K. Raamaselvam and Others Vs. Indian Overseas Bank, Rep. by Its Chief Manager and Authorised Officer and Another - Court Judgment

Excerpt:
time of sale, issue of sale certificate and delivery of possession, etc. -- (1) no sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) the sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) to rule 8: provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (emphasis added)(prayer: writ petition filed under article 226 of the constitution of india praying for the relief stated therein.)p.k. misra, j.respondents have entered appearance and filed their counter. the matter is taken up for disposal with the consent of the counsel appearing for the parties. the present writ petition has been filed praying for declaration, declaring the action of the first respondent in proceeding under the sarfaesi act (hereinafter referred to as 'the act') and confirming the sale in respect of the properties of the petitioners comprised at new door no.61, old door no.7, part, gajapathy street, aminjikarai, chennai- 600 030 and door no.8, kanniammal koil street, shenoy nagar, chennai-600 030 in favour of the second respondent as arbitrary, illegal, unconstitutional and ultra vires the provisions of sarfaesi act and security interest (enforcement) rules, 2002.2. bereft of all details, the basic facts are as follows:-the present writ petitioners are the borrowers. in respect of a loan transaction entered between the present petitioners and the first respondent bank, the property in question was given as a security. after the bank took action under the requisite provisions under section 13(4) of the sarfaesi act, challenging the sale notice, proceedings under section 17 was initiated by the petitioners and the same is still pending before the debts recovery tribunal. during the pendency of such proceedings, an interim order of stay was passed by the debts recovery tribunal subject to deposit of one crore. the petitioeners filed an appeal before the debt recovery appellate tribunal challenging the above condition. the tribunal however, passed an order permitting the petitioners to deposit the amount in two instalments to be paid on or before 13.2.2009 and 13.3.2009. the bank however, filed w.p.no.1149 of 2009 challenging such order of the debt recovery appellate tribunal and the high court by entertaining the writ petition passed an interim order permitting the bank to go ahead with the auction, but not to confirm the same until further orders. the authorised officer of the bank thereafter, issued notice on 21.2.2009 fixing sale on 26.3.2009. at that stage s.a.no.47 of 2009 was filed by the persons who had agreed to purchase the property from the petitioners and the debts recovery tribunal-iii, chennai, passed an order of interim stay of auction. the bank filed w.p.no.5272 of 2009 and the high court by interim order permitted the bank to open the tender, but not to confirm the same. the present second respondent was the only person who was the bidder in respect of item no.2 property at rs.1, 85, 00,000/- which was the upset price. similarly, he was the only bidder in respect of item no.3 property quoting rs.2, 35, 00,000/- which was the upset price. both the aforesaid writ petitions were taken up and by order dated 29.07.2009 in w.p.no.5272 of 2009, the division bench set aside the interim order of stay dated 25.3.2009 passed by the debts recovery tribunal and passed an order to the following effect:-"9. for the reasons aforesaid, we set aside the impugned order dated 25.3.2009 passed by the drt-iii, chennai and give liberty to the petitioner-bank to proceed in accordance with law.10. however, this order shall not stand in the way of the respondents or the borrowers to take advantage of section 13(8) of the sarfaesi act or to reach the "one time settlement" with the petitioner-bank under the provisions of the sarfaesi act. this order shall also not stand in the way for final determination of the appeal (application) under section 17 of the sarfaesi act. we further make it clear that if the respondents or the borrowers approach the petitioner-bank immediately within seven days from the "one time settlement", the petitioner-bank may look into the proposal before confirmation of the sale."3. a similar order was passed on the same day i.e. on 29.4.2009 in w.p.no.1149 of 2009, wherein it was observed as under:-"we accordingly set aside the impugned order passed by the drat and give liberty to the writ petitioner-bank to proceed in accordance with law. the writ petition is allowed with the above observations."4. the petitioners approached the bank giving a proposal for one time settlement by offering to pay a sum of rs.3,20,00,000/- out of total dues of rs.3,84,00,000/-. a subsequent letter was sent on reiterating same proposal. on 11.5.2009 the bank issued a communication which was handed over to the petitioners on 12.5.2009, calling upon them to pay the entire dues by 14.5.2009. on 18.5.2009 the bank issued letters to the effect that the petitioners had failed to discharge the loan, and therefore, the auction would be confirmed and ultimately, on 20.5.2009 respondent no.1 confirmed the auction sale in favour of the respondent no.2 even though he was the single bidder.5. in this background, the confirmation is being challenged by the petitioners. the main contention raised by the petitioners is to the effect that as per the security interest (enforcement) rules, 2002, which was framed in exercise of power under section 38(1) (b) of sub-section 2 r/w. section 13(4) (10) and (12), the confirmation of sale is illegal as it is in contravention of the provisions contained in rule 9. it is also contended that respondent no.2 was the only bidder and therefore, such bid should not have been accepted.6. the main stand taken by the bank is to the effect that the petitioners have an alternative remedy available to them to approach the debts recovery tribunal, if there is any illegality or irregularity in the sale. it is also submitted that since the main application under section 17 challenging the auction under section 13(4) is already pending, this matter can also be decided at that stage. the other contention raised by the learned counsel for the bank is that since this auction was permitted to be held by the high court and since the earlier writ petitions have been disposed of in favour of the bank, the alleged defect in the auction could have been raised before the division bench which dealt with the matter and therefore, the principle of res judicata is applicable. apart from the above technical objections, the learned counsel for the bank has also stated that if the bank has the discretion to confirm the sale even if the amount offered is same as the upset price,7. the learned counsel appearing for respondent no.2, apart from adopting the aforesaid submissions made by the learned counsel for the bank, has further submitted that in fact, the sale certificate has already been issued in his favour, and therefore, it can be said that the matter has become final.8. since the question raised would depend upon interpretation of rule 9(2) of the security interest (enforcement) rules, 2002, the relevant provisions are extracted hereunder:-"9. time of sale, issue of sale certificate and delivery of possession, etc.