MR TRUPTI RANJAN DAS v. PUNJAB NATIONAL BANK

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repayment schedule of monthly E.M.I. of Rs.29.226.00. Repayment became irregular and the account was classified N.P.A. Demand Notice was issued on 27.8.2013 and symbolic possession was taken. Writ Petitions were filed by the Appellant. In the meantime, Auction Sale Notice was issued on 24.5.2016 and the property was auctioned at Rs.16,50,001.00, as communicated by the Bank vide letter dated 22,7,2016. Thereafter Appellant filed a SARFAESI Application before the Learned DRT challenging the E-Auction dated 24.5.2016 and the consequential action of the Bank on the ground that the valuation of the property was made without consulting the Appellant. Further the Reserve price was fixed against the provisions of law. There was a case of single bidder. Bank did not make any effort to fetch maximum price and the sale was conducted for Rs.16,50,001.00 which shows mala fide intention of the Authorised Officer. It is further stated that the Appellant is ready and willing to redeem the property.

3. Opposition is filed by the Bank stating that the valuation Report was obtained from the Authorised Valuer in the year 2011; sale was conducted in accordance with law; all the legal provisions were complied.

4. After hearing the Learned Counsel for the parties, Learned DRT recorded its finding that the Secured Creditor followed the provisions of law. There is no illegality in the sale conducted by the Bank. Accordingly, the SARFAESI Application was dismissed.

5. Feeling aggrieved, Appellant preferred the appeal. I have heard the Learned Counsel for the parties and the Auction Purchaser in person and perused the record.

6. Rule 8 Sub-rule (5) of Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the Rules) reads as under :

(5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-

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(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction including through e-auction mode; or

(d) by private treaty:

7. A bare perusal of the Rule would show that it was incumbent upon the Authorised Officer to obtain the valuation of the property from an approved Valuer and to fix the reserve price of the property. Admittedly, the valuation report was obtained by the Authorised Officer in the year 2011 while the Auction Sale was conducted on 24.5.2016; meaning thereby, there was a gap of five years. In the valuation report dated 20^thOctober, 2011 estimated value of the land was Rs.8,82,000.00. Thereafter, no valuation report was obtained by the Authorised Officer. In Ram Kishun And Others -vs- State of Uttar Pradesh & Others [(2012) 11 SCC 511] it was held by the Hon'ble Apex Court in paras 13, 14, 17 and 24 that

"13. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions."

"14. A right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide Lachhman Dass v. Jagat Ram2 and State of M.P. v. Narmada Bachao Andolano) Thus, the condition precedent for taking away someone's property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions."

"17. Therefore, it becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price. Thus essential ingredients of such sale remain a correct valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them, as a moneyed person or a big businessman may not like to involve himself in small sales/deals."

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"24. It is evident that law requires a proper valuation report, its acceptance by the authority concerned by application of mind and then fixing the reserve price accordingly and acceptance of the auction bid taking into consideration that there was no possibility of collusion of the bidders. The authority is duty bound to decide as to whether sale of part of the property would meet the outstanding demand. Valuation is a question of fact and valuation of the property is required to be determined fairly and reasonably."

8. Court is the custodian of the interest of the Company and its creditors. Hence, it is the duty of the Courts to see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. In the Divya Manufacrturing Company Private Limited Tirupati Woollen Mills Shramik Sangharsha Samity & Another -vs- Union Bank of India & Others [(2000) 6 SCC 69 the Hon'ble Apex Court held that the confirmation of sale by a Court at a grossly inadequate price wherein it is a consequent of any irregular or fraud in the sale should be set aside on the ground that it was not just and proper exercise of judicial discretion. Law requires a proper valuation report which is accepted by the authority concerned by application of mind and then fixing the reserve price accordingly and acceptance of the auction bid taking into consideration that there was no possibility of collusion between the bidders. Valuation is a question of fact and is required to be determined fairly and reasonably.

9. Valuation of the secured assets has to be made by the Authorised Officer before the date of sale. It has been held by the Hon'ble Apex Court in catena of judgments that more is the power given to an authority, more are the responsibilities of the authority. It means that when wide powers have been given to the Authorised Officer under the SARFAESI Act then it also imposes certain duties upon the Authorised Officer. He cannot act arbitrarily. He has to folklow the rules and the laws. No doubt if a Borrower faiels to repay the loan taken by him from the financial institution or Bank, secured assets has to be auctioned and sold by the Bank though its Authorised Officer. But it does not mean that the Authorised Officer should

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auction the property without following the law. Law requires that there is a legal obligation on the part of the Authorised Officer that property be sold in such matter that it may fetch the best price. This is the essential ingredient on which sale remains on … valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price3 is fixed taking into consideration the inaccurate valuation report, the intending buyer may not come forward treating the property as not worth to be purchased by him. It means that a proper valuation of the secured asset should be made through an approved valuer by the Authorised Officer. The valuation should be made prior to the issuance of the auction notice wherein reserved price is fixed by the Authorised Officer. We can take judicial notice of the fact that prices of land or property are escalating and the Borrower has a legal right to get the appropriate value of his property to be auctioned by the Authorised Officer. If any negligence is caused or committed by the Authorised Officer in obtaining the valuation report before issuance of the auction notice, it may go against the interest of the Bank. Authorised Officer is also a public servant who has to perform his duties diligently with devotion. Any act or omission of the Authorised Officer which is against the settled norms of diligence and devotion to duty would amount to misconduct on his part. Authorised Officer is also required to follow the law.

