This writ petition is filed by the legal heirs of Smt.Margaret Luke, whose property was sold by the Recovery Officer exercising power under Section 25 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'Act 1993') read with second schedule to the Income Tax Act, 1961 (hereinafter referred to as 'I.T.Act').
2. The facts involved in the writ petition would disclose that the property was mortgaged by Smt.Margaret Luke with the 1st respondent bank, who obtained a decree for sale of the property by virtue of orders passed by the Debt Recovery Tribunal (for short 'DRT'), Chennai. Since the mortgaged property was situated within the jurisdiction of the DRT, Kerala at Ernakulam, the certificate was transfered to DRT, Kerala for execution.
3. Pursuant to the said certificate, the property was proclaimed for sale after issuing notice to the defaulter and thereafter the property was sold by the Recovery Officer, DRT Kerala, for an amount of Rs.90,30,000/-. The sale was held on 04/03/2010 and was confirmed on 03/06/2010. The Bank appropriated its dues amounting to Rs.32,67,862/- and balance amount remains with the Recovery Officer.
4. The tenant Bharat Petroleum Corporation Ltd. (for short 'BPCL') challenged the said sale by approaching the DRT. The same came to be disposed of without adjudicating the rights of the tenant. According to the petitioners, they had come to know about the sale and confirmation of sale after three years from the date of sale. It is contended that Smt.Margaret Luke expired on 19/05/2000. Though several steps were taken by the 1st respondent against the property of Smt.Margaret Luke after her death, the legal heirs were neither informed nor any notice had been issued to them. According to them, they only knew about the fact that there was a tenant in respect of the property. Since they were all residing in their matrimonial homes with their families, they were not aware of the certificate issued by DRT, Chennai, transfer of certificate, sale or any further proceedings initiated by the Bank, Recovery officer or tenant in this regard. It is contended that the entire process by which sale of the property has been held is invalid and illegal as the property having a value of more than Rs.4 Crores has been sold without any notice to the legal heirs of the mortgagor/debtor. Hence the petitioner has sought for a declaration that the sale of property having an extent of 17.14 cents in Sy.No.305/1 (Re-Sy.No.65) of Perumbavoor village is void and illegal and seeks for a direction to permit the petitioners to redeem the mortgage by discharging the liability of the 1st respondent.
5. An interim order has been passed by this Court on 23/07/2014 directing the petitioners to deposit Rs.45,02,109.45/- in an interest bearing no-lien account with the bank within a period of one month. It was indicated in the said order that the direction was issued only to ascertain the bona fides of the petitioners' submission that they will settle the entire liability due to the bank and they shall not claim any equity for having deposited the said amount. The petitioners have admittedly complied with the above direction.
6. Counter affidavit has been filed by the 1st respondent inter alia stating that they had initiated certain steps for recovery of dues from M/s.Luke Enterprises and others by filing suit before the High Court of Judicature, Madras. On constitution of the DRT under Act 1993, the matter was referred to the Tribunal and after adjudication, recovery certificate was issued as per order dated 28/04/1998 in T.A.No.701/1997. Pursuant to the said certificate, demand notice has been issued to the debtors including Smt.Margaret Luke as per letter dated 16/12/1998. The said letter is returned with the endorsement that there is no such addressee. The certificate was transferred to the Recovery Officer, Debt Recovery Tribunal at Ernakulam on 17/10/2001. Recovery officer issued notice to the debtors on 17/10/2001. In the meantime, 4th respondent BPCL raised a claim over the property under Section 106 of the Kerala Land Reforms Act. The said claim was rejected by the Recovery Officer. The said order was challenged by filing O.P.No.36525/2001 and by judgment dated 12/06/2008, this Court observed that the Recovery officer is free to sell the property giving an opportunity for BPCL to settle the liability. The matter was taken in appeal in W.A.No.1793/2008 and by judgment dated 28/08/2008, the Division Bench of this Court granted liberty to BPCL to challenge the correctness of the order passed by the Recovery officer before the DRT within a period of one month. It is stated that the 4th respondent did not thereafter proceed with the claim. It is further indicated that Smt.Margaret Luke was a party in the original petition as well as in the Writ Appeal aforesaid. It is the contention of the 1st respondent that they were not aware of the death of Smt.Margaret Luke. Therefore, when the notice issued by the Recovery Officer was returned with the endorsement 'no such addressee', the Recovery Officer ordered settlement of proclamation. On 06/11/2003, the notice of settlement of proclamation was returned by the postal authorities with the endorsement 'no such addressee'. The sale proclamation was published in the newspaper, sale notice was affixed in the property on 13/03/2008 and thereafter on 24/07/2009, pursuant to which, sale was held on 04/03/2010. It is therefore contended that they have taken all earnest efforts to serve notice, but they were not aware of the death of Smt.Margaret Luke. Sale was challenged by respondents 4 and 5 by filing appeal before the DRT invoking Section 30(1) of Act, 1993. The appeals were dismissed as per Ext.R1(e) order dated 17/01/2014. It is therefore contended that since the 2nd respondent had purchased the property, entire rights in the property vests with the 2nd respondent.
