Research › Search › Judgment

Telangana High Court · body

2020 DIGILAW 725 (TS)

Y. Sailaja v. UCO Bank

2020-10-08

M.S.RAMACHANDRA RAO, T.AMARNATH GOUD

body2020
JUDGMENT M.S.Ramachandra Rao, J. - Common issues of fact and law arise between the same parties in these two Writ Petitions and so they are being disposed of by this common order. 2. The 2nd respondent in both these Writ Petitions had availed financial assistance from the 1st respondent Bank and mortgaged various properties belonging to it and also those of the guarantor. 3. One such property is a residential Flat No.G-1 with a built up area of 5815 Sft (including common areas and amenities) in the ground floor with five (5) car parking slots in the Complex called 'Aditya Summit' along with proportionate undivided share of land admeasuring 231 Sq yards situated in Veterinary Colony, Shaikpet Village and Mandal, Hyderabad (for short 'the subject property'). The said mortgaged property belongs to the 3rd respondent. 4. When the 2nd respondent failed to repay the loan availed of, the 1st respondent initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and issued an e-auction sale notice dt.21.04.2019 fixing the date of e-auction on 22.05.2019. The reserve price fixed was Rs.3.88 crores. 5. The Writ petitioner participated in the auction and deposited 10% EMD on 20.05.2019 and the petitioner was declared as the highest bidder. This was communicated by the 1st respondent Bank on 22.05.2019 and the petitioner was directed to deposit 25% of the bid amount (less EMD of 10% already deposited), i.e., Rs.58,95,000/- immediately in addition to TDS amount of Rs.3,91,000/-, and the balance amount within 15 days. 6. Respondents 2 and 3 had filed Securitisation Application (S.A.) No.180 of 2019 before the Debts Recovery Tribunal-II at Hyderabad (for short 'the Tribunal') under Section 17 of the SARFAESI Act to set aside the auction sale held on 22.05.2019 pursuant to the e-auction notice dt.21.04.2019 in respect of the subject property. In the said S.A., it was alleged inter alia that the sale notice was not affixed on the secured asset and that there was a contravention of Rule 8(7) of the Security Interest (Enforcement) Rules, 2002 (for short, "the Rules"). 7. The 1st respondent Bank took a stand that there is no such violation. 8. In the said S.A., it was alleged inter alia that the sale notice was not affixed on the secured asset and that there was a contravention of Rule 8(7) of the Security Interest (Enforcement) Rules, 2002 (for short, "the Rules"). 7. The 1st respondent Bank took a stand that there is no such violation. 8. Interim order dt.22.05.2019 was granted by the Tribunal holding that it was not inclined to stay the auction sale scheduled on 22.05.2019, that the 1st respondent Bank may go ahead with the sale as scheduled, but the 1st respondent Bank should not register the sale certificate in favour of the successful bidder subject to respondents 2 and 3 herein/petitioners in the O.A. depositing Rs.1.00 crore in two instalments. In default, it directed that the stay would stand vacated. 9. At that stage, the petitioner filed W.P.No.13613 of 2019 before this Court challenging the said interim order dt.22.05.2019 passed by the Tribunal in S.A.No.180 of 2019 contending that the 1st respondent Bank had not informed about the said S.A. to the petitioner, and to direct the 1st respondent to refund the EMD of Rs.97,75,000/- which had been deposited by the Bank in a 'No-Lien Account'. 10. Ultimately, after contest, S.A.No.180 of 2019 was allowed by the Tribunal by giving a finding that the 1st respondent Bank did not prove about affixture of the e-auction sale notice on the above property and that Rule 8(7) of the Rules was violated. The Tribunal set aside the eauction sale held on 22.05.2019 and directed that the said order would not preclude the 1st respondent to initiate measures afresh for sale of the said property in accordance with the provisions of the SARFAESI Act. 11. This order dt.20.12.2019 in S.A.No.180 of 2019 is assailed by the petitioner in W.P.No.9264 of 2020. 12. The Tribunal set aside the eauction sale held on 22.05.2019 and directed that the said order would not preclude the 1st respondent to initiate measures afresh for sale of the said property in accordance with the provisions of the SARFAESI Act. 11. This order dt.20.12.2019 in S.A.No.180 of 2019 is assailed by the petitioner in W.P.No.9264 of 2020. 