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2019 DIGILAW 1579 (KAR)

Srinidhi Stone Crushers v. Authorised Officer

2019-07-04

L.NARAYANA SWAMY, R.DEVDAS

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JUDGMENT : R. Devdas, J. The first petitioner is a proprietorship concern of the second petitioner, engaged in the business of stone crushing since the year 2004. The petitioners are before this Court assailing the orders of the Debts Recovery Tribunal, (for short 'DRT') Bangalore, in S.A.No.671/2012 and the Debts Recovery Appellate Tribunal at Chennai in R.A.(S.A.)Nos.58/2017 and 59/2017. 2. The petitioners are borrowers from the first respondent-Bank. The petitioners had availed overdraft facility of Rs.5,00,000/- and FSL facility/term loan of Rs.30,00,000/-. In that regard, the petitioners had mortgaged property bearing Site No.93, Doddakallasandra, Uttarahalli Hobli, Bangalore South Taluk, measuring 10192 sq. ft., in favour of the first respondent-Bank. 3. On default, the Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act', 2002). The Bank took possession of the mortgaged property on 28.09.2011. A tender cum auction sale notice was published by the Bank on 18.09.2012, in two leading newspapers. In terms of the auction notice, the auction was conducted on 31.10.2012 and respondents No.2 and 3 were declared successful bidders, having offered Rs.1.35 crores for the mortgaged property. 25% of the sale price was remitted by respondents No.2 and 3 on 31.10.2012. The Bank called upon the successful bidders to pay the balance sale consideration within 15 days. On 13.11.2012, respondents No.2 and 3 tendered a cheque for the balance consideration, along with a covering letter dated 13.11.2012. The first respondent- Bank issued an acknowledgement dated 15.11.2012, informing respondents No.2 and 3 of having encashed the cheque. However, the successful bidders were informed that the sale confirmation will be subject to the application filed by the petitioners herein and pending before the DRT. 4. The DRT, Bengaluru, dismissed the application filed by the petitioners herein, by order dated 06.02.2013. On 12.02.2013, the Bank executed a registered sale certificate in favour of respondents No.2 and 3. Respondents No.2 and 3 have produced documents to substantiate their contention that subsequent to the sale certificate, the khata stood transferred to their name and they have been paying the property tax. A review application which was filed by the petitioners before the DRT having been rejected, the petitioners approached the DRAT, Chennai, with an appeal which also came to be dismissed by order dated 12.10.2018. Being aggrieved, the petitioners are before this Court. 5. A review application which was filed by the petitioners before the DRT having been rejected, the petitioners approached the DRAT, Chennai, with an appeal which also came to be dismissed by order dated 12.10.2018. Being aggrieved, the petitioners are before this Court. 5. Sri Satish M.Doddamani, learned Counsel for the petitioners has raised the following grounds to urge that the impugned orders passed by the DRT and DRAT are required to be set aside: (i) The valuation of the mortgaged property was secured by the Bank during the first sale notice, on 19.12.2011, but no valuation was made or secured during the second sale notice. (ii) The sale was conducted on 31.10.2012 and the successful bidders were required to deposit the balance sale consideration on or before 14.11.2012. When admittedly the cheque issued by respondents No.2 and 3 was encashed on 15.11.2012, the sale could not have been confirmed. (iii) The petitioners had deposited a sum of Rs.12,00,000/- and Rs.8,50,000/- before the DRT and DRAT. The DRT and DRAT should have considered affording reasonable time to the petitioners to pay the balance outstanding due. (iv) The Bank should have considered disposing of a portion of the property, instead of auctioning the entire property of 10192 sq. ft., to realise only the outstanding amount that was about Rs.30,00,000/-. 6. To buttress his contentions, the learned Counsel for the petitioners relies upon a decision of a Division bench of Telangana and Andhra Pradesh High Court in the case of Pochiraju Industries Ltd., Tamil Nadu Rep. by its Managing Director, Sri P.Sudhakar Vs. Punjab National Bank rep. by its Managing Director, New Delhi and others, (2018) 2 ALT 128 wherein it was held that it was mandatory for the Bank to secure a fresh valuation from an approved valuer in terms of Rule 8(5) of The Security Interest (Enforcement) Rules, 2002, (hereinafter referred to as the Rules, 2002) before issuing a fresh sale notice, since the earlier sale notice dated 14.03.2017 came to naught. In a decision of the Debts Recovery Tribunal, Bengaluru, in the matter of Shri Appannagouda Patil and Anr. Vs. The UCO Bank and Others in S.A.No.81 of 2011, while reiterating the requirement of obtaining fresh valuation, it was also held that the Bank could have alienated only a portion of the properties and should not have sold the entire property. In a decision of the Debts Recovery Tribunal, Bengaluru, in the matter of Shri Appannagouda Patil and Anr. Vs. The UCO Bank and Others in S.A.No.81 of 2011, while reiterating the requirement of obtaining fresh valuation, it was also held that the Bank could have alienated only a portion of the properties and should not have sold the entire property. The learned Counsel placed reliance on a judgment