Further it is contended that the petitioners, being the legal heirs, cannot challenge the sale after nearly four years from the date when the sale certificate had been issued. It is also contended that, even assuming that the sale was held without noticing the death of the defaulter/debtor, still an application to set aside sale ought to have been filed within a period of 30 days from the date of sale. Having not taken any steps in that regard, the petitioners are not entitled to invoke jurisdiction of this Court to set aside the sale.
7. Counter affidavit is filed by the 2nd respondent supporting the stand taken by the bank and contending that they have invested more than Rs.90 lakhs and had deposited the amount in time as per the statutory provisions. There is no reason to set aside the sale as the legal heirs of the debtor did not challenge the sale within the time stipulated under the second schedule to the I.T.Act. It is further contended that the petitioners cannot invoke the jurisdiction of this Court seeking to set aside the sale.
8. Having regard to the controversy involved in this writ petition, the short question to be considered is whether the sale held on 04/03/2010 which was confirmed on 03/06/2010 can be set aside by this court invoking the jurisdiction under Article 226 of the Constitution and if so whether the grounds stated are sufficient.
9. Heard Sri.P.K.Suresh Kumar, the learned Senior counsel appearing on behalf of the petitioners, learned counsel Sri.S.Easwaran appearing on behalf of the 1st respondent, Sri.B.Pramod appearing on behalf of the 2nd respondent, Sri.S.Sujin appearing on behalf of the 4th respondent and Sri.Rajesh Vijayendran appearing on behalf of the 5th respondent
10. The learned senior counsel for the petitioners submits that the Recovery Officer exercising power under Sections 25 to 28 of Act 1993, is under obligation to issue notice to the defaulter and on the death of the defaulter, to the legal heirs before effecting sale of property which is mortgaged to the 1st respondent bank. This is to enable the defaulter or the legal heirs of the defaulter to have an opportunity to redeem the mortgage by depositing the amount due under the mortgage. Section 25 of Act 1993 stipulates the modes of recovery of debts and one of the modes is by sale of immovable property. As far as the certificate granted in this case is concerned, respondent bank is entitled to sell the property as the same is a charge on the amount due to the bank. As per Section 29 of Act 1993, the provisions of Second and Third Schedule of I.T. Act has been made applicable to enable the Recovery Officer of DRT to take steps to recover the amount. Learned counsel relied upon Rule 2 of the Second Schedule to the I.T. Act which reads as under:
“When a certificate has been drawn by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon a defaulter a notice requiring the defaulter to pay the amounts specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule”.
It is argued that even according to the 1st respondent, a notice issued by the Recovery Officer has been returned with the endorsement that 'no such addressee'. The argument is that the said notice was issued on 17/10/2001 on which date Smt.Margaret Luke, the defaulter in whose name the notice was issued, had expired. It is therefore the contention that all subsequent proceedings pursuant to the said notice by which the sale was proclaimed, held and confirmed becomes invalid in the eye of law. Reference is also made to Rule 85 of the Second Schedule which reads as under:
Procedure on death of defaulter.