--(1) no sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.(2) the sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) to rule 8:provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.(emphasis added)9. a bare reading of rule 9(2) makes it clear that three contingencies can arise when an auction takes place. those are, (i) the bidder offers an amount, which is more than the upset price, (ii) the bidder offers an amount, which is less than the reserve price, and (iii) the bidder offers an amount, which is neither less nor more than the upset price. if the amount offered by the highest bidder is more than the upset price fixed under rule 8(5) the sale shall be confirmed in favour of such higher bidder. this however, is subject to confirmation by the secured creditor. if the bid amount is less than the upset price, no sale shall be confirmed as contemplated under the first proviso to rule 9(2). the second proviso makes it clear that if the authorised officer fails to obtain a price higher than the reserve price, the sale can be confirmed only with the consent of the borrower and the secured creditor. it is thus obvious that if the price offered is same as the reserve price, it cannot be said that the authorised officer has obtained a price higher than the reserve price. a combined reading of all the provisions contained in rule 9(2) makes it clear that if the price offered is higher than the reserve price, it shall be confirmed by the authorised officer, but such confirmation is subject to the further confirmation by the secured creditor. if however, price offered is not higher than the reserve price, which means it may be on par with the reserve price or less than the reserve price, the auction can be confirmed only with the consent of the borrower and the secured creditor and not otherwise. learned counsel for the bank by relying upon the decision of the supreme court, has submitted that in normal circumstances, reserve price is fixed to indicate the minimum price at which property can be sold. we do not think that such a contention can be accepted in view of second proviso to rule 9(2)is to the effect that if the authorised officer fails to obtain a price higher than the reserve price it can be confirmed only with the consent of the secured creditor as well as the borrower and not bereft of such consent. but the learned counsel for the bank as well as purchaser had submitted that since the proceeding under section 17 is pending, the question now raised in the writ petition as well raised in the proceedings and in view of such existence of such alternative remedy, the writ petition should not be entertained10. it is no doubt true, that any illegality in the auction can be raised in a proceeding under section 17.we do not think that such a plea should be countenanced, in the present case, as the question now raised depends purely on a question of interpretation of the statutory rule. the existence of alternative remedy is not considered as an absolute bar for entertaining a writ petition. this is more so, in view of the fact that the bank, a public sector undertaking and even considered as state under article 12 of the constitution of india, is expected to act strictly in accordance with the statute and rules.11. the contention of the counsel for the bank that a technical objection is being raised is also of little assistance. it is no doubt true that sarfaesi act and rules have been framed with a view to expedite the recovery of money due to the bank. however, since the provisions have vested wide power, on the authorised officer/secured creditor, it is expected such power should be exercised within strict parameters indicated in the statute and the rules.12. in the present case, the bid offered was the same as the reserve price and therefore, the authorised officer could confirm such sale only with the consent of the borrower and the secured creditor. it is crystal clear from the present stand taken by the borrower indicates that there is no consent for confirmation of such sale. as a matter of fact, the authorised officer has never bothered to find out from the borrower whether he was willing that the sale should be confirmed, despite the fact that the authorised officer had failed to obtain a price higher than the reserve price.13. the learned counsel appearing for respondents 1 and 2, however, contended that purposive interpretation should be given to the two provisos, which should be read together, and since the main intention is to ensure that the bank recovers its money as expeditiously as possible and without any unnecessary technical hurdle, and the second proviso should be construed to mean that if the bid price is less than the reserve price, with the consent of the borrower, such auction can be confirmed but when the price offered is at par with upset price, it can be confirmed even without the consent of the borrower.14. we do not think that in view of the clear language in the second proviso, such a contention can ever be countenanced. in fact, the first and second provisos contemplate the situation that if the bid amount is less than the reserve price, such a position is covered by the first proviso and if the bid amount is more than the reserve price, the situation is contemplated in the main provision. however, if the authorized officer fails to obtain the price higher than the reserve price, with the consent of the borrower, the sale may be confirmed only after the borrower and the secured creditor give their consent. by no stretch of imagination, it could be construed that even if the authorised officer fails to obtain price higher than the reserve price, he may, confirm the sale without obtaining any consent from the borrower or from the secured creditor.15. it is contended by the learned counsel for the bank that as the interpretation put forth by the learned counsel for the borrower is hyper-technical, it should not be adopted as it will defeat the purpose of the act and the rules. we are unable to accept this contention.16. sarfaesi act and the rules thereunder have provided for a speedier and more efficacious remedy to the secured creditors coming within the purview of the act to realise the debts by sale of the secured asset. even though the avowed intention is to ensure speedy recovery, sarfaesi act and the rules have laid down several procedural safeguards obviously with a view to ensure that there is no abuse of the extra-ordinary power conferred under the act and the rules and to provide a modicum of protection to the borrowers or the person whose properties are sold.7. it is a well entrenched concept, that when the manner of exercising power is laid down, such power is to be exercised in the manner prescribed or not at all as observed in the decision of the supreme court in indian bank association v. dev kala consultancy services (2004 (11) s.c.c.,1): (para 28)"it is well settled that when a procedure is laid down statutory authority must exercise its power, in