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2024 DIGILAW 53 (KAR)

Santhosh Kumar B. S. v. Uco Bank

2024-01-18

K.V.ARAVIND

body2024
ORDER K.V. Aravind, J. This petition seeking mandamus to the respondent to refund a sum of Rs.24,00,000/- forfeited vide Annexure-E dated 14.10.2020. 2. Brief facts: The respondent-Bank conducted e-auction for sale of immovable property bearing No.34, New PID No.012-W0934-22 situated at Shettyahalli Village, Yashwanthpura Hobli, Bangalore North Taluk, Bengaluru. The auction was conducted on 08.09.2020. The petitioner participated in e-auction and was successful bidder purchasing the subject property for a sum of Rs.55,75,000/-. The petitioner deposited 25% of the bid amount Rs.14,00,000/- including the earnest money of Rs.5,50,000/- within the stipulated time. The balance amount of Rs.41,75,000/- was to be deposited within fifteen days from the date of e-auction, which is 22.09.2020. The petitioner has paid further sum of Rs.10,00,000/- from 19.10.2020 to 27.10.2020. The respondent issued sale intimation letter dated 08.09.2020. By letter dated 09.09.2020, the respondent intimated the petitioner to pay balance amount of Rs.41,75,000/- within fifteen days from 22.09.2020. 3. It is the case of the petitioner that after the payment of 25%, the respondent was requested to provide copies of the documents relating to the subject property, which was not furnished. The property was notified for auction sale as A khata property whereas it was B khata property, no clarification though requested was provided by the respondent - Bank. Due to fraud committed by the Bank Officials in sanctioning loan against subject property, CBI is investigating and the subject property is subject matter of CBI investigation, which has been suppressed by the Bank. No clarification issued by the Bank even after several requests. 4. The respondent by Annexure - E dated 14.10.2020, forfeited the deposit of Rs.14,00,000/- by canceling the auction sale due to non-deposit of the remaining consideration of the auction amount. 5. Sri. Sharath Kumar Shetty, learned counsel appearing for the petitioner reiterating the grounds urged in the petition submits that in terms of auction sale, sum of Rs.14,00,000/- being 25% of the total bid amount, has been deposited within the stipulated time, the respondent - Bank was requested to provide photocopies of documents, title deeds, tax paid receipts, khata certificate etc. in respect of the property. Though several times the petitioner has visited the Bank, the same has not been provided. The subject property was auctioned as A khata property whereas it is B khata, no clarification issued on this aspect even after several reminders. in respect of the property. Though several times the petitioner has visited the Bank, the same has not been provided. The subject property was auctioned as A khata property whereas it is B khata, no clarification issued on this aspect even after several reminders. The bank officials have committed fraud while sanctioning the loan against the subject property; the same is being investigated by the CBI, which aspect has been suppressed by the Bank. 6. Failure to deposit the remaining amount within the stipulated period is due to non-furnishing of the documents and information requested by the petitioner and not due to any other reasons. The Bank dealing with the public money is expected to conduct its business and affairs in a transparent manner, due to the suppression of material facts which goes to the root of the title of the property auctioned by the Bank, the forfeiture of the amount is without authority of law and leads to unjust enrichment. On the above submissions, prays to allow the writ petition. 7. Sri. Vignesh Shivaram Shetty, learned counsel appearing for respondent submits that the petitioner has committed default in making payment of remaining amount of 75% as per the terms and conditions of the auction and forfeiture is strictly in conformity with Rule 9 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules' for short). The request of the petitioner for documents and clarifications would have been considered if the petitioner has made payment of balance 75% of the sale price. The writ petition is not maintainable in view of alternative remedy of statutory appeal under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act' for short) of the Debt Recovery Tribunal. On the above submissions, prays to dismiss the writ petition. 8. Heard learned counsels for the petitioner, learned counsel for the respondent and perused the record. 9. The petitioner participated in the public auction sale conducted by the respondent on 08.09.2020 and the petitioner was declared as highest bidder for sale price of Rs.55,75,000/-. The petitioner deposited a sum of Rs.14,00,000/- including EMD of Rs.5,50,000/- and complied the conditions of 25% of deposit within the time stipulated under the terms and conditions of the auction. 10. 9. The petitioner participated in the public auction sale conducted by the respondent on 08.09.2020 and the petitioner was declared as highest bidder for sale price of Rs.55,75,000/-. The petitioner deposited a sum of Rs.14,00,000/- including EMD of Rs.5,50,000/- and complied the conditions of 25% of deposit within the time stipulated under the terms and conditions of the auction. 