85. “If at any time after the certificate is drawn by the Tax Recovery Officer the defaulter dies, the proceedings under this Schedule (except arrest and detention) may be continued against the legal representative of the defaulter, and the provisions of this Schedule shall apply as if the legal representative were the defaulter.”
11. It is argued that no steps have been taken to implead the legal heirs and merely for the reason that the bank/Recovery Officer was not aware of the death of the defaulter, by itself, cannot give any right to legalise a sale which is invalid in the eye of law.
12. It is further argued that as per the provisions under the Statute, an application to set aside sale could be filed within a period of 30 days from the date of sale. Since the petitioners were not aware of the sale, the time specified for filing an application to set aside sale has already expired and if any such application is filed, the same would be thrown out as the Recovery Officer has no power to condone delay. Hence the only remedy available to the petitioners is to invoke the jurisdiction of this Court to declare that the sale is invalid and void.
13. It is argued by Sri.S.Easwaran appearing on behalf of the 1st respondent that the bank is not at fault, since no information was available regarding the death of the defaulter. The Statute contemplates issuance of notice to the defaulter, and notice was issued in the last known address of the defaulter. The Bank had no information about the death of the defaulter. Hence Bank is not responsible for conducting the sale without notice to the legal heirs. It is further argued that since the proclamation was affixed in the premises on several occasions and newspaper advertisements were issued, it cannot be believed that the legal heirs of Smt.Margaret Luke were not aware of the proceedings. All along, the sale has been challenged by BPCL, the tenant of the said premises, and the person operating the retail outlet. It is therefore argued that there is no reason for the petitioners to invoke the jurisdiction of this Court and at best they can only claim refund of the balance amount due to them after settling the liability. Learned counsel also relied upon the judgment of the Supreme Court in Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Others [(2008) 9 SCC 299]. It is contended that once the sale is confirmed by the authority, certain rights accrue in favour of the auction purchaser and such rights cannot be extinguished except in exceptional cases such as fraud or collusion. Paragraphs 30 and 31 are relied upon which reads as under:
“30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction- purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.
31. In the present case, the auction having been confirmed on 30-7-2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by anyone in this case.”
14. It is argued on behalf of the 2nd respondent that the petitioners' right to challenge the sale is already over since they have not opted to challenge the sale within a reasonable time. Hence it is not open for them to approach this Court after four years from the date of sale. It is argued that the very conduct of the petitioners clearly indicates that they were aware of the proceedings as they did not come to the picture when the tenant and the dealer of the outlet was challenging the sale proceedings. It is further argued that even if sale is set aside he should be sufficiently compensated as he has invested Rs.90,30,000/- which was remaining idle without any benefit. Learned counsel also relied upon the judgment of the Supreme Court in the following cases:
i) Surinder Nath Kapoor v. Union of India and Others [AIR 1988 SC 1777]. In this case sale was subsequently found to be null and void. There was a direction to refund to the auction purchaser the amount with interest @ 15% per annum by way of compensation.
ii) Hindi Pracharak Prakashan and another v.
M/s.G.K.Brothers and Others [AIR 1990 SC 2221]. This is also a case in which sale was set aside and it was held that the auction purchaser is entitled to the amount deposited in Court along with reasonable compensation which was held to be 12% interest on the said amount.
iii) Mohan Wahi v. Commissioner of Income Tax [(2001) 4 SCC 362]. In this case Supreme Court held that the sale was invalid for not having served the notice of demand in accordance with the statutory provision. It is held at paragraph 19 that non-service of notice of demand goes to the root of the validity of subsequent proceedings for recovery. Further it is held that the sale held in recovery proceedings initiated without serving the notice of demand shall be invalid and hence sale shall be liable to be annulled on being called in question. However, the Court further proceeded to observe that for the period for which the sale was not vitiated on account of the demand having not being adjudged to be non-existent, the assessee was liable to pay interest at 12% per annum. The interest was to be paid to the auction purchaser who had deposited the money before the authority.
15. Learned counsel for the 4th respondent submits that they have fixity of tenure in respect of the property under Section 106 of the Kerala Land Reforms Act. They cannot be evicted and their obligation is only to pay the rent. However, an affidavit has been filed indicating that no rent has been paid for the last 14 years.
