{"id":141450,"date":"2010-11-24T00:00:00","date_gmt":"2010-11-23T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/asha-mehta-and-another-vs-allahabad-bank-and-ors-on-24-november-2010"},"modified":"2017-02-04T16:20:48","modified_gmt":"2017-02-04T10:50:48","slug":"asha-mehta-and-another-vs-allahabad-bank-and-ors-on-24-november-2010","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/asha-mehta-and-another-vs-allahabad-bank-and-ors-on-24-november-2010","title":{"rendered":"Asha Mehta And Another vs Allahabad Bank And Ors on 24 November, 2010"},"content":{"rendered":"
Bombay High Court<\/div>\n
Asha Mehta And Another vs Allahabad Bank And Ors on 24 November, 2010<\/div>\n
Bench: Dr. D.Y. Chandrachud, Anoop V.Mohta<\/div>\n
    PNP                                1                              WP6465-24.11.sxw\n\n\n          IN THE HIGH COURT OF JUDICATURE AT BOMBAY\n\n                   CIVIL  APPELLATE  JURISDICTION\n\n\n\n\n                                                                           \n                    WRIT PETITION NO.6465 OF 2010\n\n\n\n\n                                                   \n    Asha Mehta and another                                  ..Petitioners.\n          versus\n    Allahabad Bank and Ors.                              ..Respondents.\n\n\n\n\n                                                  \n                                      ...\n    Mr. V.R. Dhond with Mr. Mayur Khandeparkar, Mr. T.N. Tripathi and \n    Ms. Sapna Rachure i\/b T.N. Tripathi & Co. for the Petitioners.\n\n\n\n\n                                          \n    Mr. Naresh S. Fadia for Respondent No.1.\n                           \n    Mr. Harihar Bhave i\/b Bhave & Co. for Respondent No.7\n                          \n    Mr. Sanjay Jain with Mr. Devanshu P. Desai, Mr. Nivit Dhruva, Mr. \n    Prakash Shinde, Mr. Avinath S. Gautama and Mr. G.K. Tripathi i\/b Mr. \n    Anoopkumar Sharma for Respondent No.10.\n           \n\n    Mr. Purav Damania for Respondent No.11.\n        \n\n\n\n    Mr. Prakash Mehta - Director of M\/s. Bulls Ventura Pvt. Ltd. and \n    Mr.Uttam Bagadi - Bidders present in person.    \n                                       .....\n\n\n\n\n\n                      CORAM :  DR.D.Y.CHANDRACHUD &\n                                ANOOP V. MOHTA , JJ.\n<\/pre>\n
                                    24 November  2010.\n<\/p>\n
    ORAL JUDGMENT (PER DR. D.Y.CHANDRACHUD, J.) :\n<\/p>\n
    1.    Rule.  The Learned Counsel for the Respondents waive service.
\n    On the request of the Learned Counsel and with their consent, the
\n    Petition is taken up for hearing and final disposal.\n<\/p>\n
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     PNP                                     2                                WP6465-24.11.sxw<\/p>\n
    2.    The   challenge   in   these   proceedings  under   Article   226   of   the
\n    Constitution is to an order dated 2 August 2010 of the Debt Recovery <\/p>\n
    Appellate   Tribunal.     The   Recovery   Officer   by   an   order   dated   20
\n    November   2009   dismissed   an   application   filed   by   the   Petitioners <\/p>\n
    objecting to the confirmation of a sale.   The order of the Recovery
\n    Officer was upheld by the Tribunal and in appeal by the Appellate <\/p>\n
    Tribunal.\n<\/p>\n
    3.    The First Respondent, Allahabad Bank filed Original Application <\/p>\n
    183 of 2004 against the Petitioners for the recovery of its dues.  The <\/p>\n
    Application   was   allowed   by   the   Debt   Recovery   Tribunal   on   1
\n    September 2005 in the amount of Rs.33.51 Crores together with future <\/p>\n
    interest at 12% per annum. On 17 October 2005 a recovery certificate
\n    was   issued   in   pursuance   of   the   order   of   the   Tribunal.     On   17
\n    December 2007 the Recovery Officer issued an order of attachment <\/p>\n
    of three properties, among them being Flat 603 situated in a building <\/p>\n
    known as Ruby Apartments at Walkeshwar, Mumbai.  The attachment
\n    was   levied   in   recovery   proceedings   248   of   2005   which   was   in <\/p>\n
    execution of the order of the Tribunal in O.A. 183 of 2004.   On 9
\n    April 2009 the First Respondent filed an affidavit before the Recovery
\n    Officer stating that another flat being Flat No.402 together with two <\/p>\n
    appurtenant garages situated in a building known as Pleasant Park at
\n    Peddar   Road,   Mumbai   had   been   mortgaged   in   its   favour.\n<\/p>\n
    4.    The terms and conditions of sale were settled in pursuance of
\n    the provisions of Rules 52  and  53 of  the Second Schedule to the
\n    Income   Tax   Act   1961   which   is   made   applicable   by   virtue   of   the
\n    provisions of Sections 28 and 29 of the Recovery of Debts Due to <\/p>\n
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\n     PNP                                        3                                WP6465-24.11.sxw<\/p>\n
    Banks and Financial Institutions Act 1993.  The terms of sale provided
\n    that the three properties were being sold on an  ‘as is where is and <\/p>\n
    what   is’   basis.     Two   of   those   properties   which   form   the   subject
\n    matter of these proceedings are : (i) Flat No.402, Pleasant Park Co-\n<\/p>\n
    operative   Housing   Society   Limited,   Peddar   Road,   Mumbai   400   006
\n    with a carpet area of 1540 sq. ft. together with garage Nos. 17 and 18 <\/p>\n