the manner prescribed or not at all."and in vimalaben ajitbhai patel v. vatsalaben ashokbhai patel (2008 (4) s.c.c.,649). (para 42)"the right to property is no longer a fundamental right, but still it is constitutional right. apart from constitutional right it is also a human right. the procedures laid down for deprivation must be scrupulously complied with.a bare analysis of the statutory provisions and more particularly the statutory rules framed under such provisions clearly evince the intention to provide procedural safeguards while enabling the secured creditors to adopt speedier methods. when the statutory rules contemplate a specific provision, it does not lie in the mouth of the secured creditor to contend that even though the rules lay down a particular procedure, the secured creditor or the debts recovery tribunal or the authorised officer, while discharging their duties under the act and the rules, is not required to follow the procedure contemplated merely on the ground that violation is "technical", according to the bank. it is no doubt true that a borrower's property is put to auction only because there is default on the part of the borrower, but that does not give right to the bank or the debts recovery tribunal or the authorised officer to flout the mandatory statutory provision.18. learned counsel appearing for the bank has placed reliance upon a decision of the single judge of the madhya pradesh high court reported in air 2009 mp 13 (smt. godawari shridhar v. union of bank of india and another). in the aforesaid case, the reserved price was fixed at rs.60laks, but at the auction the highest bidder has offered rs.50 lakhs. at that stage, the bank informed the borrower that he can sell the property for more than rs.50 lakhs, if he finds a purchaser for higher amount. in the above context, it was observed by the learned single judge as follows:-"8. parliament has enacted an act named as the securitisation and reconstruction of financial assets and enforcement of security interest act, 2002. in exercise of powers under section 38 read with sub-sections (4), (10), (12) and (13) of the aforesaid act, the central government famed rules named as the security interest (enforcement) rules, 2002 (hereinafter referred to as "rules of 2002"). rule 9 of the aforesaid rules of 2002 prescribes procedure of time of sale, issue of sale certificate and delivery of possession of an immovable property. as per proviso of rule 9(2) no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price. however, proviso to aforesaid rules gives power to the authorised officer that if authorised officer fails to obtain a price higher than the reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price...”10. in the present case, the bank invited bids for sale of the house and as per the bank it has received highest bid of rs.50 lakhs and reserve price of the house has been fixed at rs.60 lakhs by the bank. now the question is that whether the bank can sale the house in a price less than the reserve price? as per proviso of rule 9(2) no sale under this rule shall be confirmed if the amount offered by sale price is less than the reserve price, however, the proviso to the aforesaid rule further provides that if the authorised officer fails to obtain a price higher than reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price. now, the question is that whether authorised officer is bound to sale the immovable property with the consent of the borrower and secured creditor, if he fails to obtain higher price than reserve price or it is the discretion of the authorised officer to obtain the consent of the borrower and secured creditor or without consent he can effect the sale lower than the reserve price?. . .13. from the above principle of law laid down by hon'ble the supreme court it is clear that when the word 'may' has been used in statute or rule it cannot always be interpreted that it is a mandatory provision and in view of the provisions of the aforesaid rule the word'may' cannot be construed as mandatory because the act has been enacted to facilitate recovery of loan by the financial institutions. it may be possible that in certain circumstances, as in the present case, financial institution is not in a position to fetch or receive the reserve price, hence it has a discretion to sale the property below the reserve price of the property."after the above analysis, the learned single judge issued the following directions :-"14. in the present case, the bank has fairly offered the petitioner to sale the property on a higher price, i.e., more than rs.50 lakhs. from the aforesaid act of the bank it is clear that the bank is acting fairly and reasonably. the petitioner herself is not able to sell the property for more than rs.50 lakhs. hence, in my opinion, the auction proceedings and notification cannot be held to be arbitrary and illegal.consequently, the petition is disposed of with the following directions :-(1) that the petitioner is granted two months time from the date of this order to find out a purchaser for more than the value which has been received by the bank, in auction proceedings;(2) if the petitioner failed to find out purchaser within the aforesaid period then the bank is free to auction the house as per bids received by it in the auction proceedings."19. the aforesaid decision no where lays down that where the authorised officer fails to obtain higher price than the reserve price he may confirm the sale even without the consent of the borrower and the secured creditor.20. learned counsel for the bank has also placed reliance upon a decision of the supreme court reported in (2004) 8 scc 671 (anil kumar srivastava v. state of u.p. and another), wherein the object of fixing reserve price has been analysed in the following terms :-"10. on the above submissions, the central point which arises for determination is: whether the tender price of rs.31,850 per sq m is understated. in the present case, respondent 2 invited offers for the plot admeasuring 54,320.18 sq m for the shopping mall with 2800 ecs in order to decongest sector 18. wide publicity was given. several reputed developers bought tender documents. however, at the end of the day, there was only one bidder (respondent 3) in the field. in the present case, mala fides have been alleged, but not pressed. therefore, the question before us is: whether respondent 2's decision in accepting the bid of respondent 3 was arbitrary, unreasonable and in violation of the board resolution dated 10-7-2003.11. before coming to the above challenge, we would like to examine the concepts of "valuation" and "upset/reserve price". in the case of mcmanus v. fortescue it has been held by the court of appeal that in a sale by auction, subject to reserve, every offer/bid and its acceptance is conditional. that the public is informed by the fact, that the sale is subject to a reserve, that the auctioneer has agreed to sell for the amount which the bidder is prepared to give only in case that amount is equal to or higher than the reserve. that the reserve puts a limit on the authority of the auctioneer. he cannot accept a price below