BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 09/03/2007
CORAM:
THE HONOURABLE MR.JUSTICE A.KULASEKARAN
WP(MD)Nos.634 of 2006
WP(MD)Nos.635 of 2006
WPMP(MD)Nos.697 of 2006
WPMP(MD)Nos.699 of 2006
WVMP.Nos.105 of 2006
WVMP.Nos.109 of 2006
1. Shakeena Petitioner in WP.634 of 2006
2. P.Shahul Hameed Petitioner in WP.635 of 2006
Versus
1. Bank of India by Branch Manager
Palayamkottai, Tirunelveli 627 002B
2.Jagathkumar, Authorised Officer
Bank of India, Coimbatore Zone
324, Oppankara Street
Coimbatore 600001
K.Chidambara Manickam
(R3 impleaded as per Order dated
15.02.2006 in WPMP Nos. 1543 and
1544 of 2006) Respondents in both WPs
WP No. 634 of 2006: Petition filed under Art.226 of the Constitution of
India to issue a Writ of Certiorarified Mandamus to call for the records from
the Respondents in respect of the auction of the Petitioners’ properties held in
pursuance of the auction notice No.Z0:CBE:LAW:VA:848 issued by the 2nd
respondent dated 14.11.2005 and quash the same and to direct the Respondents to
receive the amount paid by the Petitioners towards the petitioners’ loan account
and release the properties from the mortgage.
!For Petitioners : Mr. R.S. Ramanathan
in both the WPs
For Respondents : Mr. C. Godwin for R1 & R2
in both the Writ Petitions
Mr. G.R. Swaminathan for
Miss. AL.Ganthimathi for R3
in both the Writ Petitions
:COMMON ORDER
Since the impugned orders in these Writ Petitions are one and the same and
the secured asset involved are same, further common issue involved in both the
Writ Petitions, hence, they are disposed of by this common order.
2. The case of the Petitioners is that that the Petitioners availed
loans from the 1st respondent Bank by mortgaging their properties; that they
were directed to discharge the loan amount with interest at 11.75 p.a. within a
period of 60 days; that the petitioner sent representations on 10.12.2004 and
30.12.2004, requesting the respondent Bank to consider a one time settlement to
settle the dues; that since there was no reply, the Petitioners filed SA.Nos.21
and 22/2005 before the DRT, which were dismissed; that the 2nd respondent sent a
letter dated 11.11.2005, informing that the mortgaged property will be brought
to sale after the expiry of 30 days from that date by public auction and they
brought the property for auction on 19.12.2005; that the Petitioners approached
the 1st respondent Bank on 2.1.2006 and deposited three cheques for a total sum
of Rs.25,21,446/- to discharge the amount due and payable in respect of the
notice issued to the Petitioners; that the 1st respondent Bank returned the said
cheques on 4.1.2006, informing that the property had already been sold and the
sale was to be confirmed on or before 17.1.2006; that the Petitioners filed
IA.Nos.13 and 14/2006 for condoning the delay in filing the petition to restore
the said appeals, which were dismissed on the ground that the auction purchaser,
who is the 3rd respondent herein, paid the entire sale consideration and the
sale certificate was issued to him on 6.1.2006; that again the Petitioners sent
a notice dated 13.1.2006, enclosing Demand Drafts for Rs.25,00,000/- drawn in
favour of the 2nd respondent and informed that the balance amount would be paid,
which were received by the Respondents; that after having received the said
Demand Drafts, instead of setting aside the sale, they sent another notice dated
6.1.2006, informing that the successful bidder has remitted the balance amount
on 4.1.2006; that the Respondents ought to have proceeded with the taking
possession of the mortgaged property within 30 days, especially when the
mortgagor had paid the entire amount and hence, these Writ Petitions have been
filed.