10. The petitioner has alleged that the respondent, though requested several times, failed to provide copies of the documents, title deeds, tax paid receipts, khata certificate etc. with regard to the property. The property was notified as A khata property whereas it was B khata property, mistake in presenting the property by the Bank. Respondent failed to clarify the above issue. The petitioner has further pleaded that CBI is investigating the matter against the Bank Officials involved in sanction of loan against the subject property considering the loan on fraudulent documents. This crucial aspect has not been disclosed by the Bank. The above aspects have been reiterated by the learned counsel for the petitioner in the course of hearing. 11. Respondent has filed statement of objections. The entire statements of objections running into sixteen pages do not refer to or answer this specific allegation made by the petitioner except denial of the averments. The respondent has specifically contended that handing over an un-encumbered property comes into the picture only after issuance of certificate of sale in favour of the successful purchaser on payment of the remaining balance of 75% of the sale price. This specific contention of the respondent has to be inferred as admission of the allegations alleged by the petitioner in the petition. 12. The legal notice issued at Annexure - F dated 15.04.2021 alleging the very same aspect has resulted in no reply by the respondent - Bank. The allegations of fraud, misrepresentation and suppression of material facts while notifying the property for public auction are serious allegations reflecting on the conduct of the respondent, which the respondent ought to have answered. 13. In the circumstances, it is to be held that the respondent - Bank has misrepresented the crucial factual aspects relatable to the property to enable the auction purchaser to take appropriate decision as to participate in the auction or not. 13. In the circumstances, it is to be held that the respondent - Bank has misrepresented the crucial factual aspects relatable to the property to enable the auction purchaser to take appropriate decision as to participate in the auction or not. It is general presumption by the public at large that when the Bank is notifying the property for auction, the Bank would disclose all material facts which would have been reasonably considered as relevant by the Bank when the loan was sanctioned. The suppression alleged and such allegation not rebutted by the Bank would shake the public confidence. 14. The respondent - Bank has cancelled the auction and forfeited the deposit of Rs.14,00,000/- by communication at Annexure - E dated 14.10.2020. The respondent has accepted the payment of Rs.4,00,000/- on 19.10.2020, Rs.1,00,000/- on 21.10.2020 and Rs.5,00,000/- on 27.10.2020 in all, Rs.10,00,000/-. When the respondent has cancelled the auction-sale and forfeited the deposit, the respondent - Bank has no right to accept the further consideration. This would further reflect on the fairness and the transparency in which the Bank has conducted itself. 15. The conduct of the Bank in notifying B khata property as A khata property, which would altogether change the classification of the property and have substantial impact on the potentiality of the property, was an important aspect expected to be notified by the Bank with fairness to the auction participants. The respondent -Bank having failed to do so further preferred to maintain silence on this aspect in the statement of objections and by choosing not to reply to the legal notice. 16. Similarly, the CBI conducting investigation on the officials of the Bank for sanctioning loan on fraudulent documents involving the very same subject property and not revealing such a crucial fact having bearing on the title of the property, the respondent - Bank has conducted itself against the principles of transparency. 17. Rule 8(7) of the Rules mandates the respondent to upload the detailed terms and conditions of the sale including description of the immovable property to be sold, details of encumbrances known to the secured creditor and any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. 18. 18. Describing the subject property as A khata property when it was B khata property, not revealing the pending CBI enquiry against the loan relating to the subject property would amount to violation of Rule 8(7) of the Rules. The details relating to the immovable property which are necessary for a purchaser to know the nature and value of the property including the description and encumbrances of the immovable property was crucial information ought to have been disclosed by the respondent. 19. Rule 9 of the Rules provides for a detailed procedure for conducting the public auction. Rule 9(3) of the Rules has been complied with by deposit of 25%. Though no request under Rule 9(4) of the Rules for extension of time is being made by the purchaser, in view of undisputed fact that the petitioner has raised certain queries/clarifications with the respondent having bearing on the description, encumbrance and relevant for the conscious decision to participate or proceed in the auction and the same not being answered or clarified by the respondent, it is not permissible for the respondent to contend that under Rule 9(4) of the Rules, petitioner ought to have requested for extension, such request not being made, forfeiture under Rule 9(5) of the Rules is justified. 