- Bookmark
- Share
- CaseIQ
Authorised Officer, Indian Bank v. Tetrahedron Ltd.
Structured Summary of the Judgment
Factual and Procedural Background
M/s. Tetrahedron Limited (the borrower) obtained financial assistance from Indian Bank for establishing units including a manufacturing unit at Ambattur and industrial land at Gummudipoondi; residential property at Santhome was offered as collateral. The borrower defaulted; the Bank initiated recovery under the SARFAESI Act, issuing notices under Section 13(2) and possession notice under Section 13(4). The borrower challenged the Bank's measures before the Debts Recovery Tribunal (DRT) in S.A. No. 73 of 2011.
During the pendency of the SARFAESI appeal, the Bank sold the Santhome residential property and initiated auction processes for the Gummudipoondi industrial property. The Santhome sale resulted in issuance of a Sale Certificate to a nominee of the successful bidder. In respect of the Gummudipoondi sale, the successful bidder deposited 25% of the bid but did not pay the balance; the Bank did not immediately forfeit the deposit, and the borrower applied to the DRT for forfeiture and also sought permission to file additional grounds and for a stay of further SARFAESI proceedings. The DRT (i) dismissed the borrower's application for a direction to forfeit the auction purchaser's deposit by a one-line order, (ii) allowed the borrower's application to receive additional grounds on 3rd August 2012, and (iii) granted an interim stay of sale on 11th September 2012. The Bank and the borrower filed Civil Revision Petitions under Article 227 challenging those orders: C.R.P(PD) Nos. 3371 & 3726 of 2012 (Bank) and C.R.P(PD) No. 3601 of 2012 (borrower).
Legal Issues Presented
- Whether the borrower's application to receive additional grounds in the SARFAESI appeal was properly allowed by the DRT (including the related contention that the additional grounds would be barred by limitation).
- Whether the DRT's grant of interim stay of sale (granted on 11th September 2012) was justified, given the Bank's contention that it was not given notice and the DRT issued a one‑line order without reasons.
- Whether the Bank was entitled to forfeit the 25% deposit paid by the auction purchaser and appropriate the forfeited amount into the Bank's income account, or whether the forfeited amount should be dealt with otherwise (e.g., credited to the borrower's loan account or, where applicable, forfeited to the Government under the applicable rules).
Arguments of the Parties
Bank's Arguments
- The borrower had consented to auction the Gummudipoondi property; therefore there was no basis to stay the sale.
- The DRT granted interim stay without giving notice to the Bank and passed a one-line order without considering merits or affording the Bank an opportunity to be heard—violations of procedural fairness.
- The DRT erred in allowing additional grounds because, the Bank argued, some added grounds would be barred by limitation if allowed.
- The Bank claimed that the forfeited amount belongs to the Bank and should be credited to the Bank's income account.
Borrower's (Managing Director in Person) Arguments
- Attempts were made to serve notice on the Bank's junior counsel as directed by the DRT; the junior counsel refused to accept notice pending the senior's presence; when there was no representation later, the DRT granted interim stay.
- The borrower filed the application for additional grounds to bring to the Tribunal's attention alleged illegalities and infirmities in the Bank's conduct of sales; permitting additional grounds would cause no prejudice to the Bank because the Bank would have an opportunity to respond.
- The Bank failed to forfeit the 25% deposit promptly despite the auction purchaser's default, suggesting collusion between the Bank and the purchaser; the borrower sought forfeiture and credit of the net balance (after sale expenses) to the loan account.
- The party-in-person raised other contentions and cited judgments, but the Court noted these additional contentions were not necessary for disposing of the three Civil Revision Petitions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hemalatha Ranganathan v. The Authorised Officer, Indian Bank, Egmore, Chennai, 2012 (5) CTC 1 (DB) | Held that an Authorised Officer has no power to issue an order of confirmation or Sale Certificate in favour of a nominee (a third party) instead of the successful bidder; the purchaser must be the bidder in whose name sale was confirmed. | The Court relied on this Division Bench decision to observe that issuing a Sale Certificate to a nominee who was not the auction bidder was not permitted; it noted the same Bank had conducted a sale with such infirmity and referred to the subsequent enquiry and admissions by Bank management about deviations. |
| Ram Kishun v. State of U.P., 2012 (5) Scale 673 | Observed that Authorised Officers should not act like property dealers and should not dispose of secured assets in an unreasonable or arbitrary manner in flagrant violation of statutory provisions. | The Court invoked this authority to reinforce that Bank officers must not act arbitrarily in conducting SARFAESI sales and must protect public money and adhere to statutory procedures. |
| Victoria Memorial Hall v. Howrah Ganatantrik Nagrik Samity, 2010 (3) SCC 732 | Stated that giving reasons is an essential attribute of judicial (and administrative) decision-making; orders must disclose reasons to show application of mind and to satisfy principles of natural justice. | The Court cited this Supreme Court authority to stress that the DRT ought to pass speaking/reasoned orders and criticized the one-line orders, noting the need to record reasons to make decisions reviewable and defensible. |
| Kranti Associates v. Masood Ahmed Khan, 2011 (1) MWN (Civil) 677 (SC) : 2010 (9) Scale 199 | Explained that the requirement to record reasons is part of the broader Doctrine of Fairness in decision-making and is integral to protection of human rights and fair administrative/judicial action. | The Court used this authority to bolster its emphasis on the duty to record reasons and fair procedure, observing that failure to indicate reasons can lead to upsetting orders and delay. |
Court's Reasoning and Analysis
The Court organized its analysis under three heads corresponding to the issues raised:
1. Application to Receive Additional Grounds
- The borrower filed the SARFAESI Appeal within time. During its pendency, alleged material irregularities in the Bank's sales were discovered and the borrower sought permission to file additional grounds. The DRT allowed the application but did so without a reasoned order.
