OSA/1/2025 of Union Bank of India Vs Gopu Bal Reddy on 8 January 2026

JUDGMENT

(Per Hon'ble Sri Justice K- Lakshman) Heard Sri B.S Prasad, leamed Senior Counsel representing Nzl/s Pearl Law Associates, leamed counsel fbr the appellant, Sri L. Venkateshwar Rao, leamed counsel for the I '' respondent, Sri. G. Kalyan Chakravarthy, leamed counsel tbr respondcnt Nos'2 and 4 and Sri Duwa Pavan Kumar, learned counse I fbr 5'h respondent' None appears for 3d Respondent.

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2. This OSA is filed challenging the or<[, r dated 2g.03.2025 passed in C.A. No. 70 of 2025 in C.p.No.170 f 2012 and batch. whereby the learned Company Court Judge, he .d that the aucrion conducted by appellant bank was not in accordanc : with law. Leamed .ludge set aside the auction conducted by appellanr rank.

3. Thc appellanr is the Union Bank of In lia. 1., respondent herein is the applicant, former Director of 2nd respo rdent / company in liquidation. 2nd respondent is represented by Offic r I Liquidator (Ot_ ). 3'd respondent is a company which offered an ar rount of Rs.32.39 Crores towards sale consideration in respect of the : ubject property to the appellant bank. 5,h Respondent is the auction pur ;haser.

4. l-he I' respondent / Applicant filed C.A.N I 70 of 202-5 undcr Section 446 e)and 537 of Companies Oo, ,116 ( lrr reinafter relerred to as 'Acr, 19j6,) read with Rule 9 of the Compani:s (Court) Rules. I959 ( hereinafter called as .Rules 1959,) to decl re the action ol_ appellant bank in proceeding against the asset (,. 2nd respondent without seeking leave of the Company Court, as illegz L

5. It contended that: 2'd respondent herein was irrcorporated on 25.O7 .2006 under the Act, 1956, engaged in manufacture of power distribution of trans formers . 2nd respondent became sick and on 31.10.2013 reference was made to the then Board for Industrial and Financial Reconstruction (BIFR) and it was registered. Upon filing of winding-up petitions, vide order dated2l.O8.20l8, the company was wound up. Company Court appointed OL to take over the assets and liabilities of 2nd respondent, to sell the same and disburse the said amount to the creditors. l-he secured asset i.e. Plot No.40, Industrial park, Pashamylaram vi llage, Patancheru Mandal, Sangareddy District in Survey No.315,317,318,319 and 336 admeasuring 20,675 sq.m was taken over by the OL pursuant to the said winding up order. It is in the physical possession of the OL. As per Sections a 6 (l) ard Section 537(l) of the Act. 1956, no suit or legal proceeding shall be commenced against the company except by the leave of the court and any attachment, execution, without leave of the company Court is void. IV \ - ll1.

l"t respondent/Applicant was the Director of I along with his spouse stood as guarantors f,r by 2nd respondent by mortgaging their persortz have submitted onetime settlement (OTS t appellant bank vide email dated 14.09.2023 Crores towards full and final settlement to th,: their personal assets, -fhe said proposal wzLl appellant bank vide letter dated 29.09.2023. appellant bank, it has cancelled the said OTS not paid by him within due time. l " respondent/Applicant has identified z respondent herein, who is wilting to pay an iu Crores, and 3'd respondent has also obtained r Rs. l0 Crores and oflered to the appellant barl nd respondent, he the loan availed I properties. They proposal to the offering Rs. 3.00 extent of value of accepted by the According to the as the amount is buyer i.e. 3"t .rount of Rs.32.29 demand draft for vt

vii. Even then. appellant bank proceeded wit L auction of the aforesaid secured asset. Despite letter dated )7.01.2025 of the OL, the appellant bank failed to seek leave of the Company Court to proceed rvith auction of secured assr: and has issued E- auction notice dated 27 .01 .2025 fixing aucti n on 28.02.2025. Auction was conducted on 78.02.2025. /

vlll. Thus, according to I't respondent/Applicant, the said auction, without leave of the Company Court is arbitrary, illegal, and contrary to the provisions of the Act, 1956, causing ineparable loss to the Applicant and liquidation estate.