of the Hon'ble Supreme Court in the case of Ambati Narasayya Vs. M.Subba Rao and another, (1990) AIR SC 119, wherein it was held that the Court could have conveniently demarcated a portion and sold it to recover the outstanding dues. It was also observed that in all execution proceedings, the Court has to first decide whether it is necessary to bring the entire attached property to sale or such portion thereof as may seem necessary to satisfy the decree. In Rao Mahmood Ahmed Khan Through Their L.R. Vs. Shri Ranbir Singh & Ors., (1995) AIR SC 2195, the Hon'ble Supreme Court had an occasion to consider whether payment of 1/4th of the amount of auction sale by cheque is a valid tender within the meaning of Rule 285-D of U.P.Zamindari Abolition and Law Reforms Rules, 1952. It was held that if the bid amount which was sought to be paid by cheque was not encashed on the date on which the person was declared purchaser but on a later date, there was no compliance of Order 21 Rule 84 (C) of the Code of Civil Procedure. The learned Counsel therefore, submits that the sale made by the respondent-Bank should be declared a nullity. 7. Per contra, Sri Udaya Holla, learned Senior Counsel appearing for respondents No.2 and 3, the successful bidders, would submit that on facts the contention of the petitioners may not be correct. It is submitted that as per Section 9 of the General Clauses Act, 1897, the first day when the period is to commence has to be excluded and when so done, the last date for payment, commencing from 01.11.2012, will end on 15.11.2012. The respondents had tendered the cheque for balance sale consideration on 13.11.2012 and the same was enchased by the Bank on 15.11.2012. The respondents had tendered the cheque for balance sale consideration on 13.11.2012 and the same was enchased by the Bank on 15.11.2012. A copy of the statement of accounts of respondents No.2 and 3 has also been produced to substantiate the fact that there was sufficient bank balance of over Rs.1 crore, as on 13.11.2012. 8. The learned Senior Counsel appearing for respondents No.2 and 3 would further submit that the conduct of the petitioners should be taken note of, inasmuch as, the petitioners did not raise objections to the second sale notice. The petitioners were aware of the valuation and the reserve price fixed by the Bank in the second sale notice. The petitioners never requested or protested the auction of the entire property to recover the amounts overdue. It was pointed out that the property is an individual site measuring about 10000 sq. ft. and could not be divided to secure the amounts outstanding. It was also submitted that it is a matter of fact that if the property were to be divided, it would lose its value. It is moreover submitted that the sale certificate was issued in favour of the respondents on 12.02.2013 and the respondents have put the property to use. 9. The learned Senior Counsel places reliance on two decisions of the Hon'ble Supreme Court, in the case of Commr. of Income Tax, Bombay South, Bombay Vs. Messrs Ogale Glass Works Ltd., Ogale Wadi, (1954) AIR SC 429 wherein it was held that a cheque, unless dishonoured, is payment. The payment takes effect from the delivery of the cheque but is defeated by the happening of the condition i.e., non payment at maturity. In Jiwanlal Achariya Vs. Rameshwarlal Agarwalla, (1967) AIR SC 1118it was held that if the cheque is honoured, the date of the payment of the debt is the date when the cheque was delivered and not the date when it was honoured. For the purpose of Section 20 of the Indian Limitation Act, 1908 also, the cheque is the payment and the date of the payment is the date of the delivery of the cheque. 10. We have heard Sri Satish M.Doddamani, learned Counsel for the petitioners, Sri Udaya Holla, learned Senior Counsel for respondents No.2 and 3 and Sri Francis Xavier, learned Counsel for the respondent No.1-Bank. 11. 10. We have heard Sri Satish M.Doddamani, learned Counsel for the petitioners, Sri Udaya Holla, learned Senior Counsel for respondents No.2 and 3 and Sri Francis Xavier, learned Counsel for the respondent No.1-Bank. 11. We may notice on facts that the auction sale was conducted on 31.10.2012. In terms of Sub-Rule (3) of Rule 9 of The Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the 'Rules, 2002' for short), the purchaser shall immediately i.e., on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent, of the amount of the sale price. The respondents herein have paid 25% of the sale price on 31.10.2012. Sub-Rule (4) of Rule 9 provides that the balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months. 12. Section 9 of The General Clauses Act, 1897 reads as follows: 9. Commencement and termination of time. - (1) In any [Central Act] or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time, to use the word "from", and, for the purpose of including the last in a series of days or any other period of time, to use the word "to". (2) This section applies also to all [Central Acts] made after the third day of January, 1868, and to all Regulations made on or after the fourteenth day of January, 1887. 