16. Learned counsel for the 5th respondent submits that he is not a sub tenant as alleged by the respondent bank whereas he is only a dealer of the outlet. It is pointed out that the claim of BPCL to continue in occupation has not been adjudicated by any Court so far and irrespective of the sale, BPCL as well as the dealer is entitled to remain in occupation of the property.
17. There is no dispute about the facts involved in the matter. As on the date when Ext.R1(a) order has been passed by the DRT, Chennai, Smt.Margaret Luke was very much alive. But, when the Recovery Officer at Ernakulam had issued notice on 17/10/2001, the notice was returned with the endorsement that there is no such addressee. The contention of the 1st respondent bank that the said notice which is sent in the last known address is sufficient, cannot be accepted. If it was a case where the addressee was alive, issuance of notice in the last known address would have been sufficient. That is not the situation here. Only when this writ petition is filed, it is known that Smt.Margaret Luke expired as early as on 19/05/2000. Therefore the notice issued by the Recovery Officer, DRT Kerala to a dead person itself is invalid. Going by the statutory provision, especially Rule 2 read with Rule 85 of the Second Schedule to the I.T. Act, the Recovery Officer could have proceeded only with notice to the legal heirs. Apparently, even the Recovery Officer was not aware of the death of the defaulter. The 1st respondent bank ought to have verified such particulars and should have taken necessary steps in time. When the notice was returned with the endorsement that there is no such addressee, the bank was under obligation to verify and take steps in the correct address. It was not a case where the notice was returned with the endorsement 'unclaimed', 'refused' etc. or in any other manner. The notice for settling sale proclamation was sent by the Recovery Officer, to Smt.Maragaret Luke by registered post with acknowledgment due on 12/11/2003 which was also returned by the postal department stating that there is no such addressee. Still no steps were taken by the Bank or Recovery Officer to sent the notice in correct address. Therefore this is a case in which the entire proceedings becomes vitiated as held by the Supreme Court in Mohan Wahi's case(supra). That was a case in which sale was held without issuing a notice of demand by the assessee under Section 156 of the Income Tax Act. The Supreme Court held that non-service of such notice goes to the root of the validity of subsequent proceedings. Same is the situation in this case.
18. In regard to impleading the legal heirs, even under the Code of Civil Procedure (for short C.P.C), there is an obligation on the part of the decree holder to implead the legal heirs of the deceased even in execution proceedings. The relevant provision is Order 22 of Rule 12 which applies to Order 21 of C.P.C. It has been held by the Supreme Court in V.Uthirapathi v. Ashrab Ali and Others [(1998) 3 SCC 148] that if, after the filing of an execution petition, the judgment debtor dies and his legal representatives are not brought on record, though there is no abatement of the execution petition and no time limit is prescribed to bring the legal representatives on record, the execution application cannot proceed further, until the legal heirs are impleaded. It is open for the decree holder to file a fresh execution petition impleading the legal representatives or to continue with the execution petition by impleading the legal heirs. Paragraphs 14 and 15 are relevant which reads as under:
“14. In our opinion, the above statement of law in Mulla’s Commentary on CPC, correctly represents the legal position relating to the procedure to be adopted by the parties in execution proceedings and as to the powers of the civil court.
15. It is clear, therefore, that if after the filing of an execution petition in time, the decree-holder dies and his legal representatives do not come on record — or the judgment-debtor dies and his legal representatives are not brought on record, then there is no abatement of the execution petition. If there is no abatement, the position in the eye of law is that the execution petition remains pending on the file of the execution court. If it remains pending and if no time-limit is prescribed to bring the legal representatives on record in execution proceedings, it is open in case of death of the decree- holder, for his legal representative to come on record at any time. The execution application cannot even be dismissed for default behind the back of the decree- holder’s legal representatives. In case of death of the judgment-debtor, the decree-holder could file an application to bring the legal representatives of the judgment-debtor on record, at any time. Of course, in case of death of judgment-debtor, the Court can fix a reasonable time for the said purpose and if the decree- holder does not file an application for the aforesaid purpose, the Court can dismiss the execution petition for default. But in any event the execution petition cannot be dismissed as abated. Alternatively, it is also open to the decree-holder’s legal representatives, to file a fresh execution petition in case of death of the decree-holder; or, in case of death of the judgment- debtor, the decree-holder can file a fresh execution petition impleading the legal representatives of the judgment-debtor; such a fresh execution petition, if filed, is, in law, only a continuation of the pending execution petition — the one which was filed in time by the decree-holder initially. This is the position under the Code of Civil Procedure.”