the upset / reserve price. that he could refuse the bid which is below the upset price."21. the above said general observation may not be applicable to the present case in view of the specific provision that the auction cannot be confirmed without the consent of the secured creditor and the borrower, unless it fetches a price higher than the reserve price.22. a fair reading of the provisions contained in rule 9 makes it clear that if the highest bid is higher than the upset price, such highest bid shall be confirmed by the authorised officer in favour of the highest bidder, which, however, is subject to confirmation by the secured creditor. this provision is apparent from the provisions contained in rule 9(2). at that stage, obviously a discretion is given to the secured creditor to accept the highest bid or even go in for a fresh bid.for example, if the secured creditor, on the basis of the relevant materials, comes to a conclusion that the highest bid offered, even though higher than the reserve price, does not reflect the true market value and there has been any collusion among the bidders, the secured creditor in its discretion may refuse to confirm such highest bid notwithstanding the fact that the highest bid is more than the upset price. this is because the secured creditor is not only interested to realise its debt, but also expected to act as a trustee on behalf of the borrower so that the highest possible amount can be generated and surplus if any can be refunded to the borrower. the first proviso in no uncertain terms makes it clear that no sale can be confirmed by the authorised officer, if the amount offered is less than the reserve price specified under the rule 8(5). however, the subsequent proviso gives discretion to the authorised officer to confirm such sale even if the bid is less than the reserve price, provided the borrower and the secured creditor agree that the sale may be effected at such price which is not above the reserve price. this is obviously so because the property belongs to the borrower and as security for the secured creditor and both of them would be obviously interested to see that the property is sold at a price higher than the reserve price. however, if both of them agree that the property can be sold, even it has not fetched a price more than the reserve price, the authorised officer in its discretion may confirm such auction.23. a question may arise that a recalcitrant borrower with a view to prolong the matter would never agree to sale of the property below the reserve price and what would be the remedy available to the secured creditor at that stage?in the madhya pradesh high court's decision (godawari shridhar's case), the learned single judge gave further time to the borrower to find out a purchaser for sale of the property at a higher value and if such borrower fails to find out the purchaser, the bank was authorised to auction the house as per the bids received.24. learned counsel for the bank has submitted that such a course may be adopted in the present case. even assuming, though not deciding, that such a course would be available, we cannot adopt such a course in the present case in view of the fact that a single bid was offered in the present case and in that sense actually there was no auction. on the other hand, in our considered opinion, there can be a fresh auction by issuing a fresh notice by giving opportunity to the present auction purchaser as well as any other intending bidder to offer a price higher than the upset price.25. learned counsel for the bank further contended that defect if any in the process of confirmation by the authorised officer can also be challenged before the debts recovery tribunal under section 17 of the sarfaesi act and since the petitioner has not availed of such alternative remedy, the present writ petition cannot be entertained.26. though it may appear as if there was an alternative remedy, in our considered opinion, existence of alternative remedy may not be considered as a bar in the present case inasmuch as the present case does not require the determination of any disputed question of fact and the matter is being decided purely on interpretation of the statutory provisions and the rules and to relegate the parties to pursue their remedy under the act before the debts recovery tribunal and thereafter at the debts recovery appellate tribunal would ultimately be an exercise in futility, which would unnecessarily prolong the matter.27. learned counsels appearing for respondent no.1 and also respondent no.2 further submitted that in the previous round of litigation before the high court, the present petitioner could have raised this aspect inasmuch as the amount offered by respondent no.2 has been disclosed before the court and, therefore, the earlier judgment should be construed as constructive res judicata.28. even though section 141 of the code of civil procedure (cpc) specifically makes the provisions of cpc are inapplicable to proceeding under article 226 of the constitution of india, there cannot be any dispute that the basic principles contained in cpc including the principle of res judicata and constructive res judicata are to be applied to the writ proceedings as a matter of public policy. the previous round of litigation was relating to the question as to whether stay should be granted or not during pendency of the proceedings under section 17 of the act. the division bench, in view of the peculiar facts and circumstances, set aside the order of stay granted by the debts recovery tribunal. the division bench, however, nowhere finalised the matter relating to confirmation of sale. the question which is now specifically raised was neither directly or even indirectly raised in the earlier round of litigation and keeping in view the fact that the writ petition has been filed by the bank against the order of interim stay granted by the debts recovery tribunal, the question now raised also could not have been and need not have been raised. therefore, the principles of res judicata or constructive res judicata are not applicable. as a fact the division bench had specifically gave liberty to proceed according to law. if the confirmation is contrary to law it cannot be upheld.29. for the aforesaid reasons, we are constrained to allow the writ petition with the following directions :-(1) the confirmation of sale in favour of respondent no.2 is quashed.(2) the secured creditor is free to proceed further in holding a further auction by giving appropriate notice as required.(3) it would be obviously open to respondent no.2 to withdraw the amount already deposited or keep such amount in deposit, if he decides to participate in the further auction.(4) the cost of the earlier auction notice as well as cost of any subsequent auction notice would obviously be debited to the account of the borrower.(5) before the subsequent auction takes place, it would be obviously open to the borrower to discharge the loan along with all accrued interest and costs, etc., as contemplated under section 13(8).30. the writ petition is accordingly allowed, subject to the aforesaid directions. no costs.