    each   admeasuring   165.75   sq.   ft;   and   (ii)   Flat   No.603   in   Ruby
\n    Apartments at Walkeshwar Road, Mumbai 400 006 with a carpet area
\n    of 450 sq ft.  Under the column entitled “Details of encumbrances to <\/p>\n
    which the property is liable” the disclosure that was made was “not <\/p>\n
    known”.     The   First   Respondent   did   not   disclose   details   of
\n    encumbrances of which it had knowledge.  The First Respondent was <\/p>\n
    part of a consortium of banks led by the State Bank of India.  The
\n    State Bank of India had in turn moved an application before the
\n    Debts Recovery Tribunal in which on 20 March 2007 a final order had <\/p>\n
    been   passed   decreeing   the   claim   and   in   pursuance   of   which   a <\/p>\n
    recovery   certificate   was   issued   on   20   April   2007.     The   recovery
\n    certificate   in   favour   of   the   State   Bank   of   India   was   in   the   total <\/p>\n
    amount  of  Rs.35.68  Crores   with  interest   @   12%   per   annum.     The
\n    recovery certificate stated that the outstandings were secured by a
\n    mortgage  of   several  properties   in   which  the   First   Respondent   and <\/p>\n
    Bank   of   Baroda   had   a  pari   pasu  charge.     Among   the   properties
\n    secured by the mortgage are the  two properties which  have been
\n    adverted to earlier.  The statement that the details of encumbrances
\n    were  not   known  was   untrue   to   the   knowledge   of   the   First
\n    Respondent, for the First Respondent had knowledge of the charge in
\n    favour of State Bank, with whom it ranked  pari pasu.\n<\/p>\n
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     PNP                                     4                                WP6465-24.11.sxw<\/p>\n
    5.      Following the attachment of the property and the finalization of
\n    the terms and conditions of sale, the aforesaid properties were listed <\/p>\n
    for public auction on 25 September 2009.  The sale was advertised in
\n    the   Times   of   India,   the   Economic     Times   and   Navshakti.     The <\/p>\n
    reserved price of the property in Pleasant Park at Peddar  Road was
\n    fixed   at   Rs.4.25   Crores.     A   challenge   by   the   Petitioners   to   the <\/p>\n
    valuation was rejected.   Eight bids were received in respect of the
\n    property.  Of them three bidders agreed to revise their bids and the
\n    highest bid was that of the Tenth Respondent in the amount of Rs.\n<\/p>\n
    4.52 Crores.  In respect of the residential flat in Ruby Apartments four <\/p>\n
    bids   were   received.     The   reserved   price   was   Rs.1.50   Crores.     The
\n    highest bid was of the Eleventh Respondent in the amount of Rs.\n<\/p>\n
    1,50,11,111\/-.  These two bids of the highest bidders were accepted.\n<\/p>\n
    6.      On 17 November 2009 the Petitioners filed their objection to the <\/p>\n
    confirmation of the sale on the ground that  –  (i) the properties in <\/p>\n
    question had not been mortgaged in favour of the First Respondent;\n<\/p>\n
    (ii)   The   sale   consideration   was   under   valued;     (iii)   The   material <\/p>\n
    particulars relating to the property had not been disclosed and (iv) A
\n    cartel   had   been   formed   by   the   bidders.     The   Recovery   Officer
\n    declined to accept the objections by an order  dated  20  November <\/p>\n
    2009.   The order of the Recovery Officer was challenged in appeal
\n    but both the Debts Recovery Tribunal and in appeal the Appellate
\n    Tribunal declined to intervene.  Aggrieved, the Petitioners have moved
\n    these proceedings under Article 226 of the Constitution.\n<\/p>\n
    7.      On behalf of the Petitioners it has been submitted that –\n<\/p>\n
          (i) Though the First Respondent was aware, when it finalized the <\/p>\n
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\n     PNP                                       5                                WP6465-24.11.sxw<\/p>\n
            terms and conditions of sale of the pre existing encumbrances
\n            on the property, including the charge held by the State Bank of <\/p>\n
            India, these encumbrances were not disclosed.   The terms of
\n            sale, as a matter of fact, did not even disclose that the First <\/p>\n
            Respondent   itself   held   a  pari   pasu  charge   together   with   the
\n            State Bank of India which was the lead bank in the consortium;\n<\/p>\n
          (ii) The properties were put up for sale on an as is where is basis
\n            which meant that every bidder was on notice of the fact that
\n            an investigation into the title of the two flats would have to be <\/p>\n
            made   by   the   bidder   himself   and   that   the   First   Respondent <\/p>\n
            made   no   representation   or   warranty   in   that     behalf.   Any
\n            intending bidder would upon a scrutiny of the records of the <\/p>\n
            Debts Recovery Tribunal have knowledge of the fact that the
\n            State Bank of India had a pre existing charge on the properties
\n            consequent   upon   a   mortgage   executed   by   the   defaulting <\/p>\n
            borrowers;\n<\/p>\n
          (iii)The recovery certificate in favour of the State Bank of India
