Mohd. Shariq vs Punjab National Bank

CIVIL APPEAL NO(S). OF 2023 (Arising out of SLP(Civil) No(s). 17470 of 2019)

MOHD. SHARIQ ….APPELLANT(S)

VERSUS

PUNJAB NATIONAL BANK AND OTHERS ….RESPONDENT(S)

JUDGMENT

Rastogi, J.

1. Leave granted.

2. The present appeal is directed against the judgment and order

dated 10th March, 2016 passed by the Division Bench of the High

Court of Uttarakhand, Nainital whereby the High Court while

reversing the finding returned by the learned Single Judge under its

order dated 21st July, 2015 upheld the re­auction proceedings Signature Not Verified Digitally signed by Jayant Kumar Arora Date: 2023.04.11 18:15:08 IST

initiated by the first respondent(Punjab National Bank­secured Reason:

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creditor) held on 1st May, 2014 and granted liberty to the appellant

to initiate independent proceedings before the competent forum for

recovery of the amount which stood forfeited by the first

respondent.

3. The seminal facts culled out from the record and relevant for

the purpose are that the third respondent borrowed money from the

first respondent. However, the third respondent later became

defaulter and its bank accounts became NPA and ultimately notice

under Section 13(2) of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act,

2002(hereinafter being referred to as the “Act 2002”) was issued

and thereafter assets of the borrower were taken into possession

under Section 13(4) of the Act, 2002. In furtherance thereof,

auction notice was published by the Bank on 18 th June, 2013 with

reserve price of Rs.1.19 crores inviting the bids in reference to the

mortgage property of the borrower.

4. The appellant who was the successful bidder furnished his bid

of Rs.2,01,00,000/­ on 22nd July, 2013 and deposited earnest

money of Rs.11,19,000/­ as per the condition of the bid/auction

2 which successful bidder has to deposit (25% of the bid amount) on

acceptance of the bid and that was deposited on 27 th July, 2013.

5. On 25th July, 2013, the borrower(third respondent) preferred

an appeal before the Debt Recovery Tribunal, Lucknow(hereinafter

being referred to as “DRT”) assailing the auction notice dated 18 th

June, 2013. DRT vide order dated 26 th July, 2013, after hearing the

counsel for the borrower, passed an interim order directing that

since auction is to be held on that day itself (i.e. 26 th July, 2013),

the Bank is at liberty to proceed with the auction but confirmation

of the sale shall be kept in abeyance and await further orders of

DRT.

6. The auction was held on 26th July, 2013. It is an admitted fact

that the appellant was completely unaware of the interim order

passed by DRT on 26th July, 2013. As the highest bidder, the

appellant had to deposit 25% of the bid amount which he deposited

on 27th July, 2013 amounting to Rs.38,35,000/­ (balance of 25% of

the bid) which the first respondent accepted.

7. In total, the appellant deposited an amount of Rs.50,25,000/­

which included earnest money and 25% of the bid amount. The

3 DRT later vacated the interim order due to non­prosecution on 14 th

October, 2013 but the substantive proceedings before the DRT

remained pending and were posted for 18 th October, 2013. Since

the appellant was completely unaware of the pending proceedings

before the DRT initiated at the instance of the third

respondent(borrower) and it was nowhere indicated in the auction

notice which ordinarily in the instant fact situation would not have

been possible but the date when auction was held on 26 th July,

2013 and the appellant was called upon to deposit the earnest

money and 25% of the bid amount, no such information was

extended to the appellant about the pending proceedings in

reference to the auction notice published on 18 th June, 2013 before

the DRT.

8. The appellant was, for the first time, informed by a

communication dated 18th October, 2013 wherein he was asked to

pay the balance amount as interim relief has been rejected by DRT.

The appellant responded to the communication made and

submitted that he volunteers to pay the balance amount provided

the matter pending with DRT is decided. Certain communications

4 were made between the appellant and the first respondent.

