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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2218 OF 2010
WITH
NOTICE OF MOTION NO. 634 OF 2010
Goldie Sud .....Petitioner
Vs.
Punjab National Bank & Ors. ......Respondents
Mr. Zal Andhyarujina with Ms. Duhita Lewis and Mr. Santosh S. Shetty
for the Petitioner.
Mr. Virag Tulzapurkar, Sr. Advocate with Mr. Chirag Balsara with Ms.
Angeline Rodrigues, Ms. Jyoti Sinha, Ms. Savita Kandu, Mr. Vikrant
Makhare and Mr. Uzair Kazi i/by M/s. Negandhi, shah & Himayatullah
for Respondent No.1.
Mr. Milind Sathe, Sr. Advocate with Mr. Cyrus Ardeshir i/by M/s.
Kanga & Co. for Respondent No.3.
Mr. Ulhas G. Kerkar for Respondent No.4.
CORAM : DR. D.Y. CHANDRACHUD AND
ANOOP V. MOHTA, JJ.
DATE : JANUARY 10, 2011.
ORAL JUDGMENT(PER DR. D.Y. CHANDRACHUD, J.):-
By these proceedings, the Petitioner seeks to impugn the legality
of the public auction that was conducted on 15 September 2010 by
the First Respondent of land and building situated on Plot No. 494,
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CTS No. F/366, Linking Road, Bandra, Mumbai 400 050. The
Petitioner is a co-owner and was co-mortgagor. At the outset, counsel
appearing on behalf of the Petitioner stated before the Court that in
these proceedings under Article 226 of the Constitution of India, the
Petitioner impugns the validity of the auction sale purely in his
capacity as a bidder at the auction.
2 On 21 May 2010, the First Respondent invited bids for a public
auction of the immovable property in question. The notice inviting
the tenders specifically stipulated that the reserve price was 14.62
crores, below which “the property will not be sold”. The Petitioner
submitted a bid at the auction which was held on 28 May 2010 in the
amount of Rs.15.05 crores. The Petitioner, however, failed to comply
with his obligation of paying the balance of the sale consideration over
and above Rs.3,76,25,000/-, upon which the auction sale was
cancelled and the property was re-advertised. While issuing an
advertisement for the public auction, the First Respondent once again
stipulated a reserve price of Rs.14.62 crores below which, it was
stated, the property would not be sold. At the second auction which
was held on 15 September 2010, the Petitioner submitted a bid of Rs.5
crores, which was well below the reserve price of Rs.14.62 crores and
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below Rs.15.05 crores which was submitted at the first auction. Four
bids were received by the bank. The highest bid was of Rs.14.77
crores of the Third Respondent whereas, the second highest bid was of
Rs.14.63 crores. The minutes of the meeting that was held on 15
September 2010, record that on scrutiny, it was found that only two of
the four bidders submitted bids in excess of the reserve price together
with the earnest money of 10% of the reserve price, as required. The
bid submitted by the Petitioner was rejected on the ground that (i) the
bid submitted was below the reserve price of Rs.14.62 crores; and (ii)
it was without furnishing earnest money deposit. The sale was
knocked down in favour of the Third Respondent for an amount of
Rs.14.77 crores. The sale was confirmed and a sale-certificate was
issued which has been duly registered. A statement has been made
before the Court by counsel appearing on behalf of the Bank and the
auction purchaser that the title documents have been handed over and
possession has been handed over on an “as is where is basis”.
3 On behalf of Petitioner, four submissions have been urged before
the Court- (i) The jurisdiction under Article 226 of the Constitution is
discretionary and even if it is held that an alternate remedy is
available under Section 17 of the Securitization and Reconstruction of
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Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act), this would not oust the extra ordinary jurisdiction of
this Court; (ii) The remedy under Section 17 of SARFAESI Act, is not
an efficacious remedy; (iii) The Petitioner was wrongly excluded from
the bidding process on the ground that his bid was less than the
reserve price. The Petitioner had a bonafide strategy to bid below the
reserve price and it was not a condition of eligibility that every bid
should be at least of an amount equal to the reserve price; (iv) The
Petitioner was not allowed to bid on the ground that the earnest
money deposit was found on the floor of the premises where the
auction was conducted. The demand draft which was found on the
floor was purchased by Megh Leasing & Investments Ltd. On the day
following the auction sale, that company had addressed a letter to the
issuing bank recording that the demand draft had been given by it to
the Petitioner “as a business transaction”.
4 Insofar as the maintainability of the Petition is concerned,
counsel appearing on behalf of the Respondents stated before the
Court that in the facts and circumstances of this case and even on the
assumption that the remedy of the appeal under Section 17 is
available to an auction purchaser, it would be appropriate and proper
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for this Court to entertain the Petition on merits and deal with the
challenge in order to render finality. In view of the joint request made
by counsel for both the parties, the grievances of the Petitioner have
been considered on merits by consent.