- The Bank argued that some additional grounds would be time‑barred if permitted. The Court examined the additional grounds and concluded they are supplemental to the substantial grounds already raised in the SARFAESI Appeal rather than wholly new causes of action that would be barred by limitation.
- The Court stressed that the merits of the additional grounds are to be decided by the DRT at trial stage; at the present interlocutory stage it is not appropriate to deny permission where the grounds are supplemental. Even though the DRT did not give reasons, on the facts the Court found no basis to interfere with the DRT's discretion in allowing the additional grounds.
2. Grant of Interim Stay
- The Bank had earlier issued a sale notification and, after the successful bidder defaulted, cancelled that sale and issued a fresh sale notice for 12th September 2012. The borrower applied for an urgent stay of sale; the DRT granted interim stay on 11th September 2012 after apparently being unable to secure the Bank's representation in the afternoon.
- The Court accepted the Bank's submission that the Bank was not given a reasonable opportunity to be heard and that the DRT did not give reasons. Nevertheless, the Court recognized the DRT's discretionary power and found that granting the stay pending disposal of the appeal would not cause serious prejudice to the Bank because the SARFAESI Appeal was advanced and the borrower agreed to cooperate for early disposal.
- Balancing the absence of reasons and the procedural shortcoming against the potential prejudice, the Court exercised restraint and declined to set aside the interim stay despite criticizing the DRT's failure to record reasons.
3. Forfeiture of Initial Deposit and Entitlement to Forfeited Amount
- The auction notice for Gummudipoondi required 25% deposit on the same date and the balance within fifteen days of confirmation, failing which the amount shall be forfeited. The successful bidder deposited 25% (Rs. 24.60 lakhs) but did not pay the balance; the Bank did not promptly forfeit and instead corresponded with the purchaser and extended time. The borrower applied for a direction to forfeit; the DRT dismissed that application by a one-line order. Later the Bank ultimately forfeited the amount and treated it as income.
- The Court examined the Security Interest (Enforcement) Rules, 2002: Rule 9 sub‑rules (3)–(5) require the purchaser to pay 25% on sale, the balance within 15 days or agreed extension, and mandate forfeiture of deposit if payment is not made; the Rules do not expressly state to whom forfeited funds are to be paid.
- The Court compared the scheme under RDDBFI Act and the application of Income-tax Rules (Rule 58 of Second Schedule to the Income-tax Act as made applicable by Section 29 of RDDBFI Act), which provide that in certain sale defaults the deposit may, after defraying sale expenses, be forfeited to the Government. The Court noted that the Security Interest Rules only provide for forfeiture without specifying appropriation to Bank or Government.
- Reasoning from the nature of the transaction (sale of the borrower's secured asset to realize loan dues) and the fact that the Bank debited sale expenses to the borrower's account, the Court concluded that allowing the Bank to appropriate the forfeited amount into its income account would be unjust enrichment. The Court held that proceeds of sale (after defraying lawful expenses) should be credited to the borrower's loan account; if forfeiture is under the DRT/Income‑tax framework then the prescription to remit to Government (after expenses) applies.
- Because the Bank had already forfeited the amount by the time of hearing, the Court found it unnecessary to set aside the DRT's dismissal of the borrower's application for forfeiture. Still, the Court clarified the legal position that the Bank could not simply appropriate forfeited deposits to its income account in the absence of statutory authority to that effect.
Holding and Implications
Core Ruling: In sum, the Court dismissed all three Civil Revision Petitions: C.R.P(PD) Nos. 3371, 3601 and 3726 of 2012 were dismissed and the connected miscellaneous petition was closed. No costs were awarded.
Implications (Direct effects and directions stated in the opinion)
- The DRT's orders allowing additional grounds and granting interim stay remain undisturbed: the Court declined to interfere with the DRT's discretion in allowing supplemental grounds and in granting interim stay pending disposal of the SARFAESI Appeal.