However, the first respondent later informed the appellant by

communication dated 28th October, 2013 that if he fails to deposit

the balance amount of the auction bid, the first respondent may

forfeit the earnest money.

9. There is no material on record to substantiate that the first

respondent ever passed the order to forfeit the money deposited by

the appellant pursuant to the communication dated 28 th October,

2013 of which a reference has been made.

10. Without awaiting any further action, the first respondent

initiated the re­auction proceedings pursuant to notice dated 5 th

March, 2014. Immediately, when this fact came to the notice of the

appellant, he approached the High Court by filing writ petition

under Article 226 of the Constitution seeking Mandamus to

withhold re­auction proceedings which has been initiated by the

first respondent pursuant to notice dated 5 th March, 2014 and

further prayed directing the first respondent to execute the sale

deed in favour of the appellant on deposit of the balance money of

the auction bid or in alternative, refund the amount which the

5 appellant had deposited pursuant to the auction proceedings

initiated in reference to notice dated 18th October, 2013.

11. On the request made by the appellant, the High Court, by

interim order permitted the re­auction proceedings to proceed

further, but made the auction subject to the outcome of writ

proceedings. It reveals from the record that in the pending

proceedings before the High Court, to test bona fides of the

appellant, the High Court directed the appellant to deposit Rs.1.77

crores, after adjustment of the sum already deposited with 10%

interest, which indisputedly the appellant deposited on 10 th March,

2015. It is informed that the highest bid of Rs.1,70,50,000/­ in

re­auction held on 5th March, 2014 against Rs.1.70 Crore as a

reserve price was confirmed and the sale deed was executed by the

first respondent in favour of the subsequent purchaser on 1 st May,

2014.

12. Taking note of the bona fides of the appellant, as a final bid

amount was deposited in compliance of order of the High Court, the

learned Single Judge keeping in view the paramount principle that

the mortgaged property must fetch the maximum realizable value

6 on which the security interest was created, set aside the re­auction

proceedings and directed the first respondent to execute the sale

deed in favour of the appellant and directed that the amount

deposited by the appellant, i.e., of Rs.1.77 crore be adjusted by the

first respondent and money deposited by the subsequent auction

purchaser be returned with 10% interest under its order dated 21 st

July 2015.

13. The extract of the order dated 21 st July, 2015 passed by the

learned Single Judge is referred as under:­

“Consequently, writ petition succeeds and is hereby allowed. Re­auction held pursuant to the re­auction notice dated 05.03.2014 in favour of respondents nos.07 and 8 sale dated executed in favour of respondent no.7 and 8 on 27.05.2014 is hereby held invalid. Consequently, sale certificate dated 01.05.2014 issued in favour of respondent nos. 7 and 8 and sale deed executed in favour of respondent no. 7 and 8 on 27.05.2014 is hereby declared void and non est. Mandamus is issued against the Bank to execute sale deed in favour of the petitioner at the earliest, in any case, within two weeks from today. Bank shall be at liberty to withdraw Rs.1,77,00,000/­ deposited by the petitioner with the Registrar General of this Court. Bank is further directed to refund the amount taken from respondents no.7 and 8 along with 10% interest thereon within two weeks from today. It is, however, made clear that sale in favour of the petitioner shall be subject to the final decision in the case pending before the D.R.T. No cost.”

