M/S. G. P. SANKARAM AND ASSOCIATES V. Union Bank of India, rep by its Managing Director,

WP/1036/2019

AI Insights

The case revolves around the petitioner firm, G.P. Sankaram & Associates, which was engaged by the respondents (Union Bank of India and Canara Bank) as valuers for estimating the fair market value of properties for loan applications. The petitioner firm was removed from the panel of valuers and placed on a caution list by the respondents without following the due process, which led to the filing of this writ petition under Article 226 of the Constitution of India. The petitioner argued that their removal was arbitrary, illegal, and in violation of their rights under Article 19(1)(g) of the Constitution, as well as the principles of natural justice and the regulations in the Handbook on Policy, Standards, and Procedures for Real Estate Valuation by Banks and HFIs in India. The respondents contended that they had the right to remove the valuer without assigning any reasons, as per the terms of appointment agreed upon by the valuer.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 738904 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 08-07-2022
• Assessment Year: misc
• Laws Referred To: Article 226 of the Constitution of India, Article 19(1)(g) of the Constitution of India, Handbook on Policy, Standards and Procedures for Real Estate Valuation by Banks and HFIs in India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A KRISHNAM RAJU
• Assessee Lawyers: MAMIDI REDDY
• Keywords: Natural Justice; Unilateral action; Valuation; Writ of Mandamus; Depanelment; Caution List
• Section: 151 CPC

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE EIGHTH DAY OF JULY TWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE DR. JUSTICE G.RADHA RANI Between: Ir//s. 106, AND 1 2 G. P. Sankaram And Associates, Rep. bv its partner. G Bhanu Enclave AS Rao Nagar SecuncieraSad V. Appa Rao ..,PETITIONER 3 4 Union, Bank of lndia, rep_by its Managing Director,, Regional Office, 6_3_664, zno rroor,. presttge R€.r towers. punjlgutta lrrlain Road, Hyderabad 5000g2. lne Deputy^ceneral [ ,4arager, Union Bank of lndia,, Regional Office, 6_3_664, zno Froor, prestige Rai Towers, punjagutta Main Road,Hyderabad 5000g2. RR 1 ,2 C.T. is amended as per C.O. dt. OSt1Ol2O21 in LA. No. 212021. Canara.Bank, Rep by_senior Manager Circle Office opp Old MLA euarters Himayatnagar, Hyd-29 lndian Banks Association, 6th Floor, World Trade Centre. Centre 1 Buildino World Trade Centre Complex, Cuffe parade, Mumbai- 40OOO5. !.$ 3 qnd a are impleaded as per Court order dt -28.01.2018 in l.A.No. 2/'t9 tN WP.NO.1 036/19. ...RESPONDENTS Petition under Article 226 of rhe constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High court may be pleased to issue a writ or order more particularly one in the nature of writ of mandamus declaring the action of the Respondent Nos.1 and 2 in removing the partner of Petitioner firm from its panel of valuers without passing any final orders and communicating the same pursuant to show cause Letter No.2714l26lPanel Eng/l021 dated 2s.11.2016 and consequential circular No'oPR/clR/FrlrPEl6274 dated 13.11.2018 issued by the 4th Respondent placing the Partner of the Petitioner in the caution List as being illegal, arbitrary and in violation of Article 19(i )(g) of constitution of lndia and in violation of principles of natural justice as also in violation of regulations contained in Handbook on Policy, Standards and procedures for Real Estate valuation by Banks and HFls in lndia and consequenfly to direct the WRIT PETITION NO: 1036 OF 2019 4th Respondent to remove the name of the petitioner from the caution list of third party entities after setting aside the same (Prayer is amended as per court order dated 2A.07.2021 in l.A.No.1 of 2021) lA NO: 'l OF 2019 Petition under section 151 cpc praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to Stay all furhter proceedings arising out of the respondents, Letter No. 2714l26lPanel Engl1021 dated 2511 112016, removing the petitioner from the panel of approved valuers, pending the disposal of the above Wp lA NO: 1 OF 2020 Petition under Section 151 cPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to direct the 4 th Respondent not to initiate further steps pursuant to the publication of petitioner's names at serial 833 of its caution list in the interest of iustice. Counsel for the Petitioner: SRI MAMIDI AVINASH REDDy Counsel for Respondent Nos. 1 & 2: SRI A. KRISHNAM RAJU The Court made the following: ORDER r 7 / THE HON'BLE DT. JUSTICE G. RADHA RANI WRIT PETITION No.1036 OF 2019 ORDER: This writ petition is filed by the petitioner to issue Writ of Mandamus declaring the action of the Respondents I & 2 in removing the paftner of petitioner tlrrn tiom its panel of valuers without passing any final orders and comrnunicating the same pursuant to Show Cause Letter No.27l4l26lPanel Eng/102 I dated 25-11-2016 and consequential Circular No.OPR/CIR/Frl'1PE.16214 dated l3-ll-2018 issued by the 4'h Respondent placing the partner ol the petitioner in the caution list as being illegal, arbitrary and in.violation of Article l9(1Xg) of the Constitution of India and in violation of principles of natural justice as also in violation of regulations contained in Flandbool< on Policy, Standards and Procedures for Real Estate Valuation by Banks and HFIs in India and consequently to caution list of third pafty entities. 