\n            was for an amount in excess of Rs.35 Crores and the factum of <\/p>\n
            the pre existing charge in favour of the State Bank of India
\n            was   an   important   circumstance   which   would   weigh   in   the
\n            making of a bid for the purchase of the property;\n<\/p>\n
          (iv)At no stage, during the course of the auction process was it
\n            disclosed to the intending bidders that  the State Bank of India
\n            had agreed to participate in the auction process;\n<\/p>\n
          (v) The fact that State Bank of India had granted its consent was
\n            never made known to the intending bidders and as a matter of
\n            fact,  there  is  nothing   on   the   record  to   disclose   that   such   a
\n            consent was in fact granted.  It was only in the course of the <\/p>\n
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\n     PNP                                         6                                WP6465-24.11.sxw<\/p>\n
             proceedings before the Debts Recovery Appellate Tribunal that
\n             the State Bank filed an affidavit stating that it had participated <\/p>\n
             in the recovery proceedings for the recovery of its own dues
\n             after the attachment warrants were issued;\n<\/p>\n
          (vi)The   fact   that   the   State   Bank   was   also   participating   in   the
\n             auction process for the realization of its own dues in pursuance <\/p>\n
             of the recovery certificates independently obtained in O.A. 240
\n             of 2004 was an important circumstance which would have a
\n             bearing on the price which would be realized at an auction <\/p>\n
             sale.  This not having been disclosed, there has been a material <\/p>\n
             irregularity in the conduct of the auction sale;\n<\/p>\n
          (vii)The Petitioners have sustained a substantial injury as a result <\/p>\n
             of the irregularity in the conduct of the auction sale.\n<\/p>\n
    8.       The   Petitioners   have   before   the   Court   two   bidders   each   of <\/p>\n
    whom is ready and willing to submit a bid in the amount not less <\/p>\n
    than Rs.6.25 Crores.   The bidders have brought with them demand
\n    drafts each of Rs.50 lacs and Rs.55 lacs and are willing to make a <\/p>\n
    with prejudice   offer that in the event that the auction sale is set
\n    aside and the property is directed to be readvertised, they will offer
\n    atleast  a minimum price  of   Rs.6.25  Crores  for  the  property  failing <\/p>\n
    which the earnest money which is offered by them may be forfeited.\n<\/p>\n
    9.       On the other hand, it has been urged on behalf of the auction
\n    purchasers that –\n<\/p>\n
          (i) The   State   Bank   of   India   was   impleaded   as   the   Thirteenth
\n             Respondent to the application filed by the First Respondent;\n<\/p><\/blockquote>\n
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     PNP                                         7                                WP6465-24.11.sxw<\/p>\n<\/blockquote>\n
          (ii) Several properties have been sold earlier in realization of the
\n             recovery certificate and there was an agreement between the <\/p>\n
             State   Bank   of   India   and   Allahabad   Bank   that   all   the   sale
\n             proceeds will be shared pari pasu;\n<\/p><\/blockquote>\n
          (iii)In   pursuance   of   the   recovery   certificate   that   was   issued   in
\n             favour   of   the   First   Respondent   a   notice   was   issued   on   11 <\/p>\n
             February 2009 under Rules 52 and 53 for settling the terms and
\n             conditions of sale.   The Petitioners were given notice, but did
\n             not file any objection;\n<\/p><\/blockquote>\n
          (iv)A valuation report was obtained on 22 April 2009 in which the <\/p>\n
             property   at   Pleasant   Park   was   valued   at   Rs.4.26   Crores   in
\n             ambient   conditions   and   Rs.3.83   Crores   as   distress   value.     A <\/p>\n
             challenge by the Petitioners to the valuation was rejected;\n<\/p><\/blockquote>\n
          (v) The bids were opened and accepted on 25 September 2009 and
\n             the Petitioners had only on 17 November 2009 objected to the <\/p>\n
             confirmation on the ground that the properties in question had <\/p>\n
             not been mortgaged; that the properties were being sold at an
\n             under value; that material particulars were not disclosed and <\/p>\n
             that a cartel had been formed.\n<\/p><\/blockquote>\n
          (vi)The Recovery Officer dismissed the objections on 20 November
\n             2009   and   his   orders   were   confirmed   by   the   Debts   Recovery <\/p>\n
             Tribunal and Debts Recovery Appellate Tribunal.  The Petitioners
\n             had no offers either before the Debts Recovery Tribunal or the
\n             Appellate Tribunal and it is only at this stage that offers have
\n             been   forthcoming.     In   the   meantime,   the   auction   purchasers
\n             have made a substantial investment in terms of the payment of
\n             the consideration for the purchase of the property.\n<\/p><\/blockquote>\n