- The Bank's contention that forfeited deposits could be appropriated to its income account was rejected as not legally justified in the circumstances set out by the Court; proceeds of sale (after defraying sale expenses) should be credited to the borrower's loan account (and where applicable, forfeiture under the RDDBFI/Income‑tax scheme results in forfeiture to the Government after expenses).
- The Court criticized the DRT's practice of passing one-line orders and stressed the mandatory need for reasoned/speaking orders. It emphasized existing Supreme Court authority that reasons are essential to fair decision-making and that absence of reasons may result in orders being set aside on appeal or revision.
- The judgment reiterated that Authorised Officers and Bank officials must adhere to statutory procedure in SARFAESI sales and must not act in an arbitrary or dealer‑like manner; deviations from procedure (such as issuing Sale Certificates to nominees) are not permissible and have been the subject of prior judicial findings and internal enquiry in the Bank.
- No costs were awarded and the connected miscellaneous petition was closed. The Court did not set new legal precedent beyond clarifying application of existing rules and authorities in the factual matrix before it.
Note: This summary reproduces and organizes the holdings, reasoning and authorities as stated in the provided judgment text. It does not add facts, holdings or legal propositions beyond those expressly contained in the opinion.
Prayer in C.R.P(PD) No. 3371 of 2012: Civil Revision Petition under Article 227 of the Constitution of India against the order dated 3rd August 2012 in unnumbered Interlocutory Application in S.A No. 73 of 2011, on the file of the Presiding Officer of Debts Recovery Tribunal No. III, Chennai.
Prayer in C.R.P(PD) No. 3601 of 2012: Civil Revision Petition under Article 227 of the Constitution of India against the order dated 3rd August 2012 in I.A Sr. No. 2960 of 2012 in S.A ???No. No. 73 of 2011, on the file of the Presiding Officer of Debts Recovery Tribunal No. III, Chennai.
Prayer in C.R.P(PD) No. 3726 of 2012: Civil Revision Petition under Article 227 of the Constitution of India against the order dated 11th September 2012 in S.A No. 73 of 2011, on the file of the Presiding Officer of Debts Recovery Tribunal No. III, Chennai.
JUDGMENT
1. The Civil Revision Petitions in C.R.P(PD) Nos. 3371 & 3726 of 2012 at the instance of the Bank challenges the order dated 3rd August 2012 and 11th September 2012, whereby and whereunder, the Applications filed by the borrower to receive additional grounds and to grant interim stay of all further proceedings pursuant to the SARFAESI Proceedings initiated by the Bank, were allowed.
2. The Revision Petition in C.R.P(PD) No. 3601 of 2012 is at the instance of the borrower and the challenge is to the order passed by the Debts Recovery Tribunal dated 3rd August 2012 dismissing the Application filed for a direction to the Authorised Officer to forfeit 25% of the amount paid by the successful bidder.
3. Since all these Civil Revision Petitions relate to SARFAESI proceedings initiated by the Indian Bank against M/s. Tetrahedron Ltd., and others, the parties are referred to as Bank and borrower.
Background facts:
4. M/s. Tetrahedron Limited (the borrower) availed financial assistance from Mylapore Branch of Indian Bank for the purpose of establishing a manufacturing unit at Ambattur. Since the borrower failed to repay the loan amount in accordance with the payment schedule, the Bank initiated Recovery proceedings invoking the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFASI Act”). The notice under Section 13(2) was issued on 26th July 2010. The Bank, thereafter, issued a possession notice under Section 13(4) of the SARFAESI Act on 8th October 2010. The measures taken by the Bank under the SARFAESI Act was challenged by the borrower before the Debts Recovery Tribunal (hereinafter referred to as “DRT”) in S.A No. 73 of 2011. During the currency of the SARFAESI Appeal in S.A No. 73 of 2011, the Bank sold the residential property mortgaged by the borrower. The Bank also issued a Notification for auctioning the factory building and lease hold premises. Even though the successful bidder for the industrial property deposited 25% of the amount, he has not taken steps to deposit the balance amount. However, the Bank failed to take action to forfeit 25% of the amount. This made the borrower to file the Application for forfeiture of security deposit. The borrower also filed an Application to receive additional grounds. The borrower, by way of third Application, wanted the DRT to stay all further proceedings initiated by the Bank under SARFAESI proceedings till the disposal of the Appeal.
5. The DRT dismissed the Application filed by the borrower for a direction to the Bank to forfeit the amount paid by the auction purchaser. The said order was challenged by the borrower in C.R.P(PD) No. 3601 of 2012. The Application filed by the borrower to receive additional grounds was allowed on 3rd August 2012. The said order is challenged by the Bank in C.R.P(PD) No. 3371 of 2012. The Debts Recovery Tribunal was pleased to grant interim stay of sale till the disposal of the SARFAESI Appeal on 11th September 2012. The said order is challenged by the Bank in C.R.P(PD) No. 3726 of 2012.