2. Heard Sri N{aniidi Avinash Reddy, leamed counsel for the petitior.rer and Sri A. Krishnarn Raju, learned Panel Counsel for ,-,.. -,2,-dl r lespor-rdents I & 2 direct the 4th respondent to remove the name of the petitioner from the 3. The leamed counsel for the petitioner submitted that the petitioner firm, IWs. G.P. Sankaram & Associates' were Chartered Engineers, Approved Valuers, Consulting Engineers' and Govemment registered valuers for Income Tax and various banks The petitioner firm had been offering services in the capacity of valuer to the respondents for many years. The purpose for which respondents engaged the services of the petitioner was for estimating fair market value of properties of those persons who applied to the respondents for loans' The petitioner firm was paid a paltry remuneration for the asset valued' subject to a ceiling by the respondents. During the past several years' the petitioners valued and prepared valuation reports for the respondents' The petitioners thus had a long and representative work experience with credible track record' 3. The leamed counsel for the petitioner firm further submitted that the petitioner firm received a show cause notice dated 25-ll-2016 from the respondents stating that there was a fraud in seven housing loan accounts with its Hitech City branch and asked the petitioner to explain why they should not be placed in caution list of lndian Banks' Association The petitioners filed a detailed reply to the said notice on 07- l l-2016 rebutting all the allegations. The petitioner approached the respondents several times seeking their resPonse after ) personally and through representatlons (, / WP No 1036 al 2019 submitting reply seeking to know the status, but in vain. The petitioner received a letter dated 29-ll-2018, from the circle office of Canara Bank, Himayat Nagar, Hyderabad, stating that the respondents placed them in the Indian Banks' Association Caution List of Third Party Entities (TPE), for the alleged irregularities reported by one of the member banks for discrepancies in valuation. Their enquiries revealed that it was the respondents who placed the petitioners in the said list to the detriment of the petitioners. There was a standard procedure established before removing a panel valuer by the banks. There were as many as three steps contemplated for the sarre. The first step would be to issue Show Cause notice and receive an explanation lor the same. The second step would be hearing wherein the valuer was given an opporlunity to be heard so that his view point was made known. fhe third step would be deliberation by the Committee. The respondents lollowed the first step, but not the other two steps and hence violated the procedure established in the said connection. The respondents thus hastily and illegally depanelled them with malafide intention to cause damage to the petitioner's reputation. The abrupt termination of their services by the respondents caused immense hardship. The threat of the respondents to intbrm other banks about putting the name of the petitioner in the IBA Caution List would damage their reputation i l beyond repair and would deny their livelihood' The action of the respondents was unilateral, irrational and was based on false and unfounded grounds and prayed to allow the writ petition' 4. The leamed counsel for the respondents I and 2 submitted that the procedure of issue of show cause notice was itsell not contemplated or set out during the period under reference' As per the terms ol appointmenl of the valuer, the Bank had a right to lemove the valuer without assigning any reasons' The said terms were agreed to and consented by the valuer' It was only in the year 2018, a detailed circular was issued by the bank for guidance of the controlling offices vide Circular No l39 dated 20'07'2018' Even the recbnt circular would not provide for personal hearing All the steps as envisaged in Para-Xlll of the guidelines vide Circular No'139 dated 20.07 .2018 had been taken' No requirement of personal hearing was set forth or envisaged in the guidelines prevailing and applicable during 20i6. The bank was exposed on account of the acts of omissions and commissions by the petitioner firm in its prolessional standards' The petitioner agreed that the bank had a right to delete the petitioner's name from the panel without assigning any reasons while accepting the terms of appointment. A show cause notice was issued' the reply of the petitioner was considered and the decision to depanel was taken' The show cause C ) l/ DTARRJ wP No.1036 tt 20 t9 notice clearly had set out the grounds upon which and the grounds wherein the professional services of the petitioner were found to be inadequate and thereby the bank was put to risk was also set out. The principles of natural justice were followed. The guidelines would not provide for any personal hearing ancl it was neither necessary in law nor in the circumstances of the case, and prayed to dismiss the writ petition' 5. Perused the record. The record would disclose that a show cause norice was issued by the Andhra Bank on 25.11.2016 to the petitioner firm stating that they observed fraud in 7 housing loan accounts with Hitech City Branch. On the basis of the valuation report submitted by the petitioner, the bank financed the housing loan account against the security provided to the bank and gave the details ofthe borrowers. The details of the primary security and the discrepancies with regard