Judgment:

(Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for the relief stated therein.)

P.K. Misra, J.

Respondents have entered appearance and filed their counter. The matter is taken up for disposal with the consent of the counsel appearing for the parties. The present writ petition has been filed praying for declaration, declaring the action of the first respondent in proceeding under the Sarfaesi Act (hereinafter referred to as 'the Act') and confirming the sale in respect of the properties of the petitioners comprised at new door No.61, old door No.7, Part, Gajapathy Street, Aminjikarai, Chennai- 600 030 and Door No.8, Kanniammal Koil Street, Shenoy Nagar, Chennai-600 030 in favour of the second respondent as arbitrary, illegal, unconstitutional and ultra vires the provisions of Sarfaesi Act and Security Interest (Enforcement) Rules, 2002.

2. Bereft of all details, the basic facts are as follows:-

The present writ petitioners are the borrowers. In respect of a loan transaction entered between the present petitioners and the first respondent Bank, the property in question was given as a security. After the Bank took action under the requisite provisions under Section 13(4) of the Sarfaesi Act, challenging the sale notice, proceedings under Section 17 was initiated by the petitioners and the same is still pending before the Debts Recovery Tribunal. During the pendency of such proceedings, an interim order of stay was passed by the Debts Recovery Tribunal subject to deposit of One crore. The petitioeners filed an appeal before the Debt Recovery Appellate Tribunal challenging the above condition. The Tribunal however, passed an order permitting the petitioners to deposit the amount in two instalments to be paid on or before 13.2.2009 and 13.3.2009. The Bank however, filed W.P.No.1149 of 2009 challenging such order of the Debt Recovery Appellate Tribunal and the High Court by entertaining the writ petition passed an interim order permitting the Bank to go ahead with the auction, but not to confirm the same until further orders. The Authorised Officer of the Bank thereafter, issued notice on 21.2.2009 fixing sale on 26.3.2009. At that stage S.A.No.47 of 2009 was filed by the persons who had agreed to purchase the property from the petitioners and the Debts Recovery Tribunal-III, Chennai, passed an order of interim stay of auction. The Bank filed W.P.No.5272 of 2009 and the High Court by interim order permitted the Bank to open the tender, but not to confirm the same. The present second respondent was the only person who was the bidder in respect of Item No.2 property at Rs.1, 85, 00,000/- which was the upset price. Similarly, he was the only bidder in respect of Item NO.3 property quoting Rs.2, 35, 00,000/- which was the upset price. Both the aforesaid writ petitions were taken up and by order dated 29.07.2009 in W.P.No.5272 of 2009, the Division Bench set aside the interim order of stay dated 25.3.2009 passed by the Debts Recovery Tribunal and passed an order to the following effect:-

"9. For the reasons aforesaid, we set aside the impugned order dated 25.3.2009 passed by the DRT-III, Chennai and give liberty to the petitioner-Bank to proceed in accordance with law.

10. However, this order shall not stand in the way of the respondents or the borrowers to take advantage of Section 13(8) of the Sarfaesi Act or to reach the "One Time Settlement" with the petitioner-Bank under the provisions of the Sarfaesi Act. This order shall also not stand in the way for final determination of the appeal (application) under Section 17 of the Sarfaesi Act. We further make it clear that if the respondents or the borrowers approach the petitioner-Bank immediately within seven days from the "One Time Settlement", the petitioner-Bank may look into the proposal before confirmation of the sale."

3. A similar order was passed on the same day i.e. on 29.4.2009 in W.P.No.1149 of 2009, wherein it was observed as under:-

"We accordingly set aside the impugned order passed by the DRAT and give liberty to the writ petitioner-Bank to proceed in accordance with law. The Writ Petition is allowed with the above observations."

4. The petitioners approached the Bank giving a proposal for One Time Settlement by offering to pay a sum of Rs.3,20,00,000/- out of total dues of Rs.3,84,00,000/-. A subsequent letter was sent on reiterating same proposal. On 11.5.2009 the Bank issued a communication which was handed over to the petitioners on 12.5.2009, calling upon them to pay the entire dues by 14.5.2009. On 18.5.2009 the Bank issued letters to the effect that the petitioners had failed to discharge the loan, and therefore, the auction would be confirmed and ultimately, on 20.5.2009 Respondent No.1 confirmed the auction sale in favour of the Respondent No.2 even though he was the single bidder.

5. In this background, the confirmation is being challenged by the petitioners. The main contention raised by the petitioners is to the effect that as per the Security Interest (Enforcement) Rules, 2002, which was framed in exercise of power under Section 38(1) (b) of Sub-Section 2 r/w. Section 13(4) (10) and (12), the confirmation of sale is illegal as it is in contravention of the provisions contained in Rule 9. It is also contended that Respondent No.2 was the only bidder and therefore, such bid should not have been accepted.

6. The main stand taken by the Bank is to the effect that the petitioners have an alternative remedy available to them to approach the Debts Recovery Tribunal, if there is any illegality or irregularity in the sale. It is also submitted that since the main application under Section 17 challenging the auction under Section 13(4) is already pending, this matter can also be decided at that stage. The other contention raised by the learned counsel for the Bank is that since this auction was permitted to be held by the High Court and since the earlier writ petitions have been disposed of in favour of the Bank, the alleged defect in the auction could have been raised before the Division Bench which dealt with the matter and therefore, the principle of res judicata is applicable. Apart from the above technical objections, the learned counsel for the Bank has also stated that if the Bank has the discretion to confirm the sale even if the amount offered is same as the upset price,

7. The learned counsel appearing for respondent No.2, apart from adopting the aforesaid submissions made by the learned counsel for the Bank, has further submitted that in fact, the sale certificate has already been issued in his favour, and therefore, it can be said that the matter has become final.

8. Since the question raised would depend upon interpretation of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002, the relevant provisions are extracted hereunder:-

"9. Time of sale, issue of sale certificate and delivery of possession, etc.--

(1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.