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     PNP                                     8                                WP6465-24.11.sxw<\/p>\n<\/blockquote>\n
    10.   During   the   course   of   hearing   of   these   proceedings,   the
\n    opposition to the Petition has emanated from the auction purchasers.\n<\/p><\/blockquote>\n
    Though the banks had filed replies in the proceedings, there has been
\n    no opposition of any merit during the course of the hearing.\n<\/p>\n
          The rival submissions would now fall for determination.\n<\/p>\n
    11.   The   facts   as   they   emerge   on   the   record   before   the   Court <\/p>\n
    indicate   that   the   State   Bank   of   India   as   a   lead   banker   of   a <\/p>\n
    consortium  of   banks  had   initiated   recovery   proceedings  before  the
\n    Debts Recovery Tribunal.  In those proceedings an order was passed <\/p>\n
    on 20 March 2007 by which the claim of the State Bank was decreed
\n    in the amount of Rs.35.68 Crores together with interest.   The two
\n    residential   properties   at   Pleasant   Park   and   Ruby   Apartments   were <\/p>\n
    declared   to   be   mortgaged   and   in   which   the   First   Respondent, <\/p>\n
    Allahabad Bank and the Seventh Respondent State Bank were held to
\n    have   a  pari   pasu  charge   together   with   Bank   of   Baroda   and   the <\/p>\n
    Canara Bank.  The First Respondent had in turn initiated proceedings
\n    before the Debts Recovery Tribunal for the realization of its dues.  In
\n    that proceeding, the claim of the First Respondent had been decreed <\/p>\n
    in the amount of Rs.33.51 Crores, by an order of the Debts Recovery
\n    Tribunal   dated   1   September   2005.     In   execution   of   the   recovery
\n    certificate   a   warrant   of   attachment   was   issued.     The   terms   and
\n    conditions  of   sale  were  finalized   and  notified   on   20  August   2009.
\n    This was after the recovery certificate had been issued in the other
\n    proceeding.  State Bank’s claim had been decreed for Rs.35.68 Crores
\n    with interest. Obviously while finalizing the terms and conditions of <\/p>\n
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\n     PNP                                      9                                WP6465-24.11.sxw<\/p>\n
    sale, the First Respondent was aware of the circumstance that the
\n    two properties in question were secured by a mortgage in which the <\/p>\n
    First Respondent together with the State Bank of India held a  pari
\n    pasu charge.  Neither  this fact nor the fact that a recovery certificate <\/p>\n
    had been issued on 20 April 2007 was disclosed.  The terms of sale
\n    stated   that   the   encumbrances   to   which   the   properties   were   liable <\/p>\n
    were   not   known.     The   consequence   of   this   would   be   that   every
\n    intending   bidder   would   be   left   to   investigate   the   existing
\n    encumbrances   if   any   and   the   qualitative   nature   of   the   title   that <\/p>\n
    would be passed on as a result of the auction sale.   The duty to <\/p>\n
    make an enquiry and to investigate into title was therefore cast upon
\n    each   auction   bidder.     The   Tenth   Respondent   has   disclosed   in   his <\/p>\n
    affidavit dated 10 December 2009 that while bidding in respect of the
\n    property   at   Pleasant   Park,   he   had   taken   a   search   of   the   entire
\n    proceedings of the present matter viz. that arising from O.A. 183 of <\/p>\n
    2004 filed by Allahabad Bank but also of O.A. 240 of 2004 which had <\/p>\n
    been instituted by the State Bank.   Clearly this is indicative of the
\n    fact   that   an   intending   bidder,   upon   an   inspection   of   the   records <\/p>\n
    would be made aware of the circumstance that in the proceedings
\n    initiated   by   Allahabad   Bank   and   by   the   State   Bank   recovery
\n    certificates had been issued and that both the sets of banks were <\/p>\n
    held to have a pari pasu charge in O.A. 240  of 2004.  Whether the
\n    State   Bank   of   India   had   consented   to   the   sale   of   the   properties
\n    despite the existence of its own mortgage was a circumstance which
\n    was not disclosed either in the terms of sale or at any stage during
\n    the course of the sale.   During the course of these proceedings we
\n    had  specifically  enquired  with  counsel   appearing   on   behalf   of   the <\/p>\n
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\n     PNP                                      10                               WP6465-24.11.sxw<\/p>\n
    State Bank as to whether the State Bank had consented to the sale
\n    of the properties to which the learned counsel stated that there was <\/p>\n
    no   such   record   in   the   proceedings   before   the   Court   nor   does   he
\n    proceed on the basis that there was consent.\n<\/p>\n
    12.    Counsel appearing on behalf of the Petitioners relied upon the <\/p>\n
    provisions of Section 73 of the Code of Civil Procedure.  Section 73
\n    enunciates that where assets are held by a Court and more persons
\n    than one have, before the receipt of such assets, made application to <\/p>\n
    the Court for the execution of decrees for the payment of money <\/p>\n
    passed   against   the   same   judgment   debtor   and   have   not   obtained