3. The case of the Respondents is that the Petitioners have availed
various loans from the 1st respondent; that they defaulted in repayment of the
dues of the said loans and consequently the Respondents invoked the provisions
of SARFAESI Act to recover the dues by proceeding against the secured assets;
that notices of demand under Section 13(2) was issued on 1.12.2004; that the
Petitioners received the said notices and submitted their reply, seeking time
upto 5.2.2005 for payment of the dues, but they have not paid the dues and
thereafter, the 1st respondent invoked Section 13 (4) of the SARFAESI Act and
took constructive/symbolic possession of the secured assets on 8.2.2005; that
the Petitioners challenged the said auction initiated by the Respondents by
filing appeals in SA.Nos.21 and 22/2005 under Section 17 of the SARFAESI Act
before the Debt Recovery Tribunal and in the said appeal, a conditional order
of stay directing the Petitioners to pay a sum of Rs.1.50 lakhs each, which was
not complied with, as a result of which, the interim order granted in the said
appeal was vacated and later the said appeals were also dismissed for default on
28.9.2005; that the 1st respondent brought the secured assets for sale and the
petitioner neither objected to the same nor challenged the same; that the sale
was held on 19.12.2005; that the 3rd respondent was the successful bidder, who
offered a sum of Rs.42,51,000/- and also complied with all the terms and
conditions of sale and hence, the sale was confirmed in his favour and the 3rd
respondent also paid the entire sale consideration on 4.1.2006; that a sum of
Rs.12,40,000/- was given credit to the loan account of the petitioner in
WP.No.634/2006 and a sum of Rs.12,52,350/- was given credit to the loan account
of the petitioner in WP.No.635/2006 and their loan accounts were closed; that
the sale certificate was also issued to the 3rd respondent on 6.1.2006; that the
Petitioners have filed petitions to restore the SA.No.21 and 22/2005, which were
also dismissed for non payment court fee on 10.1.2006; that these writ petitions
have been filed at that stage; that after deducting a sum of Rs.10,000/- towards
legal expenses of the 1st respondent, the balance amount of Rs.17,48,250/- was
lying with the 1st respondent; that the 1st respondent returned a sum of
Rs.17,25,000/- to the petitioner in WP.No.634/2006, which was returned; that the
Petitioners forwarded demand drafts for Rs.25,00,000/- drawn in favour of the
2nd respondent, which was received on 17.1.2006 along with a anti dated letter
12.1.2006, but the 2nd respondent did not encash the demand draft.
4. The learned Counsel for the Petitioners has submitted that the
Respondents failed to appreciate Section 37 of the SARFAESI Act and Rule 60 of
II Schedule to Income Tax Rules, hence they ought to have waited for 30 days to
enable the petitioner to pay 5% of the sale amount and other charges. In support
of his contention the learned Counsel for the petitioner has relied on the
judgement rendered in the case of Mardia Chemicals Limited Vs. Union of India
(2004-4-SCC-311), wherein it was held in paragraph 54 as under:-
“In so far as the argument advanced on behalf of the Petitioners that by virtue
of the provisions contained under sub section 4 of section13 the borrowers lose
their right of redemption of the mortgage, in reply it is submitted that rather
such a right is preserved under sub section 8 of section 13 of the Act. Where a
borrower tenders to the creditor the amount due with costs and expenses
incurred, no further steps for sale of the property are to take place. In this
connection, a reference has also been made by the learned Attorney General to
the decision in Naradandas Karsondas Vs. S.A.Kamtam which provides that a
mortgager can exercise his right of redemption any time until the final sale of
the property by execution of a conveyance. Shri Sibal, however, submits that it
is the amount due according to the secured creditor which shall have to be
deposited to redeem the property. May be so, some difference regarding the
amount due may be there but it cannot be said that right of redemption of
property is completely lost. In cases where no such dispute is there, the right
can be exercised and in other cases the question of difference in amount may be
kept open and got decided before sale of property”.
5. The learned Counsel for the 1st respondent has submitted that under
Section 13 of the SARFAESI Act, if all the dues to the secured creditor with
cost, expenses are paid to the secured creditor before the time fixed for
auction, the secured asset shall not be sold, however, SARFAESI Act does not
contain any provision for setting aside the sale; that once the sale is
effected, it is not open to the borrower or guarantor or mortgager to set aside
the same, on any ground, which is also evident from Rule 3, 4 and 9 of the
Security Interest (Enforcement) Rules, in which the purchaser shall pay 25% of
the sale consideration immediately on the date fixed for sale and the balance
sale consideration within 15 days from the date of confirmation of sale; that on
payment of the entire sale consideration, the purchaser is entitled to get the
sale certificate registered in his favour and prayed for dismissal of these writ
petitions.