Submissions:
6. The learned Counsel for the Bank contended that the borrower had given consent to auction the Gummudipoondi property and as such, there was no ground made out to stay the sale. According to the learned Counsel, the Bank was not given notice by the DRT before granting interim stay. The learned Counsel contended that DRT passed a one line order granting stay of sale without making any attempt to consider the merits of the matter. The DRT violated all the cannons of justice while passing the interim order behind the back of the Bank, pending SARFAESI proceedings. With respect to the order allowing the Application for raising additional grounds, the learned Counsel contended that, in case the SARFAESI Appeal was filed on the date on which the Application was filed, it would be barred by limitation. Therefore, the Tribunal was not justified in allowing the Application filed by the borrower to receive additional grounds. The learned Counsel vehemently contended that the Bank was deprived of an opportunity to submit its version before passing adverse orders by the DRT. Therefore, the learned Counsel wanted this Court to set aside those orders and to remit the matter to the DRT for fresh disposal.
7. The Managing Director of M/s. Tetragedron Ltd. argued the Civil Revision Petitions in person. According to him, genuine attempt was made to serve notice in the Stay Petition on the junior Counsel for the Bank, as per the direction given by the DRT. However, he refused to take notice under the pretext that his Senior would be present at 3.00 p.m to oppose the Stay Application. However, there was no representation on behalf of the Bank at 3.00 p.m and as such the DRT was pleased to grant interim stay. The party-in-person justified the order regarding additional grounds. According to him the Bank committed several infirmities and illegalities during the course of sale and the attempt was only to bring the attention of the Tribunal of such illegalities. No prejudice would be caused to the Bank in case the additional grounds are permitted to be raised. The Bank would also get an opportunity to file its response. The party-in-person submitted that the Bank supported the auction purchaser for several months and no attempt was made to forfeit the security deposit paid by him. Even though the borrower filed an Application, to forfeit the deposit, the Bank deliberately omitted to file Counter Affidavit. According to him, the Bank should have forfeited 25% of the bid amount under deposit immediately after the expiry of the period prescribed for payment of balance amount. The very fact that the Bank failed to forfeit the amount, shows that there was a collusion between the officials of the Bank and the successful bidder. He also contended that the Bank has debited about Rs. 5.50 lakhs towards publication and other expenses in connection with the sale in the account of the borrower. Therefore, the balance of forfeited amount after meeting the expenses should be credited in the loan account. The party in person has raised several other contentions and cited various judgements. However, we are not dealing with those aspects as the same are not necessary for the disposal of these three Civil Revision Petitions.
Analysis:
8. The First Petitioner in C.R.P(PD) No. 3371 of 2012 took financial assistance from Indian Bank for establishing an industry at Plot Nos. 81 & 82, SIPCOT Industrial Estate Complex, Gummudipoondi, in Thiruvallur District (hereinafter referred to as “Gummudipoondi property”). The land was given on long lease by SIPCOT, a Government of Tamil Nadu undertaking. The residential property of Petitioners 2 & 3 in C.R.P(PD) No. 3371 of 2012 is stated to have offered as collateral security (hereinafter referred to as “Santhome property”).
9. The loan was later classified as “Non-Performing Asset”. The Bank issued statutory notice and took possession of both the properties.
10. The Santhome property was initially brought for sale. The Bank fixed the upset price at Rs. 91.25 lakhs. The auction sale was conducted on 12th August 2011. The bid submitted by Thiru K.K Thirumurugan, D-4, “E” Block, 72, Sunshine Apartments, West Jones Road, West Saidapet, Chennai-600015, for a sum of Rs. 1,21,20,000/- was accepted. The auction purchaser while remitting the balance sale consideration on 2nd September 2011 requested the Bank to issue Sale Certificate in the name of his nominee. The Letter is found in page No. 27 of the file produced by the Bank. (Volume No. IV). The letter reads as follows:
“Letter to be given by the Auction Purchaser to issue Sale Certificate in favour of the Third Party on his request.
2.9.2011
Shri K.K Thirumurugan,
No. 72, Sun Shine Apartments,
E-Block, D-4,
West Jones Road,
West Saidapet,
Chennai-600015.
The Authorised Officer,
Indian Bank,
21, North Mada Street,
Mylapore,
Chennai-600004.
Dear Sir,
Sub: Property sold under SARFAESI in the Loan Account of M/s. Tetrahedron Limited.
With reference to the above, you have conducted sale of securities viz., New Door No. 6, Old No. 5, Anthu Street, Santhome, Chennai-600004 (full particulars of securities) on 12.8.2011 under SARFAESI Act, 2002 in the captioned account.
I, K.K Thirumurugan, have submitted the tender quoting Rs. 1,21,20,000/- (Rupees one crore twenty one lakhs and twenty thousand only) as the bid amount. The said tender was accepted by you as the highest tender on 12.8.2011 and I have remitted full amount towards the bid amount on 2.9.2011 according to the terms of the bid.