\n    satisfaction thereof, the assets, after deducting the costs of realization, <\/p>\n
    shall be rateably distributed  among   all  such  persons.     Proviso  (b),
\n    however,   stipulates   that   where   any   property   liable   to   be   sold   in
\n    execution of a decree is subject to a mortgage or charge, the Court <\/p>\n
    may,  with the consent of the mortgagee or encumbrancer,  order <\/p>\n
    that the property be sold free from mortgage or   charge, giving to
\n    the mortgagee or encumbrancer  the same interest in the proceeds of <\/p>\n
    the sale as he had in the property sold.  However, it may be stated
\n    here that Section 22 of the Recovery of Debts Due to Banks and
\n    Financial   Institutions   Act   1993   provides   that   the   provisions   of   the <\/p>\n
    Code of Civil Procedure are not attracted to any proceedings before
\n    the Tribunal.\n<\/p>\n
    13.    Counsel appearing on behalf of the auction purchaser has fairly
\n    submitted before the Court that it is not the case of the auction
\n    purchaser   that   the   State   Bank   had   consented   to   the   sale.     As   a
\n    matter of fact, the record before the Court contains an affidavit filed <\/p>\n
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\n     PNP                                     11                               WP6465-24.11.sxw<\/p>\n
    by the  State Bank before the Debts Recovery Appellate Tribunal.  In
\n    its affidavit the State Bank discloses  as follows :\n<\/p>\n
          “I say that once the Attachment  Warrants are issued under the <\/p>\n
          Recovery   Proceeding   initiated   by   the   Respondent   No.1,   the
\n          Respondent   No.7   has   participated   in   the   said   Recovery
\n          Proceedings   for   its   recovery   as   per   the   due   process   of
\n          law.”  (emphasis supplied)<\/p>\n
                “I say that the Respondent No.7 has filed the Original
\n          Application before the MDRT-II, being the Original Application <\/p>\n
          No.240 of 2004, wherein all the consortium Documents together <\/p>\n
          with the Security Documents were filed and it is adjudicated
\n          claim   against   the   Appellants   herein   and   in   favour   of   the
\n          Respondent Nos.1, 7 and 8.  It is very clearly stated therein that <\/p>\n
          the Respondent Nos.1, 7 and 8 are having pari passu charge
\n          over and in respect of the said Mortgage Properties.”\n<\/p><\/blockquote>\n
    14.   The   Court   is   essentially   concerned   with   the   question   as   to <\/p>\n
    whether the sale that was conducted was fair and transparent and in
\n    accordance with law.  The State Bank made a disclosure for the first
\n    time before the Debts Recovery Appellate Tribunal in its affidavit that <\/p>\n
    was   filed   that   once   an   attachment   warrant   was  issued   under   the
\n    recovery   proceedings   initiated   by   the   First   Respondent   it   had
\n    participated in the recovery proceedings. The fact that the State Bank <\/p>\n
    of India was consenting to the sale of the property was certainly not
\n    a fact which was disclosed to the intending bidders.   If there was
\n    such   an   agreement,   and   consent   was   communicated   by   the   State
\n    Bank   to     Allahabad   Bank,   this   could   not   have   been   a   matter   of
\n    private understanding between  the banks,  but  ought to have been
\n    placed squarely  in  the  public  domain  since  it   was a  circumstance <\/p>\n
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\n     PNP                                    12                              WP6465-24.11.sxw<\/p>\n
    which would materially and significantly affect the price which would
\n    be offered by a prospective bidder for the purchase of the property <\/p>\n
    in the auction sale.  If the sale was subject to the rights which State
\n    Bank had arising out of the charge in its favour, this would materially <\/p>\n
    affect the valuation which a bidder would place on the property.  On
\n    the other hand if State Bank was participating in the sale, that had a <\/p>\n
    material bearing on the price which would be realized at the auction
\n    sale.  Silence was all that the First Respondent had to offer, much in
\n    line with its own ambivalence in suppressing even the details of the <\/p>\n
    encumbrances on the property of which it had knowledge.   During <\/p>\n
    the course of the hearing, Counsel for the Bank had no explanation
\n    or submission to offer on this aspect.\n<\/p>\n
    15.   The contention which has been urged on behalf of the auction
\n    purchaser is that certain properties had been sold earlier in which, <\/p>\n
    both the State Bank  as well as Allahabad Bank had participated.  A <\/p>\n
    reference to this is to be found in paragraph 9 of the order passed
\n    by the Recovery Officer.  The order of the Recovery Officer notes that <\/p>\n
    one   of   the   properties   at   Prasad   Chambers   was   sold   by   the
\n    Defendants,   meaning   thereby   the   defaulting   borrowers   during   the
\n    course of the one time settlement  (OTS) and the permission of the <\/p>\n
    State Bank of India being the lead bank was taken for lifting the
\n    attachment.     This   was   therefore   a   situation   where   the   defaulting