(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:

Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) to Rule 8:

Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.(Emphasis added)

9. A bare reading of Rule 9(2) makes it clear that three contingencies can arise when an auction takes place. Those are, (i) the bidder offers an amount, which is more than the upset price, (ii) the bidder offers an amount, which is less than the reserve price, and (iii) the bidder offers an amount, which is neither less nor more than the upset price. If the amount offered by the highest bidder is more than the upset price fixed under Rule 8(5) the sale shall be confirmed in favour of such higher bidder. This however, is subject to confirmation by the Secured Creditor. If the bid amount is less than the upset price, no sale shall be confirmed as contemplated under the first proviso to Rule 9(2). The second proviso makes it clear that if the authorised officer fails to obtain a price higher than the reserve price, the sale can be confirmed only with the consent of the borrower and the secured creditor. It is thus obvious that if the price offered is same as the reserve price, it cannot be said that the Authorised Officer has obtained a price higher than the reserve price. A combined reading of all the provisions contained in Rule 9(2) makes it clear that if the price offered is higher than the reserve price, it shall be confirmed by the Authorised Officer, but such confirmation is subject to the further confirmation by the Secured Creditor. If however, price offered is not higher than the reserve price, which means it may be on par with the reserve price or less than the reserve price, the auction can be confirmed only with the consent of the borrower and the Secured Creditor and not otherwise. Learned counsel for the Bank by relying upon the decision of the Supreme Court, has submitted that in normal circumstances, reserve price is fixed to indicate the minimum price at which property can be sold. We do not think that such a contention can be accepted in view of second proviso to Rule 9(2)is to the effect that if the Authorised Officer fails to obtain a price higher than the reserve price it can be confirmed only with the consent of the Secured creditor as well as the borrower and not bereft of such consent. But the learned counsel for the Bank as well as purchaser had submitted that since the proceeding under Section 17 is pending, the question now raised in the writ petition as well raised in the proceedings and in view of such existence of such alternative remedy, the writ petition should not be entertained

10. It is no doubt true, that any illegality in the auction can be raised in a proceeding under Section 17.

We do not think that such a plea should be countenanced, in the present case, as the question now raised depends purely on a question of interpretation of the Statutory Rule. The existence of alternative remedy is not considered as an absolute bar for entertaining a writ petition. This is more so, in view of the fact that the Bank, a public sector undertaking and even considered as State under Article 12 of the Constitution of India, is expected to act strictly in accordance with the Statute and Rules.

11. The contention of the counsel for the Bank that a technical objection is being raised is also of little assistance. It is no doubt true that Sarfaesi Act and Rules have been framed with a view to expedite the recovery of money due to the Bank. However, since the provisions have vested wide power, on the Authorised Officer/Secured Creditor, it is expected such power should be exercised within strict parameters indicated in the Statute and the Rules.

12. In the present case, the bid offered was the same as the reserve price and therefore, the authorised officer could confirm such sale only with the consent of the borrower and the secured creditor. It is crystal clear from the present stand taken by the borrower indicates that there is no consent for confirmation of such sale. As a matter of fact, the Authorised Officer has never bothered to find out from the borrower whether he was willing that the sale should be confirmed, despite the fact that the Authorised Officer had failed to obtain a price higher than the reserve price.

13. The learned counsel appearing for respondents 1 and 2, however, contended that purposive interpretation should be given to the two provisos, which should be read together, and since the main intention is to ensure that the Bank recovers its money as expeditiously as possible and without any unnecessary technical hurdle, and the second proviso should be construed to mean that if the bid price is less than the reserve price, with the consent of the borrower, such auction can be confirmed but when the price offered is at par with upset price, it can be confirmed even without the consent of the borrower.

14. We do not think that in view of the clear language in the second proviso, such a contention can ever be countenanced. In fact, the first and second provisos contemplate the situation that if the bid amount is less than the reserve price, such a position is covered by the first proviso and if the bid amount is more than the reserve price, the situation is contemplated in the main provision. However, if the Authorized Officer fails to obtain the price higher than the reserve price, with the consent of the borrower, the sale may be confirmed only after the borrower and the secured creditor give their consent. By no stretch of imagination, it could be construed that even if the Authorised Officer fails to obtain price higher than the reserve price, he may, confirm the sale without obtaining any consent from the borrower or from the secured creditor.

15. It is contended by the learned counsel for the Bank that as the interpretation put forth by the learned counsel for the borrower is hyper-technical, it should not be adopted as it will defeat the purpose of the Act and the Rules. We are unable to accept this contention.

16. Sarfaesi Act and the Rules thereunder have provided for a speedier and more efficacious remedy to the secured creditors coming within the purview of the Act to realise the debts by sale of the secured asset. Even though the avowed intention is to ensure speedy recovery, Sarfaesi Act and the Rules have laid down several procedural safeguards obviously with a view to ensure that there is no abuse of the extra-ordinary power conferred under the Act and the Rules and to provide a modicum of protection to the borrowers or the person whose properties are sold.

7. It is a well entrenched concept, that when the manner of exercising power is laid down, such power is to be exercised in the manner prescribed or not at all as observed in the decision of the Supreme Court in Indian Bank Association V. Dev Kala Consultancy Services (2004 (11) S.C.C.,1): (Para 28)

"It is well settled that when a procedure is laid down Statutory Authority must exercise its power, in the manner prescribed or not at all."

and in Vimalaben Ajitbhai Patel V. Vatsalaben Ashokbhai Patel (2008 (4) S.C.C.,649). (Para 42)

"The right to property is no longer a fundamental right, but still it is Constitutional right. Apart from constitutional right it is also a human right. The procedures laid down for deprivation must be scrupulously complied with.

