IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF AUGUST 2019 BEFORE THE HON’BLE MR. JUSTICE ALOK ARADHE WRIT PETITION NO.11602 OF 2019(GM-RES) BETWEEN:
SRI.SHARATH K.S.
S/O SRI.SHIVAKUMARAPPA AGED ABOUT 49 YEARS R/AT NO.176-B, 7TH CROSS 1ST ‘N’ BLOCK,RAJAJINAGAR BANGALORE – 560 010.
(BY MR.B.VACHAN, ADV.) AND:
M/S UNION BANK OF INDIA ASSET RECOVERY BRANCH NO.583/584, 2ND FLOOR POOJA COMPLEX AVENUE ROAD BANGALORE – 560 002 REPRESENTED BY ITS MANAGER.
(BY SMT.SHWETHA RAVISHANKAR, ADV.) … PETITIONER … RESPONDENT THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE LETTER DATED 25.02.2019 AT ANNEXURE-E PASSED BY RESPONDENT AS ILLEGAL AND CONTRARY TO WELL ESTABLISHED PRINCIPLES OF LAW.
THIS WRIT PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER Mr.B.Vachan, Learned counsel for the petitioner.
Smt.Shwetha Ravishankar, learned counsel for respondent.
The writ petition is admitted for hearing. With consent of the learned counsel for the parties, the same is heard finally.
2. The issue, which arises for consideration in this writ petition, on admitted facts, is whether the petitioner is entitled to refund of Earnest Money Deposit of Rs.30 Lakhs to the petitioner along with interest at 18% per annum. The facts leading to filing of this writ petition lie in a narrow compass.
3. Admittedly, the respondent is a Bank registered under the provisions of the Banking Regulation Act, 1949. A sale notice dated 28.01.2019 was issued by the respondent for sale of the schedule properties. The sale notification is silent with regard to the pending litigation in respect of the property for which the petitioner had submitted its bid. As per the sale notice, reserve price was fixed at Rs.1,50,00,000/- and auction was held on 21.02.2019. The petitioner’s bid in respect of the properties in question was accepted for a bid amount of Rs.1,95,00,000/-. The petitioner as per the terms of the bid had deposited a sum of Rs.15,00,000/- i.e., 10% of the reserve price for each site as Earnest Money Deposit on 20.02.2019. As per terms of the auction, 25% of the bid amount had to be paid on or before 22.02.2019.
4. The petitioner was informed by the officers of the Bank that 90% of the amount had to be deposited on or before 30 days of confirmation of the bid. The petitioner thereupon by a communication dated 21.02.2019 sought for additional time to deposit the aforesaid amount. The petitioner thereafter learnt that there were pending litigation in respect of the property in question, which was not brought to the notice of the petitioner prior to the auction. However, in the meanwhile, the respondent by a communication dated 25.02.2019 forfeited the Earnest Money Deposit of the petitioner that is 25% of the bid amount and e-auction was treated as cancelled. In the aforesaid factual background, the petitioner has approached this Court.
5. Learned counsel for the petitioner submitted that the respondent-Bank is under a statutory obligation under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules’ for short) to disclose details of encumbrances known to the secured creditor. It is submitted that the respondent has acted in contravention of the Rule 8(6) of the Rules and the respondent Bank being a public sector bank is supposed to act in a fair, rational and reasonable manner. It is also submitted that respondent failed to disclose that O.S.No.5304/2018 is pending consideration before the Trial Court. It is also argued that contract is avoidable at the option of the petitioner under Section 18 of the Contract Act, 1872. In support of his submissions, learned counsel for the petitioner has referred to division bench of Madras High Court in ‘S.SHANMUGANATHAN VS. THE AUTHORIZED OFFICER, INDIAN OVERSEAS BANK’, DATED 28.04.2017.
6. On the other hand, learned counsel for the respondent fairly submitted that the factum of civil suit was not disclosed in the sale notice. However, it is submitted that the forfeiture of the amount of Earnest Money Deposit by the petitioner is valid, as the property was sold on “as is where is” basis. It is also submitted that writ petition filed by the petitioner is not maintainable as the petitioner has failed to deposit the bid amount as undertaken by him. It is also urged that the stand taken by the petitioner in the writ petition is an after thought. In this connection, attention of this court has been invited to the communication sent by the petitioner contained in Annexure-R6. In support of her submissions, learned counsel has placed reliance on the judgment of the Supreme Court dated 27.11.2017 passed in Civil Appeal No.19847/2017 [‘AGARWAL BRACOM PVT. LTD., VS. PUNJAB NATIONAL BANK AND ORS.’] and decision of Calcutta High Court in ‘SUJIT DAS GUPTA VS. STATE BANK OF INDIA AND ANR.’, AIR 2015 CAL 246.