6. The learned Counsel for the 3rd respondent has submitted that the
3rd respondent was the highest bidder, whose bid was accepted and he also paid
the entire sale consideration within the time stipulated and the sale
certificate was also issued to him; that the petitioners had filed S.A.s before
the Debt Recovery Tribunal where conditional orders were passed which was not
complied with and later the same was dismissed; that after issuance of sale
certificate, the present writ petitions were filed invoking Article 226 of The
Constitution of India; that this Court may not interfere, even if there is a
technical violation of law and prayed for dismissal of these Writ Petitions.
7. This court carefully considered the submissions of the learned
Counsel on either side and also perused the material records placed.
i) The Section 13(8) of the SARFAESI Act reads as under:-
“If the dues of the secured creditor together with all costs, charges and
expenses incurred by him are tendered to the secured creditor at any time before
the date fixed for sale or transfer, the secured asset shall not be sold or
transferred by the secured creditor, and no further step shall be taken by him
for transfer or sale of that secured asset.”
ii) The Section 35 of the SARFAESI Act reads as under:
“The provisions of this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in force or
any instrument having effect by virtue of any such law.”
iii) The Section 37 of the SARFAESI Act reads as under:-
“The provisions of this Act or the rules made thereunder shall be in addition to
and not in derogation of the Companies Act, 1956 (1 of 1956) the Securities
Contracts (Regulation) Act 1956 (42 of 1956) the Securities and Exchange Board
of India act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993) or any other law for the time
being in force.”
8. The Rule 9 of the Security Interest (Enforcement) Rules, 2002 read
as under:-
Rule (9): Time of Scale, issue of sale certificate and delivery of possession
etc.: (1) No sale of immovable property under these rules shall take place
before the expiry of thirty days from the date on which the public notice of
sale is published in newspapers as referred to in the provisio to sub rule (6)
or notice of sale has been served to the borrower.
(2) the sale shall be confirmed in favour of the purchaser who has offered the
highest sale price in his bid or tender or quotation or offer to the authorised
officer and shall be subject to confirmation by the secured creditor
Provided that no sale under this rule shall be confirmed, if the amount offered
by sale price is less than the reserve price, specified under sub rule (5) of
rule 9.
Provided further that if the authorised 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.
(3) On every sale of immovable property, the purchaser shall immediately pay a
deposit of twenty five per cent of the amount of the sale price, to the
authorised officer conducting the sale and in default of such deposit, the
property shall forthwith be sold again.
(4) the balance amount of purchase price payable shall be paid by the purchase
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 parties.
(5)In default of payment within the period mentioned in sub rule (4) the deposit
shall be forfeited and the property shall be resold and the defaulting purchaser
shall forfeit all claim to the property or to any part of the sum for which it
may be subsequently sold
(6) On confirmation of sale by the secured creditor and if the terms of payment
have been complied with, the authorised officer exercising the power of sale
shall issue a certificate of sale of the immovable property in favour of the
purchaser in the Form given in Appendix V to these rules.
(7) Where the immovable property sold is subject to any encumbrances, the
authorised officer may if he things fit, allow the purchaser to deposit with him
the money required to discharge the encumbrances and any interest due thereon
together with such additional amount that may be sufficient to meet the
contingencies or further cost, expenses and interest as may be determined by
him.
(8) On such deposit of money for discharge of the encumbrances, the authorised
officer may issue or cause the purchaser to issue notices to the persons
interested in or entitled to the money deposited with him and take steps to make
the payment accordingly.
(9) The authorised officer shall deliver the property to the purchaser free
from encumbrances known to the secured creditor on deposit of money as specified
in sub rule (7) above.