I hereby request you to issue the Sale Certificate and register the same in favour of Shri P. Mani Gounder, S/o Mr. K. Pongianna Gounder, 39, Chinnamuthu III Street, E K Valasu, Erode, PIN-638011 (Third Party), at my risk and responsibility and I undertake and confirm that I relinquish all my rights and claims over the said property in favour of Shri P. Mani Gounder.
I will not raise any dispute in this regard and undertake to keep the Bank harmless and indemnified against any possible loss, damage, cost, claim or expenses which the Bank may suffer or to pay in consequences of its having issued & registered Sale Certificate in favour of Shri P. Mani Gounder on my request.
I further undertake that in the event of the cancellation of the sale of the subject property on a future date by any Court of Law/Tribunal due to the reason of the issuance/registration of the Sale Certificate in favour of Shri P. Mani Gounder on my request, any consequences that flow there from on such cancellation of sale will be at my own risk and responsibility and no liability/responsibility whatsoever will be fastened on the Bank and Bank stands discharged in entirety.
Yours faithfully,
(Signed by Auction purchaser)”
11. The Assistant General Manager, Indian Bank, Mylapore, Chennai vide Letter dated 3rd September 2011 sought the permission of the General Manger to issue Sale Certificate in the name of the nominee of Auction Purchaser. The Letter reads thus:
“To 3.9.2011
The General Manager,
Indian Bank,
Zonal Office,
Chennai South.
Dear Sir,
Sub: A/c. Tetrahedron Limited.
Ref: Authorised Officer Report dated 12.8.2011 on sale of properties under SARFAESI Act.
We refer to our above report dated 12.8.2011 and write to inform you that the successful bidder for the property at Santhome, Mr. K.K Thirumurugan has paid the balance amount of Rs. 90,70,000/- (Rupees ninety lakhs and seventy thousand only) by way of a cheque, which is subject to realization. With this the entire amount of Rs. 1,21,20,000/- (Rupees one crore twenty one lakhs and twenty thousand only) has been received by the branch towards the property situated at Anthu Street, Santhome, Chennai-600004.
He has given a request that the property be registered in the name of Shri P. Mani Gounder, S/o Shri K. Pongianna Goundar. The relevant nomination form is enclosed with this letter.
We request you to kindly permit the property be registered in the name of the nominee, Mr. P. Mani Goundar.
Yours faithfully,
Assistant General Manager.”
12. The Zonal Office of the Bank vide Letter dated 8th September 2011 permitted the Auction Purchaser to transfer the property to P. Mani Gounder, S/o K. Pongianna Gounder, 39, Chinnamuthu III Street, E.K Valasu, Erode-638011 and to register the Sale Certificate in his name. The permission letter as found in page 2 of Volume IV is extracted below:
Branch Manager, 8.9.2011
Indian Bank,
Mylapore Branch,
Chennai.
Dear Sir,
Sub: SARFAESI sale in the Account - Ashok Surana & Tetrahedron with Mylapore Branch - request for issue of Sale Certificate to nominee.
Ref: BM/AO Letter dated 3.9.2011
The request by the Branch Manger/AO to issue Sale Certificate in favour of Mr. P. Mani Gounder, S/o Mr. K. Pondianna Gounder, nominee of Mr. K.K Thirumurugan instead of Mr. K.K Thirumurugan, 72, Sunshine Apartments, West Jones Road, Saidapet, Chennai-600115 auction purchaser in the SARFAESI sale conducted in the account M/s. Ashok Surana and M/s. Tetrahedron is acceded.
Please inform the auction purchaser that any claim whatsoever in respect of the above property based on the tender document will not be entertained in future for having undertaken to relinquish their future rights in favour of Mr. P. Mani Gounder. The undertaking being in the form of indemnity should be obtained in stamp paper for Rs. 100/-.
Branch is advised to issue of Sale Certificate in the name of Mr. P. Mani Gounder (nominee of Mr. K.K Thirumurugan) and for subsequent execution of the same.
Please report compliance
Yours faithfully
Asst. General Manager.”
13. The Sale Certificate was issued to the nominee of the auction purchaser, notwithstanding the fact that the said nominee/subsequent purchaser was not a bidder at all.
14. The Bank also took steps to auction the Gummudipoondi property. The auction notice issued by the Bank contains a stipulation that the purchaser shall deposit 25% of the bid amount on the same date, and the balance within fifteen days of confirmation, failing which the entire amount shall be forfeited. The auction sale was conducted on 12th August 2011. The bid submitted by Mr. Suresh, M/s. Shiva Shakthi Industries, Peravallur Road, Andarkuppam Village, Panjetti Post, Ponneri Taluk, Thiruvallur District for a sum of Rs. 98.75 lakhs was accepted. The auction was confirmed on 12th August 2011. The auction purchaser deposited a sum of Rs. 24,60,000/- being 25% of the bid amount. However, he failed to pay the balance 75% amount. The file produced by the Bank shows that the Bank has been corresponding with the auction purchaser to pay the amount. The auction purchaser raised a dispute with respect to the extent and boundaries of the property purchased in auction. Even though the Bank sold the property in “as is where is condition”, still, the Bank entertained the dispute without forfeiting 25% of the amount.