12. Sri S.Nagesh Reddy, learned counsel appearing for Sri V.Murali Manohar, learned counsel for the petitioner sought to contend that the 1st respondent Bank had suppressed about the pendency of litigation in the Debts Recovery Tribunal, Hyderabad, which had been initiated by respondents 2 and 3, at the time of participating in the e-auction and that the petitioner was also not informed about the interim order passed by the said Tribunal prior to the conduct of the auction on 22.05.2019; that the petitioner had filed W.P.No.13613 of 2019 challenging the action of the 1st respondent Bank in proceeding with the auction on 22.05.2019 and accepting the EMD amount, i.e., 25% of the bid amount from the petitioner and also to set aside the interim order dt.22.05.2019 of the Tribunal in I.A.No.2447 of 2019 in S.A.No.180 of 2019; that the petitioner had got impleaded in S.A.No.180 of 2019; that at the time of participating in the auction, the petitioner, who is herself an Advocate, had satisfied herself by verifying the documents available with the 1st respondent Bank that all the mandatory provisions prescribed under Rules 8 and 9 of the Rules had been followed by the said Bank; that the petitioner even noticed that the Bank had affixed banners advertising that the property was in the possession of the Bank and would be sold in public auction on 22.05.2019; and the Bank had wantonly, while filing its reply in S.A.No.180 of 2019, neglected to file relevant documents which would have shown compliance of Rule 8(7) of the Rules by it. The petitioner accused the 1st respondent Bank of cheating her and stated that the petitioner wanted refund of the amount deposited with interest at commercial rate, but the Bank informed her on 29.02.2019 that the amount would be refunded without any interest. 13. The 1st respondent Bank filed counter in W.P.No.9264 of 2020 denying that the 1st respondent Bank had hidden information at the time of conduct of the sale. 13. The 1st respondent Bank filed counter in W.P.No.9264 of 2020 denying that the 1st respondent Bank had hidden information at the time of conduct of the sale. It contended that the petitioner was aware of the fact of passing of the interim order by Tribunal on 22.05.2019 and in spite of knowing the same, she participated in the e-auction and became the highest bidder. It also contended that after the petitioner's bid was declared successful and she was asked to pay 15% amount within 24 hours of completion of the auction, the petitioner informed the Bank that she required time as she wanted to read the interim order of the Tribunal and wanted to deposit the amount and so she was permitted to deposit 15% EMD on 23.05.2019. It was stated that the petitioner after reading copy of the interim order of the Tribunal came to the Bank and deposited 15% EMD and asked the 1st respondent Bank to complete registration process quickly. 14. But the 1st respondent also took the plea that though the 1st respondent Bank did take possession of the above property, there was resistance from the members of the society which managed the apartment Complex, where the subject property was located; and that the said society had demanded payment by the 1st respondent Bank of dues to the said society, which the guarantor had failed to pay to the society. It also contended that when the authorized officer tried to paste the sale notice on the property of the guarantor, the society members prevented the same; and so pasting of the sale notice over the above property could not happen, but the Bank went ahead and proceeded to auction the property. It stated that the Tribunal found fault with this failure on the part of the Bank and held that Rule 8(7) of the Rules was not complied with. 15. Reliance is also placed on the letter dt.06.03.2020 written by the Chief Manager of the 1st respondent Bank to the Assistant General Manager of the 1st respondent Bank stating that affixture of the sale notice on the property belonging to the guarantor/3rd respondent could not be completed. 16. 15. Reliance is also placed on the letter dt.06.03.2020 written by the Chief Manager of the 1st respondent Bank to the Assistant General Manager of the 1st respondent Bank stating that affixture of the sale notice on the property belonging to the guarantor/3rd respondent could not be completed. 16. It therefore contended that on account of practical difficulties, the sale notice could not be pasted on the property as required by Rule 8(7) of the Rules though it could be served on the guarantor and the borrower. The 1st respondent Bank also stated that the Bank is not at fault and it need not pay any interest, but the petitioner wantonly did not receive the amount and filed the Writ Petitions. 