A bare analysis of the statutory provisions and more particularly the statutory rules framed under such provisions clearly evince the intention to provide procedural safeguards while enabling the secured creditors to adopt speedier methods. When the statutory rules contemplate a specific provision, it does not lie in the mouth of the secured creditor to contend that even though the Rules lay down a particular procedure, the secured creditor or the Debts Recovery Tribunal or the Authorised Officer, while discharging their duties under the Act and the Rules, is not required to follow the procedure contemplated merely on the ground that violation is "technical", according to the Bank. It is no doubt true that a borrower's property is put to auction only because there is default on the part of the borrower, but that does not give right to the Bank or the Debts Recovery Tribunal or the Authorised Officer to flout the mandatory statutory provision.

18. Learned counsel appearing for the Bank has placed reliance upon a decision of the single Judge of the Madhya Pradesh High Court reported in Air 2009 Mp 13 (Smt. Godawari Shridhar V. Union Of Bank Of India And Another). In the aforesaid case, the reserved price was fixed at Rs.60laks, but at the auction the highest bidder has offered Rs.50 lakhs. At that stage, the Bank informed the borrower that he can sell the property for more than Rs.50 lakhs, if he finds a purchaser for higher amount. In the above context, it was observed by the learned single Judge as follows:-

"8. Parliament has enacted an Act named as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. In exercise of powers under Section 38 read with Sub-sections (4), (10), (12) and (13) of the aforesaid Act, the Central Government famed Rules named as The Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as "Rules of 2002"). Rule 9 of the aforesaid Rules of 2002 prescribes procedure of time of sale, issue of sale certificate and delivery of possession of an immovable property. As per proviso of Rule 9(2) no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price. However, proviso to aforesaid Rules gives power to the authorised officer that if authorised officer fails to obtain a price higher than the reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price...”

10. In the present case, the Bank invited bids for sale of the house and as per the Bank it has received highest bid of Rs.50 lakhs and reserve price of the house has been fixed at Rs.60 lakhs by the Bank. Now the question is that whether the Bank can sale the house in a price less than the reserve price? As per proviso of Rule 9(2) no sale under this Rule shall be confirmed if the amount offered by sale price is less than the reserve price, however, the proviso to the aforesaid Rule further provides that if the authorised officer fails to obtain a price higher than reserve price, he may with the consent of the borrower and the secured creditor effect the sale at such price. Now, the question is that whether authorised officer is bound to sale the immovable property with the consent of the borrower and secured creditor, if he fails to obtain higher price than reserve price or it is the discretion of the authorised officer to obtain the consent of the borrower and secured creditor or without consent he can effect the sale lower than the reserve price?

. . .

13. From the above principle of law laid down by Hon'ble the Supreme Court it is clear that when the word 'may' has been used in statute or rule it cannot always be interpreted that it is a mandatory provision and in view of the provisions of the aforesaid Rule the word

'may' cannot be construed as mandatory because the Act has been enacted to facilitate recovery of loan by the financial institutions. It may be possible that in certain circumstances, as in the present case, financial institution is not in a position to fetch or receive the reserve price, hence it has a discretion to sale the property below the reserve price of the property."

After the above analysis, the learned single Judge issued the following directions :-

"14. In the present case, the Bank has fairly offered the petitioner to sale the property on a higher price, i.e., more than Rs.50 lakhs. From the aforesaid act of the Bank it is clear that the Bank is acting fairly and reasonably. The petitioner herself is not able to sell the property for more than Rs.50 lakhs. Hence, in my opinion, the auction proceedings and notification cannot be held to be arbitrary and illegal.

Consequently, the petition is disposed of with the following directions :-

(1) That the petitioner is granted two months time from the date of this order to find out a purchaser for more than the value which has been received by the Bank, in auction proceedings;

(2) If the petitioner failed to find out purchaser within the aforesaid period then the Bank is free to auction the house as per bids received by it in the auction proceedings."

19. The aforesaid decision no where lays down that where the authorised officer fails to obtain higher price than the reserve price he may confirm the sale even without the consent of the borrower and the secured creditor.

20. Learned counsel for the Bank has also placed reliance upon a decision of the Supreme Court reported in (2004) 8 Scc 671 (Anil Kumar Srivastava V. State Of U.P. And Another), wherein the object of fixing reserve price has been analysed in the following terms :-

"10. On the above submissions, the central point which arises for determination is: whether the tender price of Rs.31,850 per sq m is understated. In the present case, Respondent 2 invited offers for the plot admeasuring 54,320.18 sq m for the shopping mall with 2800 ECS in order to decongest Sector 18. Wide publicity was given. Several reputed developers bought tender documents. However, at the end of the day, there was only one bidder (Respondent 3) in the field. In the present case, mala fides have been alleged, but not pressed. Therefore, the question before us is: whether Respondent 2's decision in accepting the bid of Respondent 3 was arbitrary, unreasonable and in violation of the Board resolution dated 10-7-2003.

11. Before coming to the above challenge, we would like to examine the concepts of "valuation" and "upset/reserve price". In the case of McManus v. Fortescue it has been held by the Court of Appeal that in a sale by auction, subject to reserve, every offer/bid and its acceptance is conditional. That the public is informed by the fact, that the sale is subject to a reserve, that the auctioneer has agreed to sell for the amount which the bidder is prepared to give only in case that amount is equal to or higher than the reserve. That the reserve puts a limit on the authority of the auctioneer. He cannot accept a price below the upset / reserve price. That he could refuse the bid which is below the upset price."