7. I have considered the submissions made by learned counsel on both the sides and have perused the record. Admittedly, the respondent is a public sector bank discharging public functions and is ‘state’ within the meaning of Article 12 of the Constitution of India and is amenable to writ jurisdiction of this court and is supposed to act in a fair and rational manner even in contractual field. [SEE: ‘SARDAR ASSOCIATES AND ORS. VS. PUNJAB AND SIND BANK AND ORS.’, (2009) 8 SCC 257 AND ‘ZONAL MANAGER CENTRAL BANK OF INDIA VS. DEVI ISPAT LIMITED AND OTHERS’, (2010) 11 SCC 186]. Rule 8 of the Rules deals with sale of immovable secured assets, whereas Rule 9 of the Rules deals with time of sale, issue of sale certificate and delivery of possession. Rule 9(9) of the Rules mandates the authorized officer to deliver the property to purchaser free from encumbrances known to the secured creditor on deposit of money as specified in Sub-Rule (7) above. The relevant extract of the aforesaid Rules read as under:
“Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include-
(a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor.
(b) Xxxxx (c) Xxxx (d) Xxxx (e) Xxxxx (f) Any other thing which the authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property.
9. Time of sale, issues of sale certificate and delivery of possession, etc., (1) xxxxxx (9) The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specific in sub rule (7) above.
The aforesaid provisions of the Rules are mandatory in nature. The purchaser has to put on specific notice about all encumbrances and other materials so that he can take a conscious decision with regard to his participation in the auction and about the amount of bid. The disclosure with regard to encumbrances in respect of the property in question as mandated in the Rules is not an empty formality. The auction notification can safely be termed as procedurally ultra vires in case the requirements mentioned in Rule 8 are not complied with as a statutory obligation cast on the part of the secured creditor under Rule 9(9) to deliver the property free from encumbrances to the purchaser. Therefore, such disclosure has to be made well before the auction to give an opportunity to the purchaser before taking part in the auction. The failure to adhere to the statutory duty would also fall within the scope and ambit of Section 18(2) of the Contract Act, 1872 and therefore, under Section 19 of the Contract Act, 1872 the contract is voidable at the instance of the petitioner.
8. The submission that the petitioner should be relegated to take recourse to the remedy under Section 17 of the Act is only required to be stated to be rejected as the petitioner is not a privy to the loan transaction. The petitioner is neither a borrower nor a person bearing interest under the borrower. The petitioner is aggrieved by the action of the Bank in not disclosing the particulars of encumbrances in respect of the property in question, which the Bank was under a statutory obligation to do. The Bank has violated the mandatory provisions contained in the Rules framed under the Act; therefore, at the instance of the respondent the aforesaid plea cannot be entertained. Similarly, the submission that the forfeiture of the Earnest Money Deposit is justified is also sans substance as the petitioner having failed to fulfill its mandatory statutory obligations cannot be held to be justified in forfeiting the Earnest Money Deposit. So far as reliance placed by the petitioner in the decision in the case of AGARWAL BRACOM PVT. LTD., supra is concerned, the aforesaid decision has no application to the obtaining factual matrix of the case as in the aforesaid case, the Bank had not violated the mandatory provisions of the Rules viz., Rule 8(1)(f) and Rule 9(9) of the Rules. For the similar reason, the decision relied on in the case of SUJIT DAS GUPTA supra is of no assistance to the respondent in the fact situation of the case.
In view of preceding analysis, the sale notice dated 01.03.2019 as well impugned communications dated 25.02.2019 issued by the respondent-Bank are hereby quashed. The respondent-Bank is directed to refund the Earnest Money Deposit of Rs.30 Lakhs to the petitioner along with interest at the rate of 6% within a period of 30 days from today.
Accordingly, the writ petition is disposed of.
Sd/- JUDGE SS