17. Sri S.Nagesh Reddy, learned counsel appearing for Sri V.Murali Manohar, learned counsel for the petitioner sought to contend that the Bank colluded with the borrower and the guarantor/respondents 2 and 3 and deliberately did not produce the material before the Tribunal about the compliance of Rule 8(7) of the Rules. He pointed out that though the 1st respondent Bank had asserted before the Tribunal that it complied with Rule 8(7) of the Rules (as recorded in para 23 of its order), it deliberately did not produce evidence about such compliance in collusion with the borrower and the guarantor; and the stand taken in the counter affidavit filed in this Court in W.P.No.9264 of 2020 also supports the said collusion. 18. The learned counsel for the 1st respondent Bank refuted the said contentions and stated that there was no compliance with Rule 8(7) of the Rules by the Bank though such a plea was raised; and because there was no evidence which the Bank could adduce about affixture of the sale notice on the subject property as per Rule 8(7) of the Rules, the Tribunal had set aside the sale. 19. Sri V.V.Ramana, learned counsel for respondents 2 and 3 also stated that once the mandatory procedure contained in Rule 8(7) of the Rules is not complied with, the order passed by the Tribunal cannot be found fault with. 20. We have noted the submissions of all the parties. 21. 19. Sri V.V.Ramana, learned counsel for respondents 2 and 3 also stated that once the mandatory procedure contained in Rule 8(7) of the Rules is not complied with, the order passed by the Tribunal cannot be found fault with. 20. We have noted the submissions of all the parties. 21. No doubt, the 1st respondent Bank did raise a contention before the Tribunal that it had complied with Rule 8(7) of the Rules, but it could not prove the said assertion and so the Tribunal set aside the auction sale. 22. The letter dt.06.03.2020 filed along with the counter affidavit of the 1st respondent Bank in W.P.No.9264 of 2020 sent by the Chief Manager of the 1st respondent to the Assistant General Manager of the 1st respondent also shows that there is no compliance with Rule 8(7) of the Rules. 23. The Bank also sought to explain in para 7 of the counter that the Bank's officials were prevented from affixing any notice on the property by the society which managed the apartment Complex containing the subject property/flat, as the 3rd respondent, its owner, had not paid dues to the said society and the said society was demanding the 1st respondent Bank to pay the said dues through letter dt.18.05.2019 which the Bank did not agree. 24. It appears that for reasons beyond the control of the 1st respondent Bank, it could not comply with Rule 8(7) of the Rules and so the auction sale in favour of the petitioner was rightly set aside by the Tribunal. So we do not find any infirmity with the order dt.20.12.2019 passed in S.A.No.180 of 2019 by the Tribunal. 25. The interim order passed by the Tribunal on 22.05.2019 in I.A.No.2447 of 2019 in S.A.No.180 of 2019 merges with the said final order. So there is no need to pass a separate order in W.P.13613 of 2019 wherein the said interim order is challenged. 26. However, we hold that it was not proper for the 1st respondent Bank to proceed with the auction knowing fully well that it had not complied with Rule 8 (7) of the Rules, whatever be the reason for it's failure to do so. Innocent persons like the petitioner cannot be made to suffer for it's mistake and be deprived of interest on the amount paid by them to the 1st respondent bank. 27. Innocent persons like the petitioner cannot be made to suffer for it's mistake and be deprived of interest on the amount paid by them to the 1st respondent bank. 27. Therefore, we hold that the petitioner/auction purchaser is entitled to refund of the amount deposited by her with the 1st respondent Bank; and the 1st respondent Bank cannot state that it is not liable to pay interest to the petitioner since it was on account of non-disclosure by the 1st respondent Bank to the petitioner about non-compliance with Rule 8(7) of the Rules which has led to cancellation of the auction sale held on 22.05.2019 by the 1st respondent Bank. 28. Accordingly, both the Writ Petitions are disposed of directing the 1st respondent to refund the amount deposited by the petitioner with the 1st respondent in regard to the e-auction sale held on 22.05.2019 relating to the subject property with interest at 7% per annum from the date of such deposit by the petitioner till the date of payment by the 1st respondent Bank within two (2) weeks from the date of receipt of a copy of this order. The 1st respondent shall also pay costs of Rs.5,000/- (Rupees five thousand only) to the petitioner. 29. Pending miscellaneous petitions, if any, in both the Writ Petitions shall stand closed.