19. Going by Rule 85 of the Second Schedule to the I.T. Act, also the position as envisaged under the Code of Civil Procedure equally applies. In Ramkishun v. State of Uttarpradesh [(2012) 11 SCC 511] the Supreme Court was considering the circumstances under which a sale can be set aside after confirmation. It is held that once a sale has been confirmed, it cannot be set aside unless a fundamental procedural error has occurred and sale certificate has been obtained by misrepresentation or fraud. Paragraph 28 is relevant which reads as under:
“28. In view of the above, the law can be summarised to the effect that the recovery of the public dues must be made strictly in accordance with the procedure prescribed by law. The liability of a surety is coextensive with that of the principal debtor. In case there are more than one surety the liability is to be divided equally among the sureties for unpaid amount of loan. Once the sale has been confirmed it cannot be set aside unless a fundamental procedural error has occurred or sale certificate had been obtained by misrepresentation or fraud.”
Supreme Court considered the issues relating to setting aside of sale after confirmation. Paragraphs 25 to 27 are also relevant which reads as under:
“25. In Navalkha & Sons v. Ramanya Das this Court while dealing with the confirmation of sale by court, held that there must be a proper valuation report, which should be communicated to the judgment- debtor and he should file his own valuation report and the sale should be conducted in accordance with law. After confirmation of sale, there should be issuance of sale certificate. The court cannot interfere unless it is found that some material irregularity in the conduct of sale has been committed. The Court further held that it should not be a forced sale. A valuer’s report should be as good as the actual offer and the variation should be within limit. Such estimate should be done carefully. The Court further held that unless the court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. [See also Kayjay Industries (P) Ltd. v. Asnew Drums (P) Ltd., Union Bank of India v. Official Liquidator, B. Arvind Kumar v. Govt. of India and Transcore v. Union of India.]
26. In Divya Mfg. Co. (P) Ltd. v. Union Bank of India this Court held that a confirmed sale can be set aside on the ground of material irregularity or fraud. The court does not become functus officio after the sale is confirmed. In Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., the Court held that auction-sale should be set aside only if there is a fundamental error in the procedure of auction e.g. not giving wide publication or on evidence that property could have fetched more value or there is somebody to offer substantially increased amount and not only a little over the auction price. Involvement of any kind of fraud would vitiate the auction-sale.
27. In FCS Software Solutions Ltd. v. La Medical Devices Ltd. this Court considered a case where after the confirmation of auction-sale it was found that valuation of movable and immovable properties, fixation of reserve price, inventory of plant and machineries had not been made in the proclamation of sale, nor disclosed at the time of sale notice. Therefore, in such a fact situation, the sale was set aside after its confirmation.”