13. As rightly contended by the learned Senior Counsel appearing for the respondents No.2 and 3, since the auction sale took place on 31.10.2012, the period of fifteen days shall commence on 01.11.2012 and end on 15.11.2012. It is also an admitted fact that 14.11.2012 was a holiday. The purchaser has tendered the cheque on 13.11.2012. There is material to show that sufficient funds were available in the purchasers' bank account. It is also an admitted fact that 14.11.2012 was a holiday. The purchaser has tendered the cheque on 13.11.2012. There is material to show that sufficient funds were available in the purchasers' bank account. Tendering of a cheque towards payment of the balance sale consideration is also one of the modes of payment as held by the Hon'ble Supreme Court, a creditor may receive a bill or a cheque as a conditional payment of a pre-existing debt i.e., as a payment conditional on the instrument being honoured on presentation. If the cheque is honoured, the date of payment of the debt is the date when the cheque was delivered and not the date when it was honoured. On facts, we are of the opinion that the last date for payment of the balance sale consideration was 15.11.2012 and the respondent-Bank has encashed the cheque on 15.11.2012. Therefore, there is compliance of the Rule. 14. Even otherwise, we hold that since the purchaser has tendered the cheque for balance sale consideration on 13.11.2012 and 14.11.2012 being a holiday, the realization of cheque on 15.11.2012, was a legal and valid tender in compliance of Sub-Rule (4) of Rule 9 of Rules, 2002. We are also of the opinion that even if the cheque was encashed on a subsequent date, after the cheque was presented on 13.11.2012, since Sub-Rule (4) provides that such 'period could be extended as may be agreed upon in writing', the act of presentation of the cheque for realization, well within the period stipulated, can be treated as an agreement in writing to extend the period. We say so because, it is possible that even when the purchaser tenders the cheque well within the period, the secured creditor may delay presenting the cheque. If the secured creditor causes the delay, the blame cannot be shifted on the purchaser. Under such circumstances, the act of presentation of cheque should be construed as an agreement in writing to extend the period. 15. On the aspect of auctioning a portion of the mortgaged property, we do not accept the contention of the learned Counsel for the petitioners, since the petitioners have never requested or raised objections for sale of the entire property. 15. On the aspect of auctioning a portion of the mortgaged property, we do not accept the contention of the learned Counsel for the petitioners, since the petitioners have never requested or raised objections for sale of the entire property. It is only when the mortgagor/borrower makes a request to sell a portion of the property, does the question of the secured creditor contemplating division and sale of a portion of the property arise. With the material placed on record, it is not possible to accede to the submissions of the learned Counsel, that the portion of the mortgaged property could have been sold. 16. We also hold that there is substance in the argument of the learned Senior Counsel for the respondents that a secured creditor is required to hold back from taking any further steps only if the borrower tenders the entire amount due to the secured creditor together with all costs, charges and expenses at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets, as provided in Sub-Section (8) of Section 13 of SARFAESI Act, 2002. In the present case, the petitioners were not able to tender the entire amount of dues to the respondent-Bank, as required under Section 13 (8). It is further noticeable that the sale was not confirmed till the disposal of the application before the DRT. There was ample opportunity for the petitioners to tender the balance outstanding, even before the DRT. 17. With regard to the contention raised by the learned Counsel for the petitioners that a fresh valuation should have been made by the Bank immediately prior to the second sale notice, though we are in agreement with the decision of the Division Bench of Telangana and A.P. High Court, in the case of Pochiraju Industries (supra), on facts, we are guided by the observations of the Apex Court in the case of M/s. Kayjay Industries (P) Ltd. Vs. M/s.Asnew Drums (P) Ltd., (1974) 2 SCC 213 wherein it was held that if the Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through. The judgment debtor's plea for postponement in the expectation of a higher price in the future may strain the credibility of the Court sale itself and may yield diminishing returns as was proved in that very case. It is also beneficial to take note of the decision of the Apex Court in the case of Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others, (2008) 9 SCC 299 wherein it was held that when there was no allegation of fraud in the auction conducted by the secured creditor, there is no justification in setting aside the confirmation of sale. In this case too, there is no allegation of fraud. Moreover, much water has flown under the bridge from the date of sale and this is not a case where the auction could be set aside at this length of time. 18. As noted above, the respondent-Bank has executed a registered sale certificate selling the mortgaged property to respondents No.2 and 3, on 12.02.2013 and the purchasers have exercised their rights of ownership including mutation of khata in their name and have been paying the property tax. It is also stated that they have put the property to beneficial use. 19. Under these circumstances, we are of the opinion that the writ petition is without merit and is accordingly dismissed.