5 The terms and conditions governing the first auction sale
specifically provided that the reserve price would be Rs.14.62 crores
below which the property would not be sold. During the course of the
first auction, the Petitioner submitted a bid of Rs.15.05 crores. The
Petitioner was unable to comply with the terms of the sale, following
which the sale was cancelled and the property was re-advertised. On
the second occasion, as well, the bank while inviting tenders,
specifically stipulated the condition that the property would not be
sold below the reserve price of Rs.14.62 crores. Despite this, the
Petitioner submitted a bid of Rs.5 crores. There is merit in the
submission urged by counsel for the Respondent that this bid of the
Petitioner was clearly not bonafide. No bidder, in the face of a specific
tender condition which stipulated that the property would not be sold
below the reserve price, would come forward with a bid that
represents a fraction of the reserve price. This assumes significance in
this case where at the earlier auction with the same conditions of
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tender, the Petitioner submitted a bid of Rs.15.05 crores.
6 However, it was urged by counsel on behalf of the Petitioner that
the submission of a bid in an amount equal to the reserve price or
higher is not a condition precedent to eligibility. In other words, it has
been urged that a bid below the reserve price would not dis-entitle the
Petitioner from participating at the auction sale and it would be open
to a bidder to quote below the reserve price, as a matter of strategy so
as to await the process of inter-se bidding during the course of the
auction. Reliance has been placed on the provisions of regulation 9 of
the Security Interest (Enforcement) Rules, 2002.
7 Rule 8(5) of the Rules provides that before effecting sale of
immovable property, the authorized officer is to approve valuation and
fix the reserve price in consultation with the secured creditor. The
property which constitutes a secured asset can thereupon be sold
through one or more modes including amongst them, by inviting
tenders from the public or by holding a public auction. In the event
that the secured asset has to be sold either by inviting tenders from
the public or by holding a public auction, a notice must be issued in
two leading newspapers of wide circulation in the locality inter alia
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describing the terms of the sale. This includes the description of the
immovable property, the secured debt for the recovery of which the
property is to be sold, the price below which the property may not be
sold, the time and place of auction and the deposit of earnest money
stipulated. Rule 9(2) stipulates that the sale shall be confirmed in
favour of the purchaser who has offered the highest sale price in his
bid and would be subject to confirmation by the secured creditor. The
first proviso of Rule 9(2) stipulates that no sale shall be confirmed, if
the amount offered by sale price is less than the reserve price,
specified under Sub-Rule 5 of Rule 8. The second proviso however,
lays down that if the authorized 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.
8 In the present case, the terms and conditions of sale provided
that the property would not be sold at a price less than the reserve
price. There was, therefore, in this case a clear indication by the First
Respondent that it would not agree to any amount less than the
reserve price. No bidder was therefore entitled to assume that a bid at
an amount less than the reserve price would possibly meet the consent
of the secured creditor. The secured creditor had in advance clearly set
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forth its intent not to accept any bid below the reserve price. That
apart, as a matter of fact, in the present case, the bank received two
bids both in excess of the reserve price. If as submitted before the
Court on behalf of the Petitioner, the Petitioner submitted a bid below
the reserve price in the face of a clear stipulation to the contrary in the
notice inviting tenders, he was taking a chance or wager. The
Petitioner, by taking that chance must be conscious of the possibility of
being outbid by others who quoted in excess of the reserve price. The
submission of the Petitioner that every bidder is entitled to participate
in the inter-se bidding at an auction sale, even if the bid is below the
reserve price, cannot be accepted. If the submission is accepted, the
sanctity of the process would be lost and the tendering process would
be illusory. Taken to the logical conclusion, the submission implies that
even a bidder with a bid of one rupee, in the face of a reserve price of
Rs.14.62 crores would have to be considered in this tendering process.
If this is allowed, the process would lose its sanctity and become a
speculative exercise between bidders. When the bank notified to the
intending bidders that the property would not be sold below the
reserve price, this was clear notice of the fact that bids below the
reserve price would not be considered. The second proviso to Rule 9
makes an enabling provision by which a bid below the reserve price
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may be accepted by the authorized officer if he fails to obtain a price
higher than the reserve price. This situation can arise only if a bid
higher than the reserve price is not obtained. Moreover, even in such
a case, the consent of the borrower and the secured creditor to effect a
sale at such a price has to be obtained under the enabling provision of
the second proviso to Rule 9. There is no vested right in a bidder to
participate in an auction sale by submitting a bid which is lacking in
bonafides as in the present case.
9 In view of the aforesaid findings which we have arrived at on
the second ground, the Petition is liable to fail. In addition, we must
note that the other ground on which the bid submitted by the
Petitioner was not considered, was that the Petitioner failed to deposit
the earnest money of Rs. 14.62 crores together with the bid.