20. In Mathew Varghese v. M.Amritha Kumar [(2014) 5 SCC 610], the Supreme Court had occasion to consider the sale of property by invoking the provisions of Security Interest (Enforcement) Rules, 2002 under the SARFAESI Act, 2002. It is held that in the absence of any inconsistency, SARFAESI Act is complimentary to Act, 1993. It was held that the principles in Narandas Karsondas (supra) with reference to Section 60 of the T.P. Act was applicable in respect of transaction under the SARFAESI Act as well. Paragraphs 38 and 39 are relevant which reads as under:
“38. On a reading of the above paragraphs, we are able to discern the ratio to the effect that a mere conferment of power to sell without intervention of the court in the mortgage deed by itself will not deprive the mortgagor of his right to redemption, that the extinction of the right of redemption has to be subsequent to the deed conferring such power, that the right of redemption is not extinguished at the expiry of the period, that the equity of redemption is not extinguished by mere contract for sale and that the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The ratio is also to the effect that the power to sell should not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. The above proposition of law of course was laid down by this Court in Narandas Karsondas while construing Section 60 of the TP Act. But as rightly contended by Mr Shyam Divan, we fail to note any distinction to be drawn while applying the abovesaid principles, even in respect of the sale of secured assets created by way of a secured interest in favour of the secured creditor under the provisions of the SARFAESI Act, read along with the relevant Rules. We say so, in as much as, we find that even while setting out the principles in respect of the redemption of a mortgage by applying Section 60 of the TP Act, this Court has envisaged the situation where such mortgage deed providing for resorting to the sale of the mortgage property without the intervention of the Court. Keeping the said situation in mind, it was held that the right of redemption will not get extinguished merely at the expiry of the period mentioned in the mortgage deed. It was also stated that the equity of redemption is not extinguished by mere contract for sale and the most important and vital principle stated was that the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. The completion of sale, it is stated, can be held to be so unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Therefore, it was held that until the sale is complete by registration of sale, the mortgagor does not lose the right of redemption. It was also made clear that it was erroneous to suggest that the mortgagee would be acting as the agent of the mortgagor in selling the property.
39. When we apply the above principles stated with reference to Section 60 of the TP Act in respect of a secured interest in a secured asset in favour of the secured creditor under the provisions of the SARFAESI Act and the relevant Rules applicable, under Section 13(1), a free hand is given to a secured creditor to resort to a sale without the intervention of the court or tribunal. However, under Section 13(8), it is clearly stipulated that the mortgagor i.e. the borrower, who is otherwise called as a debtor, retains his full right to redeem the property by tendering all the dues to the secured creditor at any time before the date fixed for sale or transfer. Under sub-section (8) of Section 13, as noted earlier, the secured asset should not be sold or transferred by the secured creditor when such tender is made by the borrower at the last moment before the sale or transfer. The said sub-section also states that no further step should be taken by the secured creditor for transfer or sale of that secured asset. We find no reason to state that the principles laid down with reference to Section 60 of the TP Act, which is general in nature in respect of all mortgages, can have no application in respect of a secured interest in a secured asset created in favour of a secured creditor, as all the abovestated principles apply on all fours in respect of a transaction as between the debtor and secured creditor under the provisions of the SARFAESI Act.”
It is held that any sale or transfer of a secured asset cannot be made without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor with all cost, charges and expenses and any such sale or transfer effected without complying with the statutory requirement is a constitutional violation and nullify the ultimate sale. Paragraphs 29.1 to 30 are relevant which reads as under:
“29.1. A plain reading of sub-section (8) would show that a borrower can tender to the secured creditor the dues together with all costs, charges and expenses incurred by the secured creditor at any time before the date fixed for sale or transfer. In the event of such tender once made as stipulated in the said provision, the mandate is that the secured asset should not be sold or transferred by the secured creditor. It is further reinforced to the effect that no further step should also be taken by the secured creditor for transfer or sale of the secured asset. The contingency stipulated in the event of the tender being made by a debtor of the dues inclusive of the costs, charges, etc., would be that such tender being made before the date fixed for sale or transfer, the secured creditor should stop all further steps for effecting the sale or transfer. That apart, no further step should also be taken for transfer or sale.
29.2. When we analyse in depth the stipulations contained in the said sub-section (8), we find that there is a valuable right recognised and asserted in favour of the borrower, who is the owner of the secured asset and who is extended an opportunity to take all efforts to stop the sale or transfer till the last minute before which the said sale or transfer is to be effected. Having regard to such a valuable right of a debtor having been embedded in the said sub-section, it will have to be stated in uncontroverted terms that the said provision has been engrafted in the SARFAESI Act primarily with a view to protect the rights of a borrower, inasmuch as, such an ownership right is a constitutional right protected under Article 300-A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law.
29.3. Therefore, dehors the extent of borrowing made and whatever costs, charges were incurred by the secured creditor in respect of such borrowings, when it comes to the question of realising the dues by bringing the property entrusted with the secured creditor for sale to realise money advanced without approaching any court or tribunal, the secured creditor as a TRUSTEE cannot deal with the said property in any manner it likes and can be disposed of only in the manner prescribed in the SARFAESI Act.