\n    borrower had sought and obtained the permission of the State Bank
\n    for lifting the attachment.  The Recovery Officer has adverted to the
\n    sale of a second property at Majestic Shopping Center, Girgaum which
\n    was sold in public auction by the Tribunal and the sale proceeds
\n    were shared by the consortium of banks.  This circumstance by itself <\/p>\n
                                                        ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>
\n     PNP                                        13                                WP6465-24.11.sxw<\/p>\n
    is not indicative of the fact that the State Bank had consented to the
\n    sale of the two properties in question.  Any such consent could not <\/p>\n
    have been a matter of an undisclosed understanding.  The factum of
\n    consent if any had a material bearing on the conduct of the auction <\/p>\n
    sale and the price that would be realized during the course of the
\n    sale.  The failure to disclose this material circumstance would in our <\/p>\n
    view vitiate the sale.  Counsel for the auction purchaser submits that
\n    the auction purchaser had engaged a team of lawyers who found out
\n    the   state   of   affairs.     The   nub     of   the   issue   is   that   the   auction <\/p>\n
    purchaser had knowledge of a state of affairs which was not made <\/p>\n
    known   to  intending  bidders.     Private  understandings,   and  selective
\n    access   to   information   are   an   anathema   to   any   process   which   is <\/p>\n
    founded on the rule of law.  Allowed to persist, such a state of affairs
\n    will be destructive of public confidence.   At issue is not only the
\n    expectation of the defaulting borrower that his property can be put <\/p>\n
    to   sale   by   a   transparent   process   which   follows   objective   crieteria.\n<\/p>\n
    Equally   at   issue   is   the   public   interest   in   ensuring   that   financial
\n    institutions realize the  best  possible  price  at  auction  sales  for   the <\/p>\n
    recovery of dues.   A lack of fair disclosure and ambivalence of the
\n    kind   involved   in   this   case   affects   the   interest   of   the   financial
\n    institutions as well.  That is why there has been virtually no contest <\/p>\n
    on the part of the Allahabad Bank and the State Bank in the oral
\n    submissions at the hearing.\n<\/p>\n
    16.    Rules 60, 61 and 62 of the Second Schedule to the Income Tax
\n    Act lay down the procedure to be followed on an application to set
\n    aside a sale.  In the present case, it was sought to be urged by the
\n    auction  purchaser  that   the  Petitioners  had  not   within   a  period  of <\/p>\n
                                                              ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>
\n     PNP                                      14                               WP6465-24.11.sxw<\/p>\n
    thirty days from the date of the sale applied to the tax Recovery
\n    Officer to set aside the sale.  The application made by the Petitioners <\/p>\n
    was   on   17   November   2009   when   the   proceedings   came   up   for
\n    confirmation   of   sale   before   the   Recovery   Officer.     The   important <\/p>\n
    circumstance to be noted in this case, however, is that the disclosure
\n    by the State Bank of India that it had participated in the auction sale <\/p>\n
    was made for the first time in the affidavit which was filed before
\n    the Debts Recovery Appellate Tribunal.  It was only at that stage that
\n    the State Bank of India disclosed before the Court that it had indeed <\/p>\n
    agreed to participate in the sale process.  The material irregularity in <\/p>\n
    the sale process emanates    precisely  as a  result  of the  failure to
\n    disclose this circumstance during the course of the auction sale.  For <\/p>\n
    the aforesaid reasons, we are of the view that the intervention by
\n    this Court in the extraordinary jurisdiction of this Court under Article
\n    226 of the Constitution is warranted.\n<\/p>\n
    17.    During the course of the hearing, counsel appearing on behalf
\n    of   the  Petitioners  has  stated  before  the  Court   that   the  Petitioners <\/p>\n
    have before the Court two bidders each of whom is willing to submit
\n    a minimum bid of Rs.6.25 Crores.   Two demand drafts in the total
\n    amount   of   Rs.55   lacs   have   been   furnished   by   M\/s.   Bulls   Ventura <\/p>\n
    Private Limited and a demand draft in the amount of Rs.50 lacs has
\n    been   submitted   by   Mr.   Uttam   Bagadi.   The   first   of   the   bidders   is
\n    represented by an authorized person while the second is personally
\n    present before the Court.  The first of the bidders is represented by
\n    Mr. Prakash Mehta, a director of the company.  Both the bidders have
\n    made it clear before the Court that they are ready and willing to bid
\n    atleast for an amount of Rs.6.25 Crores in a fresh bidding process and <\/p>\n
                                                           ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>
\n     PNP                                       15                                WP6465-24.11.sxw<\/p>\n
    that in the event that they fail to do so, the amount which has been
\n    furnished by them in the form of demand drafts may be forfeited.\n<\/p>\n