20. Rule 9(4) of the Rules contemplates extension of period as agreed between the purchaser and the secured creditor. In view of unambiguous language, it cannot be read that extension under Rule 9(4) of the Rules can be only at the request of the purchaser. In view of irregularities committed by the respondent in failing to disclose the details as required under Rule 8(7) of the Rules and necessary clarifications as requested by the purchaser not being issued by the respondent - Bank, the secured creditor/respondent - Bank ought to have extended the period under Rule 9(4) of the Rules. 21. If the period of three months was extended from 22.09.2020, the petitioner has an opportunity to get the issues resolved with the respondent - Bank if co operated by the respondent and paid the remaining sale price within the stipulated period. Further, on 09.02.2021, the property has been notified for re-auction and concluded on 24.02.2021 with a sale price of Rs.51,52,000/- thereby reducing the earlier sale price by Rs.4,23,000/-. This reduction in sale price can be for the reasons/defects pointed out by the petitioner. 22. Further, on 09.02.2021, the property has been notified for re-auction and concluded on 24.02.2021 with a sale price of Rs.51,52,000/- thereby reducing the earlier sale price by Rs.4,23,000/-. This reduction in sale price can be for the reasons/defects pointed out by the petitioner. 22. The failure by the respondent to issue necessary clarifications as requested by the petitioner, suppression of material facts required to be disclosed under Rule 8(7) of the Rules and the failure to consider extension under Rule 9(4) of the Rules and the timeframe in which forfeiture and re-auction has been conducted with a lesser sale price would reflect the fairness, transparency in which, the auction being conducted by the respondent. 23. As default in payment of balance amount of purchase price within stipulated time is attributable to the lapses and irregularities on the part of the respondent, the forfeiture of the amount exercising Rule 9(5) of the Rules is arbitrary and illegal. 24. The respondent has terminated the auction sale by letter dated 14.10.2020 at Annexure - E. After termination, a sum of Rs.10,00,000/- has been received between 19.10.2020 to 27.10.2020. After termination, the respondent has no right to accept any further payment pursuant to the auction sale which is terminated much prior to the acceptance of further payments. 25. The respondent in statement of objections has pleaded that description of the property, details of encumbrances and other information relatable to the property would have been considered only after making balance payment of 75% would reflect on the fairness and transparency in which public auction is conducted by the respondent - Bank while dealing with the public money. In the circumstances, when officials of the Bank are facing CBI enquiry regarding fraudulent documents relating to the loan extended to the subject property itself, the respondent is expected to be fair and transparent. 26. The respondent has raised an issue of maintainability of the writ petition on the ground that appeal before the Tribunal is provided under Section 17 of the SARFAESI Act. 27. It is settled position of law that impugned auction if in contravention of the law and in violation of the principles of natural justice; writ petition is maintainable under Article 226 of the Constitution. 27. It is settled position of law that impugned auction if in contravention of the law and in violation of the principles of natural justice; writ petition is maintainable under Article 226 of the Constitution. The information required to be provided under Rule 8(7) of the Rules regarding description of immovable property, details of encumbrance and CBI enquiry on the subject property was necessary information/details ought to have been provided by the respondent. This requirement has been violated. When the requests for documents and clarifications were pending with the respondent without answering the queries, a unilateral decision to cancel the auction sale and forfeit the amount in terms of Rule 9(5) of the Rules would violate the principles of natural justice. In the circumstances, writ petition under Article 226 of the Constitution is maintainable. 28. For the aforesaid reasons, this Court is of the view that the forfeiture of deposit by letter dated 14.10.2020 is arbitrary, illegal and liable to be quashed. Further, the acceptance of Rs.10,00,000/- after termination of auction sale is illegal and without authority of law. Hence, the forfeiture by the respondent for its own fault and irregularities committed is without authority of law and amounts to unjust enrichment. 29. In view of the above discussion and reasons, the following; ORDER i) Writ Petition is allowed. ii) The respondent-Bank is directed to refund the entire amount of Rs.24,00,000/- to the petitioner with applicable interest within period of six weeks from the date of receipt of copy of this order. iii) No order as to costs.