural property. Had the Valuers knew that the property in question is converted for non-agricultural purposes, they would have valued the property differently and would have valued the property for much higher price. Since the valuation is made at Rs. 53,49,000/- on the assumption that the property is an agricultural land, the Bank has fixed the reserve price as Rs. 55 lakhs. If the valuation was made by the Valuers based on the actual fact situation considering the property as a converted property, the valuation would have been much more. 12. In the matter on hand, the reserve price is fixed at Rs.55 lakhs and the highest bid amount was Rs.57 lakhs. If the reserve price was to be for non-agricultural property, then the property could have got the higher price. In view of the same, the petitioners being the owners of the property are put to prejudice. The rights of the borrower against mala fide action (in any given case) in the process of sale of assets are to be protected since the secured creditor has been given the right to effect sale by certain modes. Such modes of sale in a given case may lack transparency/objectivity and may thereby cause prejudice to the borrower as the property may be undervalued. Thus, the balance between the respective rights of the borrower and the secured creditor has to be struck by ensuring fairness and objectivity. Such modes of sale in a given case may lack transparency/objectivity and may thereby cause prejudice to the borrower as the property may be undervalued. Thus, the balance between the respective rights of the borrower and the secured creditor has to be struck by ensuring fairness and objectivity. The borrower does not participate in the process of fixation of reserve price and consequently, the reserve price, in a given case, may be fixed at a lower rate than the actual valuation of the properties secured. The apprehension in the mind of the borrower that the reserve price has been fixed at the lower side so as to ensure quick sale also cannot be ruled out. In may considered opinion, to strike the balance in these conflicting positions, it is desirable that in the 30 days notice of sale to be issued to the borrower under Rule 8(6), the borrower should be informed about the reserve price fixed and the basis on which the reserve price is fixed and the mode of sale to be adopted by the secured creditor. It is for the law makers to look into that aspect of the matter by amending law suitable to bring transparency in such sale transactions. The general tendency of the auction purchasers is to bid at the same amount of reserve price to at slightly higher price. Thus, the amount shown as reserve price plays a vital role in the auction process. If the reserve price is fixed at a lower rate, definitely prejudice will be caused to the borrower, inasmuch as, his properties are undervalued by the secured creditor itself. No one can expect the borrowers to sell the property for a lesser price. Bank also should be interested to get higher price. In view of the above, this Court is of the opinion that the Bank has proceeded to get the valuation done by the Valuers by ignoring the actual records and the fact situation which has resulted in serious prejudice and injustice to the petitioners. 13. Bank also should be interested to get higher price. In view of the above, this Court is of the opinion that the Bank has proceeded to get the valuation done by the Valuers by ignoring the actual records and the fact situation which has resulted in serious prejudice and injustice to the petitioners. 13. Even assuming that the property in question is an agricultural property, then, the same could not have been sold under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for shout ‘ SURFAESI Act’) Section 31 of the SURFAESI Act states that the provisions of the said Act will not apply in certain cases, including in the case of the security interest credited in agricultural land. It is not in dispute that the property in question is a secured property. If it is so, the property could not have been sold under the provisions of SURFAESI Act if the property in question is an agricultural property. On that ground also, the impugned sale notice and subsequent actions are liable to be quashed. 14. During the course of arguments, it is contended by Sri Udaya Holla, that though the petitioners were present at the time of auction, they did not bring to the notice of the Bank that the property is converted for non-agricultural purposes and that therefore, the auction may be stopped. Such a contention cannot be accepted. The auction was held on 15.7.2010 at 3.30 p.m. The 1st petitioner has given a letter on 15.7.2010 at 10.35 a.m. itself requesting the Bank to postpone the auction in view of death of one of the partner. In the very letter, it is stated that the reserve price shown in the auction sale notice is considerably less as compared to the Government’s valuation. At that point of time, the petitioners would not be knowing that the reserve price is fixed based on the two Valuers report which were prepared on the assumption that the property in question is an agricultural property. Had the respondent-Bank made known the petitioners that the reserve price is fixed treating the property as an agricultural property, then the petitioners would have definitely intimated the Bank that the property in question is not the agricultural property, but it is a converted property. Had the respondent-Bank made known the petitioners that the reserve price is fixed treating the property as an agricultural property, then the petitioners would have definitely intimated the Bank that the property in question is not the agricultural property, but it is a converted property. Moreover, the revenue records clearly reveal that the property is converted long back in the year 2008 itself. 15. The State Government has fixed the valuation of the property at Dakshina Kannada for the purpose of guidance of the public, as well as, for the officers concerned. The copy of the Notification relating to guidance market value is produced at Annexure-‘G’ to the writ petition. Item No.298 of the said document relates to Hoige Bazar area. The same reveals that the Government guidance value is Rs.1 lakhs per cent in respect of converted lands and Rs.22 lakhs per acre in respect of agricultural land. Thus, it is clear that the property would have fetched at least Rs.97 lakhs since the property measures 97 cents even according to Government’s valuation. If the property is in Bolar area, the Government’s valuation is Rs.80,000/- per cent. Thus, even if the property is treated as to be in Bolar area, the Government’s valuation of the said property is about Rs.77,000/- to Rs.80,000/-. If it is so, the valuation made by the Valuers and consequently the reserve price fixed by the Bank in respect of the property in question is far low as compared to the actual market value of the property. In view of the same, the petitioners are definitely prejudiced, inasmuch as, the property has not fetched the proper value in the auction. 16. Since serious prejudice is caused to the petitioners who are the owners of the property which is sought to be auctioned by virtue of wrong fixation of reserve price based on wrong facts, the impugned auction notice and consequently all other actions pursuant there to are liable to be quashed. Accordingly, the following order is made : The impugned auction sale notice vide Annexure-‘C’ dated 12.6.2010, stands quashed. All other actions pursuant thereto also stand quashed. It is open for the respondent-Bank to proceed further in accordance with law after obtaining fresh valuation report from the competent Valuers. Writ petition is allowed accordingly.