    18.    In   a   matter   such   as   the   present,   the   duty   of   the   Court   is <\/p>\n
    explained in a review of the law by the Supreme Court in  Divya
\n    Manufacturing Company (P) Ltd. v. Union Bank of India1.  The case <\/p>\n
    before  the Supreme Court   arose   in   the  context   of   the  Companies
\n    (Court) Rules, 1959, but the principles which have been formulated
\n    have   general   application.     The   Supreme   Court   adverted   to   the <\/p>\n
    judgment in Navalkha and Sons v. Ramanya Das2<\/a> where it was held <\/p>\n
    that it is not only proper but necessary that the Court in exercising
\n    the discretion which it undoubtedly has of accepting or refusing the <\/p>\n
    highest bid, should see that the price fetched at the auction is an
\n    adequate   price   even   in   a   case   where   there   is   no   suggestion   of
\n    irregularity or fraud.  Similarly, in Lica (P) Ltd. v. Official Liquidator3 <\/p>\n
    the Supreme Court<\/a> held thus :\n<\/p>\n
           “The   purpose   of   an   open   auction   is   to   get   the   most
\n           remunerative   price   and   it   is   the   duty   of   the   court   to   keep
\n           openness of the auction so that the intending bidders would be <\/p>\n
           free to participate and offer higher value.   If that path is cut
\n           down or closed the possibility of fraud or to secure inadequate
\n           price   or   underbidding   would   loom   large.     The   court   would,
\n           therefore,   have   to   exercise   its   discretion   wisely   and   with
\n           circumspection and keeping in view the facts and circumstances <\/p>\n
           in each case.”\n<\/p><\/blockquote>\n
    19.    These principles have been followed by the Supreme Court in
\n    Divya   Manufacturing Company  (supra).   Undoubtedly one of the
\n    parties which has now come before the Court to offer an enhanced <\/p>\n
    1 (2000) 6 SCC 69.\n<\/p>\n
    2 (1969) 3 SCC 537.\n<\/p>\n
    3 (2000) 6 SCC 82.\n<\/p>\n
                                                             ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span><\/p>\n
     PNP                                     16                               WP6465-24.11.sxw<\/p>\n
    bid was a bidder at the earlier occasion.  The second party was not a
\n    bidder at the earlier occasion.  The circumstance which has weighed <\/p>\n
    with   the   Court   is   that   the   auction   process   was   lacking   in
\n    transparency.  The parties which have been declared as the successful <\/p>\n
    bidders were privy to information which was not part of the public
\n    realm.   The fact that State Bank of India was participating in the <\/p>\n
    auction process was never disclosed during the course of the bidding
\n    process until as already noted earlier, an affidavit was filed before the
\n    Appellate Tribunal.  There is, therefore, a clear lack of transparency in <\/p>\n
    the auction process.\n<\/p>\n
    20.    In a subsequent judgment of the Supreme Court in Valji Khimji <\/p>\n
    and Company  v. Official   Liquidator   of  Hindustan   Nitro   Product
\n    (Gujarat) Ltd.4, the Supreme Court<\/a> has noted that auction sales are
\n    of two types  –  (i) where the auction is not subject to subsequent <\/p>\n
    confirmation;   and   (ii)   where   the   auction   is   subject   to   subsequent <\/p>\n
    confirmation by some authority after the action is held.  In the first
\n    class of  cases the auction is complete on the fall of the hammer, and <\/p>\n
    certain rights accrue in favour of the auction purchaser.   However,
\n    where   the   auction   is   subject   to   subsequent   confirmation   by   some
\n    authority under a statute or terms of the auction, the auction is not <\/p>\n
    complete and no rights accrue until the sale is confirmed.  Once the
\n    sale is confirmed by the authority, the rights which accrue cannot be
\n    extinguished   except   in   exceptional   cases   such   as   fraud.     These
\n    observations of the Supreme Court establish that in a situation where
\n    an   auction   sale   is   subject   to   confirmation,   the   rights   that   have
\n    emanated from the auction sale and confirmation ought not to be
\n    4 (2008) 9 SCC 299.\n<\/p>\n
                                                          ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span><\/p>\n
     PNP                                      17                               WP6465-24.11.sxw<\/p>\n
    ordinarily extinguished save in an exceptional situation and fraud is
\n    one   of  such  cases.         Fraud   is   therefore   not     exhaustive   of   the <\/p>\n
    category of exceptional cases.  Where the auction sale that has been
\n    conducted   is   found   lacking   transparency,   by   a   failure   to   disclose <\/p>\n
    material particulars and which has a material bearing on the price
\n    which will be offered by an intending bidder, an exceptional case is <\/p>\n
    held   to   be   made   out   within   the   dictum   of   the   judgment   of   the
\n    Supreme Court.\n<\/p>\n
    21.    It was urged on behalf of the auction purchasers that neither <\/p>\n
    the State Bank of India nor the defaulting borrowers had raised any
\n    objections to the terms and conditions of sale.  Now Rule 53 requires <\/p>\n