14. The order of the learned Single Judge came to be challenged

by the subsequent auction purchaser before the Division Bench of

7 the High Court. The High Court, after hearing the parties, was of

the view that no error was committed in the re­auction proceedings

initiated pursuant to notice dated 5 th March, 2014 and at least the

subsequent auction purchaser was not at fault and if there is no

error been committed in the decision making process adopted by

the first respondent, there appears no reason to set aside the re­

auction proceedings initiated in reference to notice dated 5 th March,

2014 and accordingly while upholding the re­auction proceedings

directed the first respondent to return the sum of Rs.1.77 crores

which was deposited by the appellant pending proceedings with

accrued interest before the learned Single Judge of the High Court

and so far as the amount which stands forfeited, liberty was

granted to the appellant to avail appropriate remedy for recovery as

admissible under the law. The operative part of the order of the

Division Bench of the High Court dated 10 th March, 2016 is quoted

hereunder:­

“The upshot of the above discussion in that the appeal filed must be allowed; the directions issued by the learned Single Judge must be set aside; and the writ petition must be dismissed. However, we would think that, in regard to the question about the forfeiture of Rs.50,00,000/­ which has been effected by the respondent Bank, we should leave it open to the writ petitioner to seek appropriate remedy before the competent forum, if advised.

8 The amount, however, deposited by the writ petitioner in a sum of Rs.1,77,00,000/­, which has been directed to be put in Fixed Deposit under orders of this Court, shall be returned to the writ petitioner along with the accrued interest.”

15. The order of the Division Bench of the High Court became a

subject matter of challenge in appeal before us.

16. Learned counsel for the appellant has made a limited

submission that so far as the money which has been forfeited by

the first respondent is concerned, no finding to the contrary has

been recorded by the Division Bench of the High Court under the

impugned judgment that the appellant is not qualified to claim the

amount forfeited by the first respondent still left the appellant to

avail the remedy which the law permits.

17. Learned counsel further submits that there is no requirement

of adopting any other remedial mechanism when there is no dispute

either on facts or on law that the sum which was forfeited by the

first respondent pursuant to the auction proceedings initiated in

reference to notice dated 18th June, 2013, the appellant is qualified

to seek refund of the amount forfeited and it is an apparent

manifest error committed by the High Court under the impugned

judgment and at least the appellant is entitled to refund of the 9 amount deposited and if the appellant is being thrust upon to adopt

any other remedial mechanism, it will cause great injustice to him

and needs interference of this Court.

18. Per contra, learned counsel for the first respondent Bank

submits that as per terms and conditions of the auction notice

dated 18th June, 2013, since the appellant has failed to deposit the

balance amount of the auction bid within the time stipulated,

despite reasonable opportunity being afforded, the first respondent

is justified in taking a decision of forfeiture of the earnest money.

19. Learned counsel further submits that the decision taken by

the first respondent regarding forfeiture is in accordance with Rule

9(5) of the Security Interest(Enforcement) Rules, 2002(hereinafter

being referred to as the “Rules 2002”) and in the facts and

circumstances, no error was committed by the respondent Bank in

taking decision of forfeiture of the amount deposited in reference to

auction notice dated 18th June, 2013.

20. Learned counsel further submits that earlier when the auction

notice dated 18th June, 2013 was published, the highest bid of the

appellant was of Rs.2.01 crores but because of the litigation, the

10 highest bid in the subsequent auction proceedings pursuant to

notice dated 5th March, 2014 was of Rs.1,70,50,000/­. Thus, it was

because of the appellant the distress value of the property was

deflated and thus it is only the appellant who is responsible to bear

the loss and if the first respondent is directed to refund the money

forfeited, it may be in contravention to Rule 9(5) of Rules, 2002,

thus the finding returned by the Division Bench of the High Court

needs no interference.

21. We have heard learned counsel for the parties and with their

assistance perused the material available on record.

22. We have already noticed the narration of facts but it will be

apposite to summarise for better appreciation. The auction notice,

in the first instance, was published on 18 th June, 2013 with the

reserve price of Rs.1.19 crores and the appellant’s bid of Rs.2.01

crores was the highest. The earnest money of Rs.11.19 lakhs was

deposited on 22nd July, 2013 and the bid was finalized on 26 th July,

2013 and 25% of the bid in terms of the auction notice of Rs.38.35

lakhs was deposited by the appellant on 27 th July, 2013. This fact

has not been disputed that DRT passed an interim order on 26 th

11 July, 2013 and the fact that the proceedings had been initiated and

pending on the date when the auction was held and the date on

which 25% of the bid amount was deposited by the appellant, i.e.,

27th July, 2013, was never brought to the notice of the appellant

which would give him an option to revisit as to whether he may

proceed with the auction or withdraw at that stage.