10 In the minutes of the meeting of 15 September 2010, it has been
recorded that the staff of the bank had found a crumpled piece of
paper on the floor of the hall where the auction was taking place.
Upon being unfolded it contained a demand draft of the Indian
Overseas Bank dated 15 September 2010, for Rs.1,46,20,000/-. The
Petitioner pointed out that the demand draft may be his draft.
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However, when the authorized officer asked the Petitioner to
incorporate the details of the demand draft in his bid form, the
Petitioner refused to do so. On 15 September 2010, the First
Respondent returned the demand draft to the issuing bank, on the
ground it had not been claimed. The issuing banker declined to
accept the draft following which the First Respondent addressed a
letter dated 16 September 2010. The issuing bank by its letter dated
23 September 2010, stated that the purchaser of the draft, Megh
Leasing and Investments Limited had informed it that there were
certain irregularities in the auction conducted by the First Respondent
and that the issuing bank was advised not to accept the draft. The
issuing bank stated that since there was a dispute between the
purchaser of the draft and the First Respondent, the draft had not
been accepted by the bank. On 16 September 2010 Megh Leasing and
Investments Limited addressed a letter to the issuing banker stating
that it had purchased a draft and furnished it to the Petitioner ‘as a
business transaction’.
11 The contention which has been urged on behalf of the Petitioner
is that Megh Leasing and Investments Limited had financed the
earnest money deposit on the occasion of the earlier auction and it
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would have been known to the bank that the demand draft which was
alleged to be found on the floor of the auction hall, in fact, belonged
to the Petitioner. Counsel submitted that the tender form had no
column where there was a provision for a bidder to incorporate the
details of the demand draft. Moreover, reliance was sought to be
placed on an FIR lodged by the bank on 15 September 2010 with the
Senior Inspector of Police, Marine Drive Police Station, where the
bank is alleged to have recorded having refused to allow the bidder to
write the number of the demand draft in the tender form. The
contents of the FIR, it was urged, are not consistent with what is
recorded in the minutes of the meeting held on 15 September 2010.
12 On the other hand, it is urged on behalf of the Respondent that
the demand draft was found on the floor of the auction hall and there
was nothing wrong with the bank requiring the Petitioner to certify
the ownership of the draft by incorporating the details in the bid form.
According to the bank, the Petitioner refused to do so, in view of
which the bank was justified in proceeding on the basis that the bid
was not accompanied by the requisite payment of the earnest money
deposit.
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13 In view of the finding that we have arrived at on the first
question, the second submission would cease to have practical
relevance. Even on the assumption that the Petitioner submitted a
demand draft of earnest money, the bid which was submitted by the
Petitioner was below the reserve price and was therefore not a valid
bid that was required to be considered. In any event, the rival
contentions on the second issue to which we have made a reference
earlier, raise disputed questions of fact. Even if the Petitioner, as
contended by him, submitted a demand draft for the earnest money
deposit, the bid, which was below the reserve price was liable to be
rejected and has been correctly rejected on that ground.
14 Above all, this Court must be guided by the principle that a party
who seeks equitable relief in the exercise of the extra ordinary
jurisdiction under Article 226, should not be dis-entitled to reliefs on
the ground of its conduct. In this case, as the record before the Court
shows, the conduct of the Petitioner was not bonafide. Even on the
first occasion the Petitioner sought and was granted time by the Debts
Recovery Appellate Tribunal by its order dated 14 May 2010, to come
forward with a settlement of the dues of the bank. On a statement
made by the Petitioner, the auction that was scheduled was stayed.
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Subsequently, on 17 May 2010, the Appellate Tribunal noted that the
request made before the Tribunal on the previous date, was not honest
and was made only to secure a stay. The interim order staying the
auction was vacated. The Petitioner participated in the first auction
and was unable to pay the remaining balance of the purchase price
upon which the auction had to be cancelled and the property was re-
advertised. Despite having knowledge of the fact that the reserve
price was Rs.14.62 crores, below which the property would not be
sold, and having quoted a price of Rs. 15.05 crores in the first auction,
the Petitioner submitted a bid only of Rs.5 crores, on the second
occasion.
15 The Petitioner has taken a chance on a speculative assumption
that bids at the auction would be below the reserve price. In fact, the
submission of the Petitioner is that this was a part of a strategy. The
bank having received bids in excess of the reserve price and having
confirmed the highest bid, we have not found any merit in the
grievance of the Petitioner.
16 For all these reasons, we do not find any reason to entertain the
grievances of the Petitioner in the exercise of the extra ordinary
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jurisdiction under Article 226 of the Constitution. The Petition shall
stand dismissed. No costs.
17 In view of the disposal of the Writ Petition, Notice of Motion No.
634 of 2010 does not survive and is disposed of, accordingly.
(ANOOP V. MOHTA, J.) (DR. D.Y. CHANDRACHUD, J.)
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