Pradyumna Kumar Sahoo and Maa Santoshi Distributors V. Asst. General Manager-cum- Authorized Officer, Stressed Assets Management Branch (SAMB)

WP(C)/28345/2013

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The case involves Pradyumna Kumar Sahoo and others, who challenged an auction sale conducted by the Stressed Assets Management Branch (SAMB) under the SARFAESI Act. The petitioners, who had defaulted on loans secured by mortgaged properties, argued that the auction was irregular and lacked proper notice. The bank countered that the auction was legally conducted and the sale was confirmed in favor of the highest bidder. The court found that the petitioners had not complied with previous court orders to deposit a specified amount to halt the auction and had not pursued available statutory remedies.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 798383 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 11-07-2016
• Assessment Year: misc
• Other Referred Cases: Swastik Agency v. State Bank of India, United Bank of India v. Satyawati Tondon, Mathew Varghese v. M. Amritha Kumar, Kanaiyalal Lalchand Sachdev and others v. State of Maharashtra and others, General Manager, Sri Siddeshwara Cooperative Bank Limited and another v. Ikbal and others
• Laws Referred To: Constitution of India, SARFAESI Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: D P SARANGI; S SARANGI; S K SAHOO; M R MOHAPATRA; B B BISWAL; AK SAHOO
• Assessee Lawyers: R K ROUT; P K MISHRA; K ROUT
• Keywords: Auction Sale; E-auction; Fire damage; Insurance Claim; Loan default; Mortgage; Non-performing asset; Possession; Possession; Security interest; Writ petition
• Section: 13(2); 226; 13(4); 13(3)(a); 13(3)(a); 227

Judgement Text

" ORISSA HIGH COURT: CUTTACK W.P.(C) No. 28345 of 2013 In the matter of an application under Articles 226 & 227 of the Constitution of India. ----------------------- Pradyumna Kumar Sahoo and others …….. Petitioners versus Asst. General Manager-cum- Authorized Officer, Stressed Assets Management Branch (SAMB) & others ..…… Opp. Parties For Petitioners : M/s. R.K. Rout, P.K. Mishra and K. Rout, Advocates For Opp.Parties: M/s. D.P. Sarangi & S. Sarangi, Advocates (for o.p. nos.1 & 2) M/s. S.K. Sahoo, M.R. Mohapatra, B.B. Biswal & A.K. Sahoo (for o.p. no.3). P R E S E N T : THE HON’BLE THE CHIEF JUSTICE MR. VINEET SARAN AND THE HON’BLE DR. JUSTICE B.R.SARANGI Decided on : 11.07.2016 Dr. B.R. SARANGI,J. “Maa Santoshi Distributors”, petitioner no.3, which is a proprietorship firm represented through its proprietor Prasanna Kumar Sahoo, the loanee, and petitioners no.1 and 2, who are guarantors of AFR 2 petitioner no.3, have filed this writ application seeking following reliefs: “It is therefore prayed that this Hon’ble Court may graciously be pleased to admit the writ petition, issue Rule NISI directing the Opp. Parties to show cause as to why the auction sale dated 06.06.2013 shall not be quashed and the properties shall not be sold to the purchaser arranged by the petitioners. If the Opp. Parties fail to show cause or show insufficient cause, the Rule NISI may be made absolute.” 2. The factual matrix of the case, in a short compass, is that petitioner no.3 applied for a loan from the opposite party bank. Considering its financial credibility, Working Capital Term Loan (WCTL) up to Rs.70,00,000/- and Term Loan limit up to Rs.75,00,000/- was sanctioned in the year 2002 by the opposite party bank. In order to secure the said loan, the petitioners mortgaged the property situated at Mouza-Cuttack Town, Unit-28 paisa, Khata no.60, Plot No.318 measuring Ac.0.072 dec. and plot no.231 measuring Ac.0.070 dec. recorded in the name of petitioner no.2. On 18.10.2008, due to short circuit, the business establishment of petitioner no.3 caught fire and burnt into ashes. As petitioner no.3 sustained loss, there was gross irregularity in payment of bank dues, for which its bank account was declared NPA. Pursuant to the insurance claim laid by petitioner no.3, due to loss sustained on account of fire, an amount of Rs.27.00 lakhs was sanctioned, which was adjusted against the loan account on 24.07.2009. Due to non-payment of dues, on 30.07.2010, the opposite party bank issued notice under Section 13 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement 3 of Security Interest Act, 2002 (for short “SARFAESI Act”) for recovery of Rs.1,24,00,000/-. The petitioners filed objection under section 13(3)(A) of SARFAESI Act. Notice under section 13(4) of SARFAESI Act dated 02.11.2010 was issued. Challenging the same, the petitioners approached this Court by filing W.P.