    that the proclamation of sale of immovable property shall be drawn
\n    up after notice to the defaulters  and shall state the time and place
\n    and shall specify as clearly and accurately as possible (i) the property <\/p>\n
    to be sold; (ii) the revenue if any assessed upon the property; (iii) the <\/p>\n
    amount   for   the   recovery   of   which   the   sale   is   ordered;   (iv)   the
\n    reserved price below which the property may not be sold and (v) any <\/p>\n
    other information which the Tax Recovery Officer considers material
\n    for a purchaser to know in order to judge the nature and value of
\n    the property.   Rule 53 as a matter of fact does not contemplate the <\/p>\n
    issuance of a notice to a party other than the defaulter.  Moreover, it
\n    was the bounden obligation of the Tax Recovery Officer to disclose
\n    any other information which he considers material for a purchaser to
\n    know in order to judge the nature and value of the property.   The
\n    fact that the State Bank of India was to participate in the auction
\n    sale was an important circumstance which a purchaser was entitled
\n    to know in order to determine the true value of the property.   By <\/p>\n
                                                           ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>
\n     PNP                                      18                               WP6465-24.11.sxw<\/p>\n
    failing to disclose that information, the Recovery Officer has failed to
\n    act in a transparent and objective manner despite the clear provisions <\/p>\n
    of Rule 53.\n<\/p>\n
    22.      For the reasons set out earlier, the Petition is allowed in the
\n    following terms :\n<\/p>\n
          i) The order dated 2 August 2010 of the Debts Recovery Appellate
\n             Tribunal in Appeal 31 of 2010 is set aside;\n<\/p><\/blockquote>\n
          ii) The auction sale that was held on 24 September 2009 and the <\/p>\n
             confirmation of the sale of 17 November 2009 are quashed and
\n             set aside;\n<\/p><\/blockquote>\n
          iii) The First Respondent shall readvertise the two properties viz.
\n             the residential properties at   402 Pleasant Park, Peddar Road
\n             and 503 Ruby Apartments, Walkeshwar Road, Mumbai for sale.\n<\/p><\/blockquote>\n
             The sale shall be conducted in accordance with law;\n<\/p><\/blockquote>\n
          iv) The demand drafts which have been received in the amount of
\n             Rs.55 lacs and Rs.50 lacs are directed to be forwarded by the <\/p>\n
             Registrar   –   Judicial   to   the   Recovery   Officer   of   the   Debts
\n             Recovery Tribunal – I.  The undertaking of the two bidders that
\n             they shall bid at the auction in an amount not less than Rs.6.25 <\/p>\n
             Crores for the residential flat at 402 Pleasant Park, Peddar Road,
\n             Mumbai   is   accepted.     In   the   event   that   the   aforesaid   two
\n             bidders commit any breach of the statement made before the
\n             Court,   the   earnest   money   furnished   as   aforesaid   shall   stand
\n             forfeited;<\/p><\/blockquote>\n
          v) The   amount   which   has   been   paid   by   the   successful   bidders
\n             shall be returned to them by the First Respondent   with the <\/p>\n
                                                           ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>
\n     PNP                                       19                              WP6465-24.11.sxw<\/p>\n
             accretions of interest, if any thereon;\n<\/p>\n
    Rule is made absolute in these terms.  There shall be no order as to
\n    costs.\n<\/p>\n
    23.      On the request of counsel appearing for the auction purchasers, <\/p>\n
    there shall be a stay of the operation of this judgment and order for
\n    a period of six weeks from today, to enable the auction purchasers to
\n    have recourse to their remedies..\n<\/p>\n
             The   ad   interim   order   dated   16   August   2010   shall,   however, <\/p>\n
    continue to remain in operation during the period mentioned earlier.\n<\/p>\n
                                                     (Dr. D.Y. Chandrachud, J.)<\/p>\n
                                                        (Anoop V. Mohta, J.)<\/p>\n
                                                           ::: Downloaded on – 09\/06\/2013 16:38:24 :::<\/span>\n <\/p>\n","protected":false},"excerpt":{"rendered":"
Bombay High Court Asha Mehta And Another vs Allahabad Bank And Ors on 24 November, 2010 Bench: Dr. D.Y. Chandrachud, Anoop V.Mohta PNP 1 WP6465-24.11.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.6465 OF 2010 Asha Mehta and another ..Petitioners. versus Allahabad Bank and Ors. ..Respondents. … Mr. V.R. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11,8],"tags":[],"class_list":["post-141450","post","type-post","status-publish","format-standard","hentry","category-bombay-high-court","category-high-court"],"yoast_head":"\nAsha Mehta And Another vs Allahabad Bank And Ors on 24 November, 2010 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/asha-mehta-and-another-vs-allahabad-bank-and-ors-on-24-november-2010\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Asha Mehta And Another vs Allahabad Bank And Ors on 24 November, 2010 - 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