29.4. Therefore, the creditor should ensure that the borrower was clearly put on notice of the date and time by which either the sale or transfer will be effected in order to provide the required opportunity to the borrower to take all possible steps for retrieving his property or at least ensure that in the process of sale the secured asset derives the maximum benefit and the secured creditor or anyone on its behalf is not allowed to exploit the situation of the borrower by virtue of the proceedings initiated under the SARFAESI Act. More so, under Section 13(1) of the SARFAESI Act, the secured creditor is given a free hand to resort to sale of the property without approaching the court or Tribunal.
30. Therefore, by virtue of the stipulations contained under the provisions of the SARFAESI Act, in particular, Section 13(8), any sale or transfer of a secured asset, cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor with all costs, charges and expenses and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale.”
21. Hence I have no hesitation to hold that the sale held without notice to the legal heirs of the deceased defaulter/mortgagor, is invalid in the eye of law and is liable to be declared void.
22. Then the next question is whether this Court should interfere in the matter after such a long period especially when the petitioners could have availed of the statutory remedy by filing an application before the DRT to set aside the sale. According to the petitioners, they were not aware of the proceedings by which sale has been held or confirmed. The property was in possession of the tenant, BPCL and the affidavit of BPCL discloses that they have not paid any rent to the legal heirs of Smt.Margaret Luke. Therefore there is some justification on the part of the petitioners to contend that they were not aware of the proceedings. Probably, if they had knowledge about the sale certificate or the proceedings initiated by the Recovery Officer, they would have taken appropriate steps to avoid the sale especially when the property is having road frontage to a main road and according to them, is highly valuable. It is also true that paper publication had been effected before sale of property but that by itself may not be sufficient to indicate that they were aware about the sale or subsequent proceedings. Under such circumstances, when the actual owners of the property is not put to notice in accordance with law and when they have approached this Court by stating that they have come to know about the sale and confirmation of sale, immediately before filing the writ petition, there is no reason to disbelieve such a version. There is also no material to indicate that the tenants have given such an information to the petitioners. In fact, the tenant had filed a suit against the petitioners but there is no material to indicate that even in such suit, the tenant had disclosed about the sale of the property.
23. The materials available on record would indicate that even the tenant was not aware of the death of Smt.Margaret Luke and she was made party to the proceedings in O.P.No.36525/2001 and W.A.No.1793/2008. That apart, even in Appeal Nos.21 and 22 of 2010, Smt.Margaret Luke and the auction purchaser were made parties. These materials would indicate that even respondents 5 and 6 were completely unaware of the death of Smt.Margaret Luke. Therefore I have no hesitation to hold that the petitioners were completely unaware of the proceedings and they are justified in invoking the jurisdiction of this Court to set aside the sale and subsequent proceedings. The judgment of the Supreme Court in Valji Khimji and Company (supra) has no application to the facts of this case. In an instance where sale is held after complying with all legal formalities, of course, the auction purchaser can contend that certain rights have accrued to him and not in an instance where sale is held without notice to the legal heirs of defaulter. Therefore delay in filing the writ petition cannot be a ground to deny any relief to the petitioners.
24. The next question is what relief can be granted in this writ petition. The learned counsel for the bank had relied upon judgment in Narandas Karsondas v. S.A.Kamtam [(1977) 3 SCC 247] to contend that the mortgagee's right to redemption though not lost by merely putting the property to auction, if the sale is complete, the said right gets extinguished. It is held that right of redemption which is embodied in Section 60 of the Transfer of Property Act (hereinafter referred to as 'TP Act') is available to the mortgagor unless it has been extinguished by act of parties. The mortgagor's right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. It is therefore argued that in so far as the sale is complete, by confirmation, the petitioners cannot claim the right of mortgagee for redemption. I am not concerned with the question whether the right of redemption has been extinguished by act of parties. This is a case where the legal heirs of the mortgagor contends that, on the death of mortgagor, they, being legal heirs, are entitled to notice for redemption of mortgage, without which no steps could be taken for sale of property. In this case, the challenge is in regard to the sale of property which is held to be invalid. Hence the judgment in Narandas Karsondas (supra) has no application to the facts of this case.