15. The Zonal Office of the Bank was permitted to extend the time to make the deposit by the Corporate Office vide Letter dated 15th May 2012.
16. The amount was forfeited thereafter. The learned Counsel for the Bank filed a Memo dated 10th September 2012 in C.R.P(PD) No. 3601 of 2011 before this Court indicating that 25% of the bid amount (Rs. 24.60 lakhs) was forfeited and taken into the income account.
17. The issues raised in these three Revision Petitions are grouped under three different heads for better appreciation.
18. Application to receive additional grounds:
(i) The borrower filed SARFAESI Appeal in S.A No. 73 of 2011 on 11th February, 2011. The Appeal was filed within the time permitted by law. It was only during the pendency of the Appeal, the Bank issued the sale Notification. The borrower found certain material irregularities committed by the Bank in the matter of sale. This made the borrower to file an Application to receive additional grounds. Since the Application was allowed by the DRT without a reasoned order, we are inclined to consider the submissions made by the learned Counsel for the Bank and indicate our finding on the said issue.
(ii) The borrower was of the view that the Bank failed to take immediate action to forfeit the amount paid by the successful bidder on account of his failure to pay the remaining 75% of the amount. It was only to bring the attention of the Court about the alleged violations and the other legal infirmities, the borrower has filed the Application to receive additional grounds. The said Application was opposed by the Bank primarily on the ground of limitation. However, on a perusal of the additional grounds, we are of the view that they are supplemental grounds relating to the substantial grounds already raised by the borrower in the SARFAESI Appeal. The merits or otherwise of the contentions raised by the borrower by way of additional grounds is essentially a matter to be considered by the DRT during the time of trial. The stage has not reached for the said purpose. It is true that the DRT has not passed a reasoned order. However, in the factual background of this case, no interference is called for in the said order. Accordingly, we dismiss C.R.P(PD) No. 3371 of 2012.
19. Grant of Interim Stay:
The Bank issued a sale Notification earlier. Since the successful bidder failed to deposit the balance sale consideration, sale was cancelled. Thereafter, the Bank issued another sale notice proposing to auction the property on 12th September 2012. It was only at that point of time, the borrower filed an Application to stay the sale. Since the matter was not posted on 11th September 2012, the Managing Director of the Company wanted to file an Application for stay before the DRT with a view to obtain urgent orders. The party-in-person appears to have made an attempt to give notice to the Junior Counsel for the Bank. Since there was no representation on behalf of the Bank during the afternoon, the DRT was pleased to grant interim stay. The learned Counsel for the Bank is correct in his submission that the Bank was not given a reasonable opportunity to file its response before passing the order of stay. The DRT granted interim stay of sale till the disposal of SARFAESI Appeal. SARFAESI Appeal is stated to be in the final stage. Though we are not in a position to support the order passed by the DRT on account of absence of reasons, still we are not setting aside the said order in view of the discretion exercised by the Tribunal in favour of the borrower. No serious prejudice would be caused to the Bank in case stay is granted till the disposal of the Appeal. The borrower has agreed to Co-operate with the Tribunal for an early disposal of the substantial proceedings. Therefore, we are of the view that no interference is called for in the order of stay granted by the Tribunal on 11th September 2012. Accordingly, C.R.P(PD) No. 3726 of 2012 is dismissed.
20. Forfeiture of initial deposit:
The Bank issued the sale Notification proposing to sell the Gummudipoondi property. The auction was on 12th August 2011. The successful bidder offered a sum of Rs. 98.75 lakhs. The bid was accordingly accepted. The successful bidder deposited a sum of Rs. 24,60,000/-. However, he failed to deposit the remaining 75% of the amount within the time indicated in the auction Notification. The Bank was expected to forfeit the deposit immediately after the expiry of the prescribed period. However, in this case, the Bank has not taken any serious efforts to forfeit the amount. Even though the borrower filed an Application for a direction to the Bank to forfeit the amount, the fact remains that the Bank neither forfeited the amount nor filed a Counter Affidavit in the said Application. The DRT without making any attempt to consider the factual matrix, dismissed the Application by a one line order. Subsequently, the Bank forfeited the amount.
21. The Managing Director of the borrower Industry contended that the Bank committed several illegalities in the matter of sale of Santhome as well as Gummudipoondi Property.
22. The file produced by the Bank shows that the Bank permitted the transfer of Santhome property to a person who was not a party to the Auction proceedings. The bid was confirmed in the name of Mr. K.K Thirumurugan. The Bank has no authority to transfer the Sale Certificate to a stranger nominated by the auction purchaser. The Bank officers knowingly or unknowingly helped the subsequent purchaser to avoid Stamp duty by issuing Sale Certificate in the name of the nominee of auction purchaser.