(10) The certificate of sale issued under sub rule (6) shall specifically
mention that whether the purchaser has purchased the immovable secured asset
free from any encumbrances known to the secured creditor or not.”s
9. Chapter III of Securitisation Act relates to enforcement of security
interest. Section 13 of Chapter III deals with any security interest is created
in favour of any secured creditor may be notwithstanding anything contained in
Section 69 and 69-A of Transfer of Property Act be enforced without the
intervention of the Court or Tribunal by such creditor in accordance with the
provisions of the said Section. Sub-section 8 of Section 13 provides that if
the dues of the secured creditor together with all costs, charges and expenses
incurred by him are tendered to the secured creditor at any time before the date
fixed for sale or transfer, the secured assets shall not be sold or transferred
by the secured creditor and no further steps shall be taken by him for transfer
or sale of that secured asset.
10. Rule 9 of Security Interest (Enforcement) Rules 2002 relates to time
of sale, issues of sale certificate and delivery of possession etc., No sale of
immovable property under this Rule shall take place before the expiry of 30 days
on which public notice of sale is published in newspapers as referred to in the
proviso to Sub-rule (6) or notice of sale has been served to the borrower.
11. Sub-rule 3 of Rule 9 says that on every sale of immovable
property, the purchaser shall immediately pay a deposit of 25% of the amount of
the sale price to the authorised officer conducting the sale and in default of
such deposit, the property shall forthwith be sold again.
12. Sub-rule (4) of Rule 9 says that the balance amount of
purchase price payable shall be paid by the purchaser to the authorised officer
on or before the 15th day of confirmation of sale of the immovable property or
such extended period as may be agreed upon in writing between the parties.
13. In the case on hand, it is not in dispute that the respondent
bank issued notice dated 19.10.2004 under Section 13 (2) of SARFAESI Act calling
upon the petitioners to discharge the loan in 60 days. The Petitioners have not
complied with the said notice. The respondent bank exercised its powers under
Section 13 (4) of the said Act and took possession of the property on 08.02.2005
and issued notice dated 11.11.2005 again calling upon the petitioners to pay the
arrears in 30 days failing which the property would be brought for auction. On
15.11.2005, the bank issued necessary advertisement in news papers fixing
auction dated as 19.12.2005 in terms of Rule 9 of Security Interest
(Enforcement) Rule, 2003.
14. In the meantime, the petitioners have filed S.A. Nos. 21
and 22 of 2005 before the Debt Recovery Tribunal under Section 17 of the
SARFAESI Act and challenging the notice under Section 13 (4) of the said Act and
sought for stay and the same was granted with condition to pay Rs.1,50,000/-
each but the said condition was not complied with, hence the S.A.s were
dismissed on 28.09.2005.
15. As scheduled auction was held on 19.12.2005 in which the third
respondent has offered highest amount of Rs.42,51,000/- which was accepted and
he paid 25% as per Rule 9 (3) of the said Rules and on 04.01.2006 he paid the
entire balance amount. On 06.01.2006 sale certificate was issued to the third
respondent, however, the sale is yet to be registered.
16. In the meantime,the petitioner has filed I.A.s 14 of 2005 and 15 of
2005 to restore S.A.s 21 and 22 of 2005, which were dismissed on 10.01.2006, at
that stage, the present writ petitions were filed.
17. On 13.01.2006, the petitioner has issued lawyer’s notice enclosing
demand draft for Rs.25,000/- drawn in the personal name of the second
respondent, which was received by the second respondent on 17.01.2006. It is
stated that the demand draft was not encashed by the respondents 1 and 2.
18. The argument of the counsel for the petitioner is that the
petitioners have sent three cheques for Rs.25,21,246/- on 02.01.2006 i.e., even
prior to the issuance of sale certificate on 06.01.2006 but they were returned
on the ground that sale was already over and confirmation to be made shortly,
which is in contravention to the provisions of Sub-section 8 of Section 13 of
the Act. It is further stated by the learned counsel for the petitioner that if
the dues of the secured creditor, together with all costs, charges and expenses
incurred by him are tendered to the secured creditor at any time before the date
fixed for sale or transfer, the secured assets shall not be sold or transferred
to the secured creditor and no further steps shall be taken by him for transfer
or sale of the secured asset. The learned counsel for the petitioner insisted
the ‘words’ employed in sub-section 8 that ‘for sale or transfer, sold or
transfer’ indicate that even though auction was over, till the transfer of
possession is effected, dues of the secured creditor, together with all costs,
charges and expenses incurred by him are tendered, it should have been received
by them, but without doing so, the cheques were returned, hence, the sale in
favour of the third respondent is invalid. It is further pointed out by the
counsel for the petitioner that the petitioner has sent lawyer’s notice dated
13.01.2006 enclosing the demand draft for Rs.25 lakhs, which was received by the
respondent/bank, but not encashed; that issuance of the cheque dated 02.01.2006
and demand draft dated 13.01.2006 made it clear that prior to delivery of
possession by the bank to the third respondent, the dues were tendered. In
support of this contention, the learned counsel for the petitioner relied on the
decision of the Honourable Supreme Court reported in (Narandas Karsondas vs.