to the primary security as observed by thenr r.r,ere stated in the show cause notice and it was furlher stated that the properties had not been identified correctly and that the petitioner rvas negligent in their duties, which led to perpetration of lraud by the borrowers and builder. Due caution was not taken in property valuation and the valuation report was based on the statement of the borrower which led to wrong identification of the properties' Thus, the petitioner had fallen shon in meeting the service standards by not giving 6 proper attention in identifoing the properties and made the bank to credir losses and asked the petitioner to show cause his explanation as to why his name should not be entered in IBA caution list. A reply was given by the petitioner on07.12.2016. The petitioner exprained that they were asked by the Hitch city Branch of Andhra Bank during the year 201 l to assess the plots being built on land in Sy.No. 100/A and they were informed that the bank had already released the loan and the report from them was only to fulfil the official procedure/formalities. They observed a discrepancy regarding name of the apartment. The copies of the documents served on them would indicate the name of the apartment as ..Sai Alex,,, but the name painted there was ,Sai Avenue, and the same &,as brought to the notice of the bank with a note on the same in their repom. The property was jointly identified by the valuer along with the bank officers Sri Nageswara Rao & Ms. priyadarshini. After four years they were asked to revalue the same and copies of the same documents which were given to them earlier during the year 2011 were provided and they again highlighted the discrepancy regarding rhe name of the aparrment, bur the bank took it lightly. 6. Leamed counsel for the petitioner submitted that no action was taken by the respondents after submitting the reply by the petitioners and ^ --- c the petitioners only received a letter dated 29.11.2018 from the Circle Office, Canara Bank, Himayat Nagar, Hyderabad informing them that the respondents placed them in the lndian Bank Association caution list of TPE. The Indian Bank Association is the consortium of all the national banks approved by the Reserve bank of India and it shared the information with all its Mernber Banks, annexing the details of the Third Party Entities, who were alleged to have committed irregularities, as repo(ed to them by one of the member banks. The name of the petitioner was shown at Serial No.833, basing on the repoft given by Andhra Bank wherein it was stated that the valuer failed to identif,i the survey number of the property and the valuation was given without verification of correct location and name of the apartment at Bank's Hi-tech City Branch. 7. The contention of the learned counsel for the petitioner was that putting the name of the peririoner in the IBA caution list would damage the reputation of the petitioner beyond repair and would deny him of his livelihood and the action of the respondents was unilateral and irrational. His contention was that the respondents had not followed the standard procedure established belore removing the petitioners as panel valuers of the banks and there was violation of principles of natural justice' 1 -.- E . 8. Learned counsel for the respondents I and 2 contended that there was no necessity of issuing the show cause notice itself as per the terms of the appointment of the petitioner as valuers and the bank has a right to remove the valuer without assigning any reasons. 9. But, the rules of natural justice are fundamental and foundational concepts of law which are indispensable part of the legal and judicial system. They ensure protection of individual rights against arbitrary procedures and miscaniage of justice by the authorities. The said principles are applied to each and ever1. quasi judicial or statutorv authority who have upon them the responsibility ol determining the obligations and rights of the people. The principle of audi alteram partem is the basic concept of natural justice. The Rule of fair hearing or no one shoukl be condemned unheard is sine qua non of every civilized society and it covers the various stages of administrative adjudication process. Issuance of prior notice which is specific and unambiguous and giving adequate time ro enable him to make his representation, giving reasoned orders and providing a copy of the same are also pan of ensuing rransparency in decision making. Thus, the respondents cannot escape from their obligation stating that there was no necessity of issuing show cause notice as per the terms of the appointment of the petitioner as valuers. Even when the terms of appointment are silent' the principles of natural justice have to be read into it. 9 9. For the same reason in the year 2018' a detailed circular was issued by the bank for guidance of the Controliing Officers vide Circular No.139 dated 20.07.2018. The relevant clause is para-XIII in the said Circular and the same is pertaining to de-panelling of the valuers' The same is extracted for ready reference' \"Xlll. Guidelines for calling explanation where approved valuers wete negligent and their certification tums out to be untrue and fict\"ually in correct' exposing the Bank to avoidable risks' Depaneling and Repofiing to IBA for placing the name in Thild Pany Cautlon Lrst' l. Circle Oftlce of the respective zone' upon receipt of request ior depanelnrent froll.' zone' will