23. This fact can be further corroborated which has come on

record that even when the correspondence was made by the first

respondent, the only request made by the appellant throughout was

that he had no difficulty to pay the balance amount provided the

matter is finally decided by DRT. Obviously, as a man of ordinary

prudence, one is always supposed to assess the value of the

property on which the auction was held by the secured creditor(first

respondent). To test the bona fide of the appellant, when the

subsequent auction proceedings at the later stage were initiated

pursuant to notice dated 5th March, 2014 with the reserve price of

Rs.1.70 crores and the highest bid was of Rs.1,70,50,000/­, just

Rs.50,000/­ above the reserve price and pending proceedings before

the learned Single Judge, appellant was called upon to deposit the

12 balance of Rs.1.77 crores(in terms of his bid of Rs.2.01 crores)

without fail, it was deposited by him on 10 th March, 2015 and that

was the reason which persuaded the learned Single Judge not only

to set aside the subsequent auction held dated 5 th March, 2014 but

further directed to the first respondent to execute the sale deed on

the final bid of Rs.2.01 crores being deposited, in favour of the

appellant.

24. The Division Bench of the High Court although has reversed

the finding so far as the subsequent auction proceedings held

pursuant to notice dated 5th March, 2014 is concerned, the

appellant has no quarrel with the same. The only grievance of the

appellant is relegating him to avail remedy which the law permits

for recovery of the amount forfeited, there appears, in our view, no

justification in the facts and circumstances particularly when the

factual matrix is not in dispute and the money deposited by the

appellant towards earnest money and the first instalment of 25% in

terms of the auction notice dated 18 th June, 2013 is the accepted

fact by either party.

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25. We are of the considered view that once there is no dispute on

the facts came on record, there appears no reason for the appellant

to be relegated to avail other remedial mechanisms for recovery of

the indisputed amount and the Division Bench has committed a

manifest error in the facts and circumstances in not exercising its

power under Article 226 of the Constitution and instead of resolving

the dispute, the Division Bench under the impugned judgment has

kept the issue alive, permitting the parties to have a second innings

in reference to the dispute which stands crystalized/settled.

26. So far as the submission made by the first respondent in

reference to Rule 9(5) of the Rules, 2002 is concerned, that may not

be of any assistance for the reason that ordinarily if the highest

bidder fails to deposit the balance amount of the purchase price, in

terms of 9(4) within the stipulated period and commits default, its

consequence is stipulated under Rule 9(5) of the Rules, 2002. But

the instant case was not a case of simple default. The appellant

has come with the bona fide defence that he was never informed on

the date when the auction was held or day thereafter that the

substantive proceedings are pending before the DRT instituted at

14 the instance of the borrower. As a man of ordinary prudence, if

someone has been called upon to participate in the bidding process,

the facts must be made clear to the parties for the reason that there

is always a high variance between market realizable value and the

distress value of the mortgaged property when put to public auction

under the provisions of the Act, 2002.

27. We further make it clear that since the appellant filed the

present appeal after a long delay which we have condoned as such,

he is not entitled to any interest on the amount forfeited by the first

respondent.

28. Consequently, the appeal succeeds and accordingly allowed.

The first respondent is directed to return the money of Rs.50.25

lakhs to the appellant deposited in reference to the auction notice

dated 18th June, 2013 within a period of two months failing which it

shall carry interest @ 12% per annum until the date it is made over

to the appellant. No costs.

29. Pending application(s), if any, shall stand disposed of.

15 …………………………….J. (AJAY RASTOGI)

……………………………..J. (BELA M. TRIVEDI) NEW DELHI;

APRIL 11, 2023.

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