S.A. Kamtam and another) 1977 (3) Supreme Court Cases 247 wherein in Para Nos.
34 and 35, it was held thus:-
“34. The right of redemption which is embodied in Section 60 of the
Transfer of Property Act is available to the mortgagor unless it has been
extinguished by the act of parties. The combined effect of Section 54 of the
Transfer of Property Act and Section 17 of the Indian Registration Act is that a
contract for sale in respect of immovable property of the value of more than one
hundred rupees without registration cannot extinguish the equity of redemption.
In India it is only on execution of the conveyance and registration of transfer
of the mortgagor’s interest by registered instrument that the mortgagor’s right
of redemption will be extinguished. The conferment of power to sell without
intervention of the Court in a Mortgage Deed by itself will not deprive the
mortgagor of his right to redemption. The extinction of the right of redemption
has to be subsequent to the deed conferring such power. The right of redemption
is not extinguished at the expiry of the period. The equity of redemption is
not extinguished by mere contract for sale.
35. The mortgagor’s right to redeem will survive until there has been
completion of sale by the mortgagee by a registered deed. In England a sale of
property takes place by agreement but it is not so in our country. The power to
sell shall not be exercised unless and until notice in writing requiring payment
of the principal money has been served on the mortgagor. Further Section 69 (3)
of the Transfer of Property Act shows that when a sale has been made in
professed exercise of such a power, the title of the purchaser shall not be
impeachable on the ground that no case had arisen to authorise the sale.
Therefore, until the sale is complete by registration the mortgagor does not
lose right of redemption.”
Relying on the above said judgment of the Honourable Supreme Court, the
learned counsel for the petitioner argued that the right of redemption which is
embodied in Section 60 of the Transfer of Property Act is available to the
mortgagor unless it has been extinguished by the act of parties; that until the
sale is complete by registration, the mortgagor does not lose right of
redemption. It is further pointed out by the learned counself or the petitioner
that the respondents in their counter in Para-8 has admitted that ‘later, the
respondents issued sale certificate to the purchaser on 06.11.2006. However,
the same is yet to be registered”. The further argument of the counsel for the
petitioner is that Rule 60 of II schedule of Income Tax Rule is applicable to
SARFAESI Act, Section 37 made it clear that the provisions of SARFAESI Act shall
be in addition to and not in derogation of other acts. The learned counsel for
the petitioner further relied on the decision reported in (Mardia Chemicals Ltd
vs. Union of India) 2004 4 SCC 311, which is extracted above, wherein their
Lordships have held that where a borrower tenders to the creditor the amount due
with costs and expenses incurred, no further steps for sale of property are to
take place, for which their Lordships relied on the decision reported in
(Narandas Karsondas vs. S.A. Kamtam and another) 1977 (3) Supreme Court Cases
247 cited supra which provides that mortgagor can exercise his right of
redemption any time until the final sale of property by execution of conveyance.
Even some difference regarding amount due may be there but it cannot be said
that right of redemption of property is completely lost.
19. The learned counsel for the respondents 1 and 2 submitted that the
respondents denied the argument of the petitioner that they deposited three
cheques for a total sum of Rs.25,27,446/-. In so far as demand draft for Rs.25
lakhs was sent along with advocate notice dated 13.01.2006 by the petitioner is
concerned, it is stated by the counsel for the respondents 1 and 2 that the same
was received by them only on 17.01.2006 i.e., after the confirmation made on
06.01.2006, however, the same was not encashed. In so far as the averment
regarding denial of receipt of three cheques is concerned, the petitioner has
not filed any reply.