(C) No.19834 of 2010 and by order dated 19.11.2010, while issuing notice to the opposite parties therein, this Court directed that symbolic possession of the secured assets may be taken, but the petitioners shall not be evicted from the said property till the next date, subject to deposit of Rs.20,00,000/- with the opposite party bank by 30.11.2010, failing which it would be open to the bank to proceed in accordance with law. Finally, the writ application was disposed of by order dated 13.12.2012 directing the petitioners to deposit a further amount of Rs.20,00,000/- with the bank within a period of ten weeks from that date and the opposite party bank was directed to hold the auction sale, but not to confirm the sale in favour of the successful bidder. It was further directed that if the petitioners would deposit the said amount and make a fresh proposal for settlement of the outstanding dues, the bank would take into consideration the amount of Rs.20,00,000/- already deposited and Rs.20,00,000/- as directed by the said order and till the bank took a final decision, the petitioners would not be evicted from the property in question. At the same time, this Court made it clear that in the event the petitioners failed to deposit the amount as directed within the time 4 stipulated, the bank would proceed with the matter in accordance with law. The petitioners having failed to comply with the order dated 13.12.2012, the bank was constrained to proceed with the matter in terms of the order dated 13.12.2012 passed by this Court. The E-auction to the property was held on 06.06.2013 and the same was sold to the highest bidder, namely, opposite party no.3 for Rs.43,00,000/-. The auction purchaser opposite party no.3 having deposited the said amount, the sale was confirmed, sale certificate was issued and, consequentially, the physical possession of the land in question was handed over to the auction purchaser on 12.06.2013. The petitioners have filed the present writ application on 20.12.2013 challenging the said auction sale, after lapse of about six months. However, while entertaining the writ application, this Court directed vide order dated 12.05.2014 to the petitioners to deposit Rs.43,00,000/- representing the auction money with the bank so as to compensate the auction purchaser in the event the auction is to be set aside. The bank was also directed to inform the auction purchaser about the present proceedings and not to create any third party interest on the property. After obtaining the certified copy of the order dated 12.05.2014, the bank communicated the auction purchaser on 11.06.2014 by registered post with A.D. about the order passed by this Court. In compliance of the said order, the petitioners deposited Rs.43,00,000/- with the bank. 5 3. Mr. R.K. Rout, learned counsel for the petitioners contends that the auction held on 06.06.2013 should be set aside, as no notice has been given to the petitioners in compliance of the provisions contained in SARFAESI Act and Rules framed thereunder and gross irregularity has been committed in the matter of auction of the property. To substantiate his contention he has placed reliance on the judgments rendered in Swastik Agency v. State Bank of India, Main Branch, BBSR, 2009 (I) CLR 629, United Bank of India v. Satyawati Tondon, AIR 2010 SC 3413 and Mathew Varghese v. M. Amritha Kumar, AIR 2015 SC 50. 4. Mr. D.P. Sarangi, learned counsel appearing for opposite parties 1 and 2, while refuting the contentions raised by the learned counsel for the petitioners, submitted that the auction sale having been made in consonance with the provisions contained in SARFAESI Act, no illegality or irregularity has been committed by the bank and as such the sale having been confirmed in favour of the auction purchaser opposite party no.3 on 12.06.2013 and possession having also been handed over to him, the present writ application, which has been filed after lapse of six months, is not maintainable. Further, it is urged that once the sale has been confirmed in favour of opposite party no.3, if any grievance is left out to the petitioners, they should have availed the alternative remedy provided in the statute instead of invoking the extraordinary jurisdiction of this Court. 6 5. Mr. S.K. Sahoo, learned counsel appearing for opposite party no.3, the auction purchaser, strenuously urged that the petitioners having not complied with the order passed by this Court on 13.12.2012 in W.P.(C) No.19834 of 2010 by depositing Rs.20.00 lakhs, the bank proceeded with the auction of the mortgaged property in compliance with the provisions contained in SARFAESI Act and Rules made thereunder. The auction purchaser being the highest bidder, pursuant to the auction dated 06.06.2013, the sale has been confirmed on 12.06.2013 and possession has been delivered. Subsequently, the auction purchaser, having deposited the highest offer amount of Rs.43.00 lakhs, has proceeded with the development of the land by investing further money on having remained in possession of the mortgaged property. The sale having been effected in favour of the auction purchaser long back, question of restoring back the possession to the petitioners of the mortgaged property does not arise. 6. The above being the pleaded facts and since perusal of records shows that exchange of pleadings is complete, with the consent of the parties the matter is disposed of at the stage of admission. 