WP/26446/2005 of M/s. Progressive Associates, Vs Chair Person, Debts Recovery Appellate Tribunal, on 29 December 2005

THE HON’BLE SRI JUSTICE B.PRAKASH RAO

AND

THE HON’BLE DR.JUSTICE G.YETHIRAJULU

WRIT PETITION NO.26446 OF 2005

(DATED : 29.12.2005)

Between:M/s.Progressive Associates rep. by its AuthorisedSignatory P.Hari Prasad S/o late P.B.K.RaoYusufguda, Hyderabad A n dChair Person, Debts Recovery Tribunal, Chennai & others …Petitioner …Respondents THE HON’BLE SRI JUSTICE B.PRAKASH RAOAND

THE HON’BLE DR.JUSTICE G.YETHIRAJULU

WRIT PETITION NO.26446 OF 2005

ORDER:(Per Hon’ble Sri Justice B.Prakash Rao)

Heard Ms.V.Uma Devi, learned counsel for the petitioner, Sri A.Raja ShekarReddy, learned Assistant Solicitor General of India appearing on behalf ofRespondent No.1, Sri B.Chandrasen Reddy, learned counsel appearing on behalfof respondent No.3, and Sri K.V.Subramanya Narsu, learned counsel appearing onbehalf of Respondent No.4.

The petitioner herein, who is one of the bidders in an auction conducted byRespondent No.6, an Advocate Commissioner, on behalf of Respondent No.2, filesthis writ petition inter alia seeking to assail the orders in M.A.No.156 of 2005 dated18.11.2005 on the file of Respondent No.1 herein, as illegal, arbitrary and to setaside the same.

Briefly stated, the facts of the case are that, in pursuance of a claim forrecovery of an amount of Rs.1,72,04,556/-, made by Respondent No.4, which is abank, against 5[th] respondent, which is a company as its dues in O.A.No.97 of 2004,the respondent No.2, the Tribunal, appointed Respondent No.6 as an AdvocateCommissioner as per order dated 5.11.2004 to conduct auction of the assetsbelonging to the 5[th] respondent company. Accordingly, respondent No.6 issued aNotification on 20.6.2005 for conducting auction in respect of whole plant,machinery, furniture and accessories etc. belonging to the said company i.e., 5[th]respondent on 29.6.2005 in the premises of Respondent No.4 bank. In responsethereto eleven bidders including the petitioner herein participated in the auction. Thepetitioner gave a bid offer of Rs.35,40,000/- whereas the other bidder namely, M/sRaja Rajeshwari Steel Traders, Hyderabad, gave a bid offer of Rs.35,50,000/-,which is the highest bid in whose favour, the auction was knocked down andaccordingly, he was declared as the successful bidder and all the participantsreceived back their EMDs. However, since the said successful bidder M/s. RajaRajeswari Steel Traders failed to deposit the balance 75% of the bid amount withinthe stipulated time, surprisingly, the respondent No.6, the Advocate Commissioner,invited the third respondent herein who was in fact placed at the third place with abid of Rs.34,00,000/-, asking his willingness to deposit Rs.35,50,000/-. Thereupon,Respondent No.6 informed the Tribunal about these developments and the amount

deposited by M/s.Raja Rajeshwari Steel Traders was returned. In response to theletter of Respondent No.6, the third respondent deposited the bid amount ofRs.35,50,000/- by way of Demand Draft in favour of Registrar and furtherproceedings were taken even for handing over assets to Respondent No.3.However, on the objections raised by the petitioner in regard to the procedureadopted in directly inviting offer from respondent No.3, who was only at third placeamongst the bidders instead of calling upon the petitioner herein, who was atsecond place, in terms of the bid amount, an order was passed in I.A.No.1183 of2004 noting that the auction conducted earlier was cancelled by the AdvocateCommissioner and a fresh auction was proposed to be held and the AdvocateCommissioner was directed to report by 26.8.2005. Consequently, a tendernotification was also issued on 4.8.2005 calling for tenders afresh. As against thesaid orders of cancellation, respondent No.3 preferred an appeal to respondent No.1in M.A.No.156 of 2005 and the same was ultimately allowed as per orders dated18.11.2005 only on the ground that having accepted the offer of third respondent, theauction ought not to have been cancelled without any proper notice. Therefore,challenging the said orders of Respondent No.1, the case of the petitioner is that theentire procedure adopted by the respondent No.6 is bad, illegal and RespondentNo.3 has absolutely no right to make any claim over and above the petitioner, whostands above the respondent No.3 in terms of the quantum of the bid offer. Hencethe writ petition.

Respondent No.3 filed a detailed counter affidavit supporting the orders of thefirst respondent in an appeal filed by him on the ground that in terms of the offermade by respondent No.6, the third respondent expressed his willingness andaccordingly deposited the entire amount and therefore, there is no illegality in theapproach and the same having been cancelled by the Tribunal, the first respondenthas rightly allowed the appeal. Hence there are absolutely no merits in the writpetition and the same is liable to be dismissed.

On behalf of respondent No.4, Bank, it was their case that they have nothingto do with the procedure adopted and they are only interested in the recovery ofamount for which the auction was held.