assess the need if warLanted' will issue a Sirow Cause Notice duly signed by t[e Circle General Manager to the Valuer marking a coPY to Zonal Office' 2. The reasons for depanelment should be spelt out clearlY in the notice 3. l'he valuer has to submit his reply wjthin 15 days to Circle Office marking a copy to Zonal Office 4. Zonal Oflice on receipt of reply from the Concerned Valuer, has to give their views and Recommendations to Circle office tiking into account the explanation given bY the Valuer 5 Circle officc after examiuation ol the explanation along with tlre views ol zonal olflce shall decide about depanelrnent arJ communioate the same to the empartelled Chartered Engineer/Firm A copy of the same has to be marked to CMRD Head Office\"' ;, 10 10. As per the learned counsel for respondents 1 and 2' all the steps as envisaged in the said guidelines had been taken and there was no requirement of personal hearing to be provided to the valuer before depanelment as per the said guidelines' But on perusal of Clause-5 of Para-XIII of the guidelines it rvould contetnplate that Circle Offrce after examination of the explanation aiong rvith the r''ie* s oi' Z'onal Otfice should decide about empanelment and communicate the same to the empanelled Chartered Engineer/ F irm and a copy of the same had to be marked to CMRD Head Office Admittedly' no such copy of the order after deciding about the depanelment of the petitioners before making a pubiication in the IBA was communicated to the petitioners' 11. The valuation report submitted by the petitioner dated 26.07.2011 also would show that the Officers of the Bank Sri Nageswara Rao and Ms. Priyadarshini accompanied the petitioner lor identifying the property and the petitioner had also stated that the scope of the valuation was only to assess the fair market value of the property as on 25'07'2011' the date ofthe inspection ofthe subject property as physically identified by the said Officers along with ret'erence to the copy ol'the agreement ol sale and old report. The petitioner also stated that during their inspection' they observed that the apafiment name mentioned in the document as 'Sai Alex' ( 1t but on their enquiry with the flat owners (who occupied some flats in the apartment) that the apartment name was changed as 'Sai Avenue'. Thus, the petitioner brought !o the notice of the bank with regard to change in the name ol the property and also stated that the property was jointly identified along with the Of licers ol the Bank. In his explanation the petitioner also stated as to how in his opinion the lraud might have committed. He stated that the original docunrents were never seen by them and only a copy of the document was supplied to them by the Bank, the property was jointty identified by the valuers along with the Bank Officers. The borower with a crinrinal intcrrt rrright have created two sets of documents with different survey numbers and might have taken the loan from SBI with original docurrents and the fbrged documents rright have been given to the Hitech City Branch and borlorved the loans 12. The petitioner also sought for information from the respondents I and 2 with regard to the copy ol the letter written by them to the IBA vide letter reference dated 30.10.2018 but the sarne was not provided by the respondents citing that they were exempted under Section 8(2) of the RTI Act,2005 and could not provide the same in commercial confidence. I r- L---- 13. Thus, no opportunity was provided to the petitioner to know the reasons lor their depanelment after submitting their explanation and the said views of the Zonal Office deciding about their depanelrnent was also not communicated to the petitioners as reclr.rired under clause (-5) of Para- XIll of the guidelines of the Controlling O{iices issued vide Circr.rlar No.l39 dated 20.07.2018. Non-cornpliance ol the principles of natural justice by the respondent Bank amounts to arbitrariness in dealing r.vith the matter Deleting the name of the person from the rolls or panel without assigning any reasons is unfair and arbitrary and hence, it is considered fit to allow the writ petition 14. Accordingly, the writ petition is allowed declaring the action of the respondents I and 2 in removing the panners of the petitioner firm from the panel of approved valuers as violative of principles of natural justice and the 4th respondent is directed to remove the name of the petitioner firm from the caution List of the Third Party Entities. No order as to costs. Miscellaneous Petitions pending, if any, shall stand closed. SD/-K.ONESIM DEPUTY REGISTRAR //TRUE COPY/I -/ SECTION OFFICER 1. The Manaoino Director, Union Bank of lndia, Reqional Office, 6-3-664. 2nd Floor, Pre;tig; Rai Towe?s:Punjagutta Main Road, Hyderabad 500082. 2. The Deputv General Manaqer, Union Bank of lndia,, Regional Office, 6-3-664, 2nd Flobr, Prestige Rai Towers, Punjagutta Main Road,Hyderabad 500082. 3. The Senior Manager, Canara Bank, Circle Office opp Old MLA Quarters Himayatnagar, Hyd-29 t-o-'U- '-oL To, C 4.lndianBanksAssociation,6thFloor,WorldTradeCentre'CentrelBuilding' - w;;J i;d;Centre comf lex, Cufie Parade, Muab3i- 400005' s. cj;'Lc i. stittlirioi nuinush Reddv Advocate IOPUCI 6. 6;; 6c i; Sr,i A Krishnam Raju Advdcate [oPUC] 7. Two CD CoPies 8. One Spare CoPY MBC PS q F HIGH COURT DATED: 0810712022 c ., ?t 2 E JUL 2022 ,)t .,1.r*_. a*. o,: DER WP.No.1036 of 2019 ALLOWTNG THE WRIT PETITION WITHOUT COSTS #$ "