23. The question as to whether it is open to the Bank to issue Sale Certificate in the name of the nominee of the auction purchaser came up for consideration before a Division Bench of this Court in Hemalatha Ranganathan v. The Authorised Officer, Indian Bank, Egmore, Chennai, 2012 (5) CTC 1 (DB). The very same Indian Bank was the secured creditor in the said matter. The Division Bench found that the Authorised Officer in collusion with the auction purchaser transferred the property and registered the Sale Certificate in the name of the nominee of successful bidder. While setting aside the sale and directing the Bank to conduct an enquiry, the Division Bench observed:
“24. The sale Notification does not contain any provision permitting the Authorised Officer to issue the order of confirmation in favour of a person other than the successful bidder. The term “purchaser” would mean only a person in whose name the auction was confirmed originally and not a person who appears subsequently, as the nominee of the successful bidder.
25. ……..
26. The provisions quoted above clearly gives an indication that the Authorised Officer has no power to issue the order of confirmation or Sale Certificate in favour of the nominee of auction purchaser.
41. We make the position clear that the Authorised Officer has no authority to accept the request from the highest bidder to issue the Sale Certificate in favour of a third party. The sale should be confirmed in the name of the highest bidder and not in the name of his nominee. The privity of contract would only be between the successful bidder and the Bank. The Sale Certificate should be issued only in the name of the successful bidder in whose favour the letter of confirmation was issued. The question of further sale of the property would arise only after registration of the Sale Certificate by the Bank in the name of the successful bidder. The purchaser from the successful bidder cum Sale Certificate holder must necessarily pay Stamp duty for registration. In short, the Authorised Officer has no authority to recognise a person as the nominee of the successful bidder.”
24. The judgment in Hemalatha Ranganathan v. The Authorised Officer, Indian Bank, Egmore, Chennai, 2012 (5) CTC 1 (DB), was taken up before the Supreme Court. The Supreme Court directed the Bank to conduct the enquiry in accordance with the direction of the Division Bench and submit a report before the High Court. We are informed that pursuant to the said direction Thiru P. Arivanandam, General Manager, Indian Bank conducted an enquiry in the matter. The General Manager has given a clear finding that the SARFAESI Act and the SARFAESI Rules do not permit sale confirmation in favour of a nominee of the auction purchaser and therefore, the action of the Authorised Officer in confirming the sale in favour of the nominee of the auction bidder was not in order. While submitting a report to this Court, the Chairman and Managing Director of Indian Bank fairly stated that there have been deviations from the procedure/guidelines of the Bank and the sale has been conducted with certain infirmities. The Chairman further stated that the infirmities and lapses that occurred are deeply regretted and the Bank assures that the efforts for recovery would be adhered only in accordance with statutory provisions of SARFAESI Act and the Rules framed thereunder.
25. In the subject case, the Santhome property was sold and ultimately Sale Certificate was issued in the name of the nominee of the auction purchaser. The Gummudipoondi property was sold subsequently. Even though the auction purchaser failed to pay the balance amount, no early action was taken to forfeit the deposit and to conduct a fresh auction. The Bank Officers are dealing with public money. They should be vigilant to protect the interest of the Bank. The borrowers are not having access to records and as such they are in darkness as to what has transpired between the auction purchaser and the Bank. The Bank and the bidders are bound by the terms and conditions of the auction Notification. In case the Notification does not contain a provision for extension of time to deposit the balance amount and is covered by a clause regarding forfeiture, immediate action should be taken to forfeit the amount, on failure to deposit the balance amount.
26. Most recently, the Supreme Court in Ram Kishun v. State of U.P, 2012 (5) Scale 673, observed that the Authorised Officers of the Banks should not behave like property dealers and dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions.
Who is entitled to the forfeited amount:
27. The learned Counsel for the Bank submitted that the borrower wanted the amount forfeited to be credited in the Loan Account. According to the learned Counsel, the Bank is entitled to the forfeited amount and it would be included in the profits of the Bank. In short, the Bank wanted to appropriate the forfeited amount without paying it to the Government or credit it in the account of the borrower.
28. The proceedings in question was initiated by the Bank under the SARFAESI Act. The Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules”) provides for the measures to be taken by the Bank right from the issuance of Notification under sub-section (2) of Section 13 of the SARFAESI Act. Rule 8 deals with sale of immovable secured assets. Rule 9 provides for time of sale, issue of Sale Certificate and delivery of possession, etc. Sub-rule (3) of Rule 9 mandates that the purchaser shall pay 25% of the amount after the sale is concluded and in default of such deposit, the property shall be sold again. Sub-rule (4) of Rule 9 provides that the balance amount shall be paid 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. Sub-rule (5) of Rule 9 clearly gives a mandate that in case the amount is not paid within the time prescribed in the Notification or before the extended period, the deposit shall be forfeited and the property shall be re-sold. The Rule makers have only prescribed that the amount would be forfeited. There is no mention that the amount would be forfeited to the Government or to the Bank.
29. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as “RDDBFI Act”) also contains provisions for sale of immovable property. By virtue of Section 29 of the Act, the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, were made applicable to a proceeding under the RDDBFI Act. Rule 58 of the Second Schedule to the Income-tax Act, 1961 provides that in case the purchaser failed to deposit 75% of the amount within the period prescribed, the deposit may, after defraying the expenses of sale, be forfeited to the Government. The Security Interest (Enforcement) Rules, 2002 provides only for forfeiture of the amount. The Income-tax Rules made applicable to the Debts Recovery Tribunal (Procedure) Rules, 1993 provides for forfeiture of the amount to the Government, after defraying the expenses of sale.
30. The question is whether the Bank would be justified in its contention that the forfeited amount would go to the income account of the Bank.
31. The Bank issued publications and spent considerable amount for the purpose of bringing the property for sale. According to the borrower, the Bank has claimed a sum of Rs. 5.5 lakhs towards such expenses. The said amount was debited in the account of the borrower. However, when it comes to profit, the Bank wanted the forfeited amount to be appropriated into the Income Account. In case, there is a provision to forfeit the amount to the Government, necessarily, the Government should get the amount. The Legislature very cautiously made a provision in the Security Interest (Enforcement) Rules, that the amount shall be forfeited. There is no specific mention that this amount would go to the Bank. In case the borrower has to bear the expenses of sale, necessarily, any profit derived out of such sale should also go to the account of the borrower. The borrower is not demanding that the amount should be paid to him by cash. The request is to credit the balance amount in the loan account. The contention that the forfeited amount would be appropriated by the Bank is nothing but unjust enrichment. It is true that the borrower has taken a loan. The Bank wanted to realise the loan amount with interest. The sale Notification was made with respect to the property owned by the borrower. Therefore, any amount fetched by the Bank on account of such sale (with reference to the property of the borrower) should be credited in the account of the borrower. The Bank has no justifiable claim to appropriate the forfeited amount by crediting it in the Income Account. Therefore, we are of the view that the Bank was not justified in its contention relating to the appropriation of the forfeited amount. We also clarify that, in case, the amount is forfeited under the Debts Recovery Tribunal (Procedure) Rules, 1993 read with Income Tax Act, 1961, the forfeited amount should go to the Government only.
32. Since the Bank has already forfeited the amount, it is not necessary to set aside the order passed by the DRT, dismissing the Application for forfeiture. Accordingly, C.R.P(PD) No. 3601 of 2012 is dismissed.
33. Before concluding, we deem it fit and proper to indicate the necessity to supplement reasons by the Tribunal. The order passed by the Tribunal should be a speaking order. The parties should not be put in darkness with regard to the actual reasons, weighed with the Tribunal to take a decision one way or the other. The orders are liable for correction in Appellate as well as Revisional proceedings. The Appeals and Revisions would be meaningless in case reasons are not indicated in the order passed by the Original Authority.
34. The Supreme Court in Victoria Memorial Hall v. Howrah Ganatantrik Nagrik Samity, 2010 (3) SCC 732, observed that the giving of reasons for a decision is an essential attribute of judicial and judicious disposal of a matter before Courts. The Supreme Court further observed:
“40. It is a settled legal proposition that not only an administrative but also a judicial order must be supported by reasons, recorded in it. Thus, while deciding an issue, the Court is bound to give reasons for its conclusion. It is the duty and obligation on the part of the Court to record reasons while disposing of the case. The hallmark of an order and exercise of judicial power by a judicial forum is to disclose its reasons by itself and giving of reasons has always been insisted upon as one of the fundamentals of sound administration of justice-delivery system, to make known that there had been proper and due application of mind to the issue before the Court and also as an essential requisite of the Principles of Natural Justice……..
41. Reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, it becomes lifeless. Reasons substitute subjectivity by objectivity. Absence of reasons renders the order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum.”
35. The Supreme Court in Kranti Associates v. Masood Ahmed Khan, 2011 (1) MWN (Civil) 677 (SC) : 2010 (9) Scale 199, observed that the requirement to record reasons emanates from the broad Doctrine of Fairness in decision making. The said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. The Supreme Court further observed that in India, the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
36. The failure to indicate reasons would result in upsetting the orders and remanding the matter for supplementing reasons. This would cause delay in disposal of proceedings. The borrower has to pay interest for the delayed period, inspite of the fact that he was not at fault. It was only to avoid the possible delay, we have considered the Civil Revision Petitions on merits, notwithstanding the one line order passed by the Tribunal.
Result:
37. In the result, the Civil Revision Petitions are dismissed. Consequently, the connected MP is closed. No costs.
Alert