25. As far as the 2nd respondent/auction purchaser is concerned, he is entitled to get back the entire amount deposited by him before the Recovery Officer. Learned counsel for the 1st respondent bank submits that they had appropriated the amount due to them from the Recovery Officer and the balance amount is lying with the Recovery Officer. Having regard to the fact that the sale has been set aside, the 2nd respondent is entitled to get back the entire amount deposited by him. Learned counsel for the 2nd respondent contended that in the event of setting aside the sale, he is entitled to get compensation for the amount deposited which has been lying with the Bank and the Recovery Officer since 2010. According to him, either the petitioners or the Bank is liable to compensate him for the delay caused in setting aside the sale. Going by the judgments relied upon by the learned counsel for the 2nd respondent, I am of the view that a person who had invested Rs.90,30,000/- for purchasing of property, reasonably expects a minimum return of such investment. He had also taken the risk of the sale being set aside in accordance with law, as it is always open for the land owner to seek setting aside of the sale. But in this case, for no fault of the 2nd respondent, the amount was under deposit for the last four years and therefore I am of the view that the 2nd respondent has to be properly compensated.
26. In fact, the Bank had already appropriated the entire dues from the amount deposited by the auction purchaser, subsequent to the sale. Hence the amount appropriated by the Bank can be treated as a complete settlement of liability of the Bank as on the said date. They cannot aspire for getting any further amount from the debtors. Learned counsel for the 1st respondent bank submits that in addition to Rs.32,67,862/-, the bank is also entitled to appropriate the cost as well as the legal expenses incurred in recovering the amount, which was allowed by the Debt Recovery Tribunal. In the statement filed on 21/07/2014, the cost awarded by the DRT is computed at Rs.34,980/- and the legal expenses incurred in the recovery proceedings at Rs.3,67,741/-. These amounts, according to the learned counsel, is yet to be received from the Recovery Officer. Therefore, 1st respondent bank shall be entitled to receive the cost and expenses as determined by the Recovery Officer.
27. As directed by this Court, the petitioners have deposited Rs.45,02,109.45/- with the Bank in an interest bearing savings bank account. This deposit was made only to ascertain their bona fides. When the sale is being set aside, the 2nd respondent should be sufficiently compensated for the loss he has suffered in respect of his investment. The Bank's liability is already satisfied by adjusting the amount deposited by the 2nd respondent. The 2nd respondent is entitled to receive the balance amount available with the 3rd respondent with interest, if any. That apart, the amount deposited by the petitioners which includes interest at the rate of 16% on the amount due to the Bank as on 16/07/2014, can be adjusted towards payment of balance amount and compensation to the 2nd respondent. Such a method is adopted in the interest of justice so that the 2nd respondent can be compensated for the investment made by him.
In the result, this writ petition is allowed as follows:
i) The sale of property having an extent of 17.14 cents in survey No.305/1 (re-survey No.65) situated in Perumbavoor Village, Kunnathunad Taluk, conducted by the 3rd respondent in DRC No.438/2001 and subsequent proceedings are set aside as illegal.
ii) The liability of the petitioners, as legal heirs of Smt.Margaret Luke, to the 1st respondent is declared to be settled, by the appropriation made from the amount deposited by the 2nd respondent before the 3rd respondent.
iii) After paying the cost and expenses to the 1st respondent bank, the 3rd respondent, Recovery Officer shall pay the balance amount available with him to the 2nd respondent with interest, if the amount is deposited in an interest bearing account within a period of fifteen days from today and give particulars of such payment to the 1st respondent and petitioners.
iv) The petitioners shall pay the entire amount available in the savings bank account maintained by them with the 1st respondent Bank as per the directions issued by this Court on 23/07/2014, to the 2nd respondent, within a period of fifteen days from the date of judgment.
v) The amount received by the 2nd respondent from petitioners and the 3rd respondent, in excess of Rs.90,30,000/- shall be treated as his compensation.
(sd/-) (A.M.SHAFFIQUE, JUDGE) jsr