7. The undisputed facts are that petitioner no.3 availed the loan from opposite parties 1 and 2, for which petitioner nos.1 and 2 are guarantors. There is a huge amount to be recovered from the petitioners. For non-payment of the same, the proceedings under the 7 SARFAESI Act were initiated and notice under Section 13(2) of the said Act was issued. The petitioners filed their objection to the said notice and being dissatisfied with the same the opposite party bank issued notice under Section 13(4) of the Act, impugning which the instant writ application has been filed. Due to non-compliance of the order passed by this Court, auction sale notice was floated by the opposite party bank publishing in the newspaper dated 30.04.2013. Auction purchaser opposite party no.3, on 22.05.2013, having deposited earnest money of Rs.4,20,000/- applied on 23.05.2013 to participate in the E-auction. His offer (Rs.43,00,000/-) being highest, in the E- auction held on 06.06.2013 the sale was confirmed in his favour. Accordingly, the sale certificate was issued on 12.06.2013 along with mutation document in his favour in respect of mortgaged property. Basing upon the same, conversion of nature of land was done as per Section 8 (A) of OLR Act and the mutated RoR was issued by Cuttack Tahasil in favour of the auction purchaser. Consequently, the auction purchaser has also developed the land for the purpose of construction of house and office building and plan was approved by the Cuttack Development Authority. At this stage, the petitioners approached this Court by filing the present writ application. 8. The sole contention raised by the learned counsel for the petitioners is that there was non-compliance of the provisions contained in SARFAESI Act so far as auction is concerned. But, as it appears from the averments made in the writ application, the 8 petitioners have not pleaded what the learned counsel appearing for them has tried to canvass before this Court. The argument advanced being beyond the pleadings, this Court is not inclined to accept such contention of the learned counsel for the petitioners. It is admitted that the bank has also approached the Debts Recovery Tribunal, Cuttack by filing O.A. No.144/2010, which is said to be still pending for consideration. 9. Reverting back to the citations relied upon by the learned counsel for the petitioners, in Swastik Agency (supra), since auction notice was not published in two leading newspapers having wide circulation in the concerned area and one of them having not been in vernacular language, this Court held that there was non- compliance of Rule 8(2) of the Security Interest (Enforcement) Rules, 2002 and auction sale should not be sustained and thereby set aside the said sale even after confirmation. In United Bank of India (supra), the apex Court held that the action taken directly against the guarantor without taking action against the borrower is not illegal and further held that words “any person” used under Section 17 of the SARFAESI Act includes guarantor or any person affected by action taken under Section 13(4) of the SARFAESI Act, and, as such, the writ application filed by guarantor against such action and entertained by High Court was misconceived one as effective alternative remedy was available. 9 In Mathew Varghese (supra), the apex Court held that provisions of SARFAESI Act, 2002 read with Security Interest (Enforcement) Rules, 2002 were not inconsistent with the RDDB Act. Therefore, application of both the Acts, namely, SARFAESI Act and RDDB Act are complementary to each other. Similarly, Rule 15 of Income Tax Rules does not in any way conflict with Rules 8, 9 or Section 13 of SARFAESI Act. There is no dispute with regard to the judgments, referred to by the learned counsel for the petitioners, as well as the law laid therein, but, however, they are applicable to their respective cases. The facts of the present case being substantially different, the ratio of the said decisions would not be applicable herein. 10. In Kanaiyalal Lalchand Sachdev and others v. State of Maharashtra and others, (2011) 2 SCC 782 and General Manager, Sri Siddeshwara Cooperative Bank Limited and another v. Ikbal and others, (2013) 10 SCC 83, the apex Court consistently held that Articles 226 and 227 are not available, if an efficacious alternative remedy is available to the aggrieved person. By applying the ratio decided in the cases, referred to above, it is held that the instant writ application is not maintainable, when an efficacious alternative remedy is available under the SARFAESI Act. 11. Before parting with the case, it is needless to mention here that in compliance of the interim order passed by this Court, a sum of Rs.43,00,000/- has been deposited by the petitioners 10 before the opposite party bank, which the learned counsel for the petitioners wants to get refund of the same. But, the fact remains, the opposite party bank has in its counter affidavit already stated that a sum of Rs.90.23 lakhs is outstanding against the petitioners. In such view of the matter, it is open to the petitioners to approach the opposite party bank by filing a properly constituted application seeking refund of Rs.43,00,000/-, which has been deposited by virtue of interim order of this Court. If such an application is filed, the opposite party bank shall consider the same strictly in accordance with law. It is made clear that this Court has not expressed any opinion with regard to refund of Rs.43,00,000/-, which has been deposited with the Bank pursuant to the interim order passed by this Court. 12. For the reasons ascribed herein above, it is irresistibly concluded that the writ petition does not merit consideration either factually or legally and, as such, the same is dismissed. No order as to cost. Sd/- (Vineet Saran, C.J.) Sd/- (Dr. B.R. Sarangi, J ) Orissa High Court, Cuttack The 11th July, 2016/Alok/GDS True copy Secretary "