On hearing the counsel on either side and on perusal of the material, themain question, which involved in this writ petition, is as to whether on the facts andcircumstances, the auction conducted by respondent No.6 and the proceedings ofthe respondent No.1 in appeal at the instance of respondent No.3 are valid?

There is no dispute to the basic facts that the 5[th] respondent vowed asubstantial amount to respondent No.4, who has approached respondent No.2herein for recovery. In pursuance thereof, Respondent No.6, an Advocate wasappointed as Advocate Commissioner for the purpose of conducting auction.Accordingly, he issued a notification as stated above and ultimately of the bid offersreceived, the offer of M/s.Raja Rajeswari Steel Traders was the highest andsuccessful bid with a bid offer of Rs.35,50,000/-, whereas the petitioner’s offer wasRs.35,40,000/- and the bid offer of the third respondent was only Rs.34,00,000/-Therefore, admittedly, on the face of it, the third respondent was standing at the thirdplace on the basis of the bid amounts received. Though the highest bid offer ofM/s.Raja Rajeswari Steel Traders was accepted, but, however, as the saidsuccessful bidder could not deposit the balance 75% within the stipulated time, therespondent No.6 has to take recourse to other alternatives.

In regard to the procedure contemplated, the learned counsel appearing onbehalf of the petitioner has failed to show any rules and regulations or format as tohow and in what manner, the Commissioner has to proceed. Further, the learnedcounsel also failed to make out that there is any right as such conferred in the nexthighest bid offerer. Be that as it may, the facts show that after the highest successfulbidder failed to deposit the amount, respondent No.6 has taken steps directlycontacting respondent No.3 without any intervention of respondent No.2 or even therespondent No.4, the bank and much less with any notice to other bidders.Respondent No.6 directly called upon respondent No.3 about their willingness todeposit Rs.35,50,000/-, at which rate the highest amount was knocked down.Thereupon, respondent No.3 has accepted the same. In this connection, there is noproper explanation or any support from law coming forth on behalf of respondentNo.6 as to how such a direct offer was made with respondent No.3 when similar such offers were available to be considered either by way of negotiations orotherwise. The respondent No.6 could not have possibly over looked the highest bidamount of the petitioner than that was offered by respondent No.3 in response to theauction notification. There is also no explanation as to why he could not take anyrecourse to make such offers to other bidders.

On the face of it, no doubt, the procedure adopted by respondent No.6 is notonly arbitrary but also unsustainable apart from the fact that the entire action iswithout any notice to the petitioner herein or even to the other bidders. There is alsono dispute to the fact that it is only on the objections raised by the petitioner hereinabout the acceptance of the bid by respondent No.6 in respect of the offer receivedfrom that respondent was called and it is only against that order, respondent No.3preferred an appeal though making the petitioner also as a party, which was allowedonly on the ground that respondent No.3 did not have any notice prior to such anoffer. However, the appellate authority has totally failed to take note of the basic factand correctness of the procedure adopted by respondent No.6 herein in regard tothe giving such an offer directly with respondent No.3 even without any knowledgeof respondent No.4 or Respondent No.2. Further, the appellate authority has totallyfailed to take note of the basic fact as to the locus of respondent No.3 to make anysuch claim nor any enforceable right as such.

However, it has been contended on behalf of respondent No.3 that he has noconcern whatsoever with the absence of giving any notice or similar such offers tothe other bidders and he only responded to the letter given by the respondent No.6accepting to deposit the highest bid amount as proposed. No doubt, nothing can beattributed personally against Respondent No.3 herein, but the fact remains that theentire course of action at the instance of respondent No.6, to which respondent No.3is a party, cannot be said to be a valid one and a fair play.

An argument was also made on behalf of the petitioner that once it is held thatrespondent No.3 has no such right to seek any offer from respondent No.6, the onlyalternative left is to give similar such offer to the petitioner who stands at the secondplace. However, the fact remains that there is any amount of irregularities and lapses being committed since the inception, as a result of which, the entire auctionproceedings totally gets vitiated and the interests of justice would only serve byconducting a fresh auction in a more apt way rather than allowing the things to go inthe same manner at the instance of respondent No.6. In view of the same, it is moredesirable that instead of conducting any such auction through an AdvocateCommissioner, it is left open for respondent No.2 to take further steps and also theprocedure by conducting auction through its own officers, men and machinery ratherthan taking any recourse to any such procedure.

Ratio decidendi

In the circumstances, we hold that the auction proceedings at the instance ofrespondent No.6 are totally unsustainable and are accordingly set aside. We alsohold that even the very appointment of respondent No.6 as Advocate Commissionerto hold any such auction is not in the interests of either respondent No.4 for whosemoney, the auction is held nor would it be in the interests of any prospective biddersand the third parties.

The writ petition is accordingly allowed. The entire impugned auctionproceedings conducted by respondent No.2 by appointing respondent No.6 asAdvocate Commissioner in O.A.No.97 of 2004 on its file are set aside and the orderin M.A.156 of 2005 dated 18.11.2005 on the file of respondent No.1 is set aside. It isleft open for the respondent No.2 to take such steps and conduct auction on its ownand in accordance with law.

The writ petition is accordingly allowed. No order as to costs.

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B.PRAKASH RAO, J

RAR

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DR.G.YETHIRAJULU, J