20. Now, it has to be decided as to whether the demand draft sent by the
petitioners along with the advocate notice dated 13.01.2006 which is stated to
have been received by the respondents 1 and 2 on 17.01.2006 would protect the
right of redemption of the petitioner or not. Admittedly, in this case, the
conveyance is not executed. In this context, it would be appropriate to look
into the decision of the Honourable Supreme Court reported in (Narandas
Karsondas vs. S.A. Kamtam and another) 1977 (3) Supreme Court Cases 247 stated
supra wherein it is held that the mortgagor’s right to redeem survives until
there has been completion of sale by the mortgagee by a registration of sale
deed. In this context, it is also relevant to refer to Sub-clause 8 of Section
13 of SARFAESI Act wherein it is stated that “if the dues of the secured
creditor together with all costs, charges and expenses incurred by him are
tendered to the secured creditor at any time before the date fixed for sale or
transfer, the secured assets shall not be sold or transferred by the secured
creditor and no further steps shall be taken by him for transfer or sale of that
secured asset.” The words employed in sub-section 8 of Section 13 namely ‘sale
or transfer’ connotes execution of the conveyance/registered sale deed.
Admittedly, in Para-8 of the counter of the respondents 1 and 2, it is mentioned
that ‘sale is yet to be registered’. In this case, it is not in dispute that
the sale deeds are not executed by the respondents 1 and 2 in favour of the
third respondent till 17.01.2006, on which date, the respondents 1 and 2 have
received the demand draft for Rs.25 lakhs sent by the petitioner, hence, this
Court is of the considered view that the petitioners right of redemption has not
been extinguished. Even if there is some difference with regard to the amount
due to the respondents 1 and 2, it cannot be stated that the right of redemption
of property has completely lost. If there is any amount still payable by the
petitioners, after adjusting the sum of Rs.25 lakhs, they are directed to pay
the same within a period of four weeks from today.
21. In view of the above said conclusion, this Court is of the view that
no finding is necessary in this case, as to whether Rule 60 of Second Schedule
to Income Tax Rules is applicable or not and the same is answered accordingly.
22. An argument was advanced by the learned counsel for the respondents
that an alternative and efficacious remedy is available to the petitioners
before the Debt Recovery Tribunal, hence, seeking the relief under Article 226
of The Constitution of India is not maintainable. In the instant case, the
question as to what is the true connotation of the words ‘sale’ or ‘transfer’ or
‘sold’ or ‘transferred’ and whether the right of the mortgagor is extinguished
by action or execution of conveyance was a question of law, hence, this Court,
in order to decide the same, have entertained these writ petitions. In this
context, it would be appropriate to refer the decision rendered by the
Honourable Supreme Court in (State of U.P. And others vs. M/s. Indian Home Pipe
Co. Ltd) AIR 1977 Supreme Court 1132 wherein in Para-4 it was held thus:-
“4. Lastly, it was feebly argued by Mr. Manchanda that the High Court
ought not to have entertained the writ petition and should have allowed the
assessee to avail of the remedies provided to him under the U.P. Sales Tax Act,
particularly when questions of fact had to be determined. In the instant case,
the question as to what is the true connotation of the words “sanitary fittings”
and whether the hume pipes manufactured and sold by the respondent were sanitary
fittings within the meaning of that expression was a question of law and since
the entire material on the basis of which this question could be determined was
placed before the Sales Tax Officer and it pointed in one and only one
direction, namely, that the hume pipes were not sanitary fittings and there was
nothing to show otherwise, the High Court was justified in entertaining the writ
petition. Moreover, there is no rule of law that the High Court should not
entertain a writ petition where an alternative remedy is available to a party.
It is always a discretion with the Court and if the discretion has been
exercised by the High Court not unreasonably or perversely, it is settled
practice of this Court not to interfere with the exercise of discretion by the
High Court. The High Court in the present case entertained the writ petition
and decided the question of law arising in it and in our opinion rightly…..”
23. In view of the said discussions, the writ petitions are allowed in
the above terms. No costs. Consequently, connected Miscellaneous Petitions are
closed.
To
Bank of India by Branch Manager
Palayamkottai, Tirunelveli 627 002