21. The above said general observation may not be applicable to the present case in view of the specific provision that the auction cannot be confirmed without the consent of the secured creditor and the borrower, unless it fetches a price higher than the reserve price.

22. A fair reading of the provisions contained in Rule 9 makes it clear that if the highest bid is higher than the upset price, such highest bid shall be confirmed by the authorised officer in favour of the highest bidder, which, however, is subject to confirmation by the secured creditor. This provision is apparent from the provisions contained in Rule 9(2). At that stage, obviously a discretion is given to the secured creditor to accept the highest bid or even go in for a fresh bid.

For example, if the secured creditor, on the basis of the relevant materials, comes to a conclusion that the highest bid offered, even though higher than the reserve price, does not reflect the true market value and there has been any collusion among the bidders, the secured creditor in its discretion may refuse to confirm such highest bid notwithstanding the fact that the highest bid is more than the upset price. This is because the secured creditor is not only interested to realise its debt, but also expected to act as a trustee on behalf of the borrower so that the highest possible amount can be generated and surplus if any can be refunded to the borrower. The first proviso in no uncertain terms makes it clear that no sale can be confirmed by the authorised officer, if the amount offered is less than the reserve price specified under the Rule 8(5). However, the subsequent proviso gives discretion to the authorised officer to confirm such sale even if the bid is less than the reserve price, provided the borrower and the secured creditor agree that the sale may be effected at such price which is not above the reserve price. This is obviously so because the property belongs to the borrower and as security for the secured creditor and both of them would be obviously interested to see that the property is sold at a price higher than the reserve price. However, if both of them agree that the property can be sold, even it has not fetched a price more than the reserve price, the authorised officer in its discretion may confirm such auction.

23. A question may arise that a recalcitrant borrower with a view to prolong the matter would never agree to sale of the property below the reserve price and what would be the remedy available to the secured creditor at that stage?

In the Madhya Pradesh High Court's decision (Godawari Shridhar's case), the learned single Judge gave further time to the borrower to find out a purchaser for sale of the property at a higher value and if such borrower fails to find out the purchaser, the Bank was authorised to auction the house as per the bids received.

24. Learned counsel for the Bank has submitted that such a course may be adopted in the present case. Even assuming, though not deciding, that such a course would be available, we cannot adopt such a course in the present case in view of the fact that a single bid was offered in the present case and in that sense actually there was no auction. On the other hand, in our considered opinion, there can be a fresh auction by issuing a fresh notice by giving opportunity to the present auction purchaser as well as any other intending bidder to offer a price higher than the upset price.

25. Learned counsel for the Bank further contended that defect if any in the process of confirmation by the authorised officer can also be challenged before the Debts Recovery Tribunal under Section 17 of the Sarfaesi Act and since the petitioner has not availed of such alternative remedy, the present writ petition cannot be entertained.

26. Though it may appear as if there was an alternative remedy, in our considered opinion, existence of alternative remedy may not be considered as a bar in the present case inasmuch as the present case does not require the determination of any disputed question of fact and the matter is being decided purely on interpretation of the statutory provisions and the rules and to relegate the parties to pursue their remedy under the Act before the Debts Recovery Tribunal and thereafter at the Debts Recovery Appellate Tribunal would ultimately be an exercise in futility, which would unnecessarily prolong the matter.

27. Learned counsels appearing for Respondent No.1 and also Respondent No.2 further submitted that in the previous round of litigation before the High Court, the present petitioner could have raised this aspect inasmuch as the amount offered by Respondent No.2 has been disclosed before the Court and, therefore, the earlier judgment should be construed as constructive res judicata.

28. Even though Section 141 of the Code of Civil Procedure (CPC) specifically makes the provisions of CPC are inapplicable to proceeding under Article 226 of the Constitution of India, there cannot be any dispute that the basic principles contained in CPC including the principle of res judicata and constructive res judicata are to be applied to the writ proceedings as a matter of public policy. The previous round of litigation was relating to the question as to whether stay should be granted or not during pendency of the proceedings under Section 17 of the Act. The Division Bench, in view of the peculiar facts and circumstances, set aside the order of stay granted by the Debts Recovery Tribunal. The Division Bench, however, nowhere finalised the matter relating to confirmation of sale. The question which is now specifically raised was neither directly or even indirectly raised in the earlier round of litigation and keeping in view the fact that the writ petition has been filed by the Bank against the order of interim stay granted by the Debts Recovery Tribunal, the question now raised also could not have been and need not have been raised. Therefore, the principles of res judicata or constructive res judicata are not applicable. As a fact the division bench had specifically gave liberty to proceed according to law. If the confirmation is contrary to law it cannot be upheld.

29. For the aforesaid reasons, we are constrained to allow the writ petition with the following directions :-

(1) The confirmation of sale in favour of Respondent No.2 is quashed.

(2) The secured creditor is free to proceed further in holding a further auction by giving appropriate notice as required.

(3) It would be obviously open to Respondent No.2 to withdraw the amount already deposited or keep such amount in deposit, if he decides to participate in the further auction.

(4) The cost of the earlier auction notice as well as cost of any subsequent auction notice would obviously be debited to the account of the borrower.

(5) Before the subsequent auction takes place, it would be obviously open to the borrower to discharge the loan along with all accrued interest and costs, etc., as contemplated under section 13(8).

30. The writ petition is accordingly allowed, subject to the aforesaid directions. No costs.