10. It is settled proposition of law that when there are specific provisions of law and if they are not followed, no amount of equity can supersede the law. It was held in National Spot Exchange Limited -vs- Anil Kohli, Resolution Professional for Dunar Foods Limited [(2022) 11 SCC 761] that where the laws is clear consequence thereof must follow. In BSNL -vs- Mishri Lal [(2011) 14 SCC 739] it was held that law prevails over equity if there is a conflict. In

Nasiruddin & Others -vs- Sitaram Agarwal [(2003) 2 SCC 577] it was held in a case where the statutory provision is plain and

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unambiguous, the Court shall not interpret the same in a different manner only because of harsh consequences arising therefrom.

11. In the present case, the valuation report was obtained by the Authorised Officer on 20.10.2011. The sale was conducted on 24.5.2016 and the reserve price was fixed at Rs.16,50,000.00 In the year 2011 valuation of the land was assessed by the valuer at Rs.8,82,000.00. The Authorised Officer fixed reserve price at Rs.16,50,000.00. Nothing is brought on record to show as to how and on what criteria Authorised Officer assessed the valuation of the secured asset and fixed the reserve price at Rs.16,50,000.00? It is apparent from the record that the Authorised Officer acted arbitrarily without following the established principles of law. Authorised Officer did not make any attempt to obtain fresh valuation report. This fact becomes relevant considering the final bid of the successful bidder at Rs.16,50,001.00 only. This is a case of single bidder and curiously, the single bidder raised the bid amount by Re.1.00 only. It shows some collusion between the Authorised Officer and the successful bidder. Non compliance, of the provisions of law and the law laid down by the Courts, by the Authorised Officer indicates that he did not perform his duties diligently rather he acted arbitrarily in fixing the reserve price without obtaining the fresh valuation report.

12. In the present case, valuation report of 2011 was made the basis for fixing the reserve price which is against the settled principles of law. Accordingly, on this ground alone the sale is liable to be set aside. In M/s. Alpine Pharmaceuticals Private Limited & Another -vs- Andhra Bank, a Division Bench of the Hon'ble High Court for the State of Telangana at Hyderabad in W.P. 13936 of 2019 decided on 24.1.2020 [2020 SCC OnLine TS 81] held that :

"94. In our opinion, when Rule 8 (5) mandates the authorized Officer to obtain valuation of the property from an approved Valuer and in consultation with the secured creditor, fix the reserve price of the property before effecting sale of immovable property, and Rule 5 contains a similar provision in respect of movable property, the intention of the legislature is to ensure that such valuation has reasonable proximity to the date of the sale so that there is a

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possibility of maximum benefit from the sale to the borrower. Failure of the 1^st respondent to get such valuation prior to sale on 11.09.2018 is in violation of the above Rules."

13. Learned DRT has not dealt with the issue of valuation as required under Rule 8 (5) of the Rules. Learned DRT proceeded on a wrong premises that since the Appellant has taken the loan he has to repay the same. It is also observed that O.A. 314 of 2014 is also decided by the Tribunal and the amount is yet to be paid by the Appellant. Appellant failed to clear the dues of the Bank. When a specific plea was taken by the Appellant for violation of mandatory provisions of Rule 8 (5) of the Rules, it was incumbent upon the Learned DRT to deal with the issue on its merits in accordance with law. Learned DRT failed to exercise its jurisdiction by not appreciating the laws on the issue of applicability of Rule 8 (5) of the Rules.

14. Having considered the submission and on the basis of the finding recorded above, I am of the considered opinion that the Authorised Officer has not complied with the provisions of Rule 8 (5) of the Rules. The reserved price was fixed arbitrarily without obtaining the valuation report from the authorized Valuer. Accordingly, there was violation of Rule 8 (5) of the Rules. Property is auctioned on the basis of the valuation report of 2011 which is against the Rules. Accordingly, manifest error has been committed by the Authorised Officer in arbitrarily fixing the reserve price of the secured assets. Accordingly, I am of the considered opinion that Learned DRT has committed material illegality and irregularity in arriving at its findings. Impugned auction sale, held on 24.5.2016, is liable to be set aside and the Auction Purchaser is entitled to refund the bid amount along with interest. Appeal deserves to be allowed.

O R D E R

Appeal is allowed. Judgment and order dated 21.5.2018, passed by Learned DRT, Cuttack in S.A. 57 of 2017 (Mr. Trupti Ranjan Das -vs- Authorised Officer, Oriental Bank of Commerce & 2 Others), is set aside. SARFAESI Application, filed by the Appellant is allowed.

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Auction sale, conducted on 25.4.2016, is set aside. Auction Purchaser, Respondent No. 3, is entitled for refund of the bid amount deposited by him with interest at the rate of fixed deposit prevailing on the date of deposit till the date of actual payment. Respondents No. 1 and 2 are directed to refund the amount to Respondent No. 3, Auction Purchaser, within a month. However, Secured Creditors, i.e. Respondents No. 1 and 2, would be at liberty to proceed afresh in accordance with law to recover the dues.

No order as to costs.

Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT. File be consigned to Record room.

Order dictated, signed, dated and pronounced in open Court. (Anil Kumar Srivastava,J)

Chairperson

Dated: 8^thJuly, 2024

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