5. On the other hand, th€ OL has fited a report dated 28.02.2025, before the learned compafly court requesting to declare the ongoing sale proceedings as void, and to direct appellant bank to conduct a fresh sale in full association and supervision of the OL from valuation to final sale, and also sought for remitting an amount of Rs.2,00,000/- to the OL towards advertisement charges for publication ol notice inviting creditor claims, including workmen and PF dues

6. The OL further stated that the appellant bank sought NOC on 27.12.2024 to proceed under SARFAESI Act, and issued an e-auction notice on 09.12.2024 fixing auction on 10.01.2025. The OL objected the said conduct o[ auction by letters dated 07.01.2025 and 06.02.2025, advising the appellant bank that, the secured asset is in the custody OL, no sale can proceed without leave of the Company Court. The OL participation is mandatory at all stages. He has also (

r\ referred to order dated 01.08.2019 of Company C< urt in C.A. No.624 of 2018.

7. The appeltant bank, by letter dated 14.02 Asset valuations from empanelled valuers namcl Associates and M/s. SRA Consultants valuating tlr at Rs. 23.51 Crores and 24.76 Crores respectiv machinery at Rs.0.26 Crores, but fixed the reserz Crores without any basis, and did not involve the ( valuation reports, making the process no objectionable. The OL turther stated that appellar and veri! creditor clairns, but 2"d respondent has thus sought for deposit ol Rs.2,00,000/- lor advr Accordingly, thc OL prays that the present sale I and fresh, lawful sale be directed under Compan y with OL involvement. 2025, indicate{_an ' IWs Navanirman , Iand and building :ly and Plant and price at Rs.2t.l8 L in valuation and r-transparent and . bank must invite ro available funds, rtisement charges. : declared as void Court supervision

8. Opposing the aforesaid contentionr; appellant bank contended belbre the leamed Company Court Jt dge that although statutory notices under Section l3(2) and l3(4) rf the SARFAESI Act, were not served on the O[-, a sale notice q,z.r admittedly issued and communicated ro the OL by letter dated 27.12.2024, which according to the bank, constitutes suflicient intimation. The purpose of notice to the OL is only to ascertain and protect workmen/pF dues and to enable prioritization of claims, not to confer any right to object to the secured-asset sale itself. It further urged that non_service of notices under Section 13 of SARFAESI Act, is not fatal, as the OL raised no objection after 27.12.2024. The present application is not maintainable since the applicant lacks locus to seek a.declaration of sale as void or to question the auction process. The appellant bank also contended that having elected to remain outside liquidation since 07.01.2019, creditors' meeting, it holds an independent statutory right to realize its security without Court leave. It has already fixed the reserve price on the basis of empanelled valuations, and is prepared to safeguard and pay workmen/pF dues from the realized sale proceeds. With the said contentions. appellant bank sought to dismiss the said company application filed by the applicant/ respondent No.l herein.

9. On hearing both sides and on considering the material on record, leamed Company Judge, allowed the company application filed by the l " respondent/Applicant holding that l"t respondent / ApplicantfuElocus ro file the said apprication and it is maintainable. (

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However, learned Judge, set aside the auction appellant bank on the ground that the said auct appellant bank is in violation of the provisions o1' SARFESI Act and Rules framed thereunder. It wa conducting auction by the appellant bank witlr Oflicial Liquidator at every stage, including at th(i valuation report and without putting the OL on Leamed Judge also placed reliance on the principl Apex court in l\Iathew Varghese vs. M.Amritha Pegasus Assets Reconstruction (P) Limited vs. Ltd2 and order dated 01.08.2019 in C.A.No.624 of onducted by the on conducted bY he Act, 1956 and ; further held that rut involving the stage of obtaining notice is illegal. laid down by the Ku ma rr and also Flaryana Concast 20 I 8 of this court.

10. Aggrieved by the said order, the appel ant bank prefened the present appeal contending:- l tt Respondent/Applicant or OL il aggrievc< by the measure of sale of the secured asset by the appellant rank, they have to approach the DRT which is the competent onrm to adjudicate their grievances ,20t4 5 SCC 610 ,2016(4) SCC 47

t ll. lI lv. wl The learned Company Court Judge, erred in entertaining an Ex- Director's application despite supersession of the Board upon admission of the winding-up petition. The Company Court Judge, failed to appreciate that a secured creditor who opts to srand out of liquidation proceedings is entitled to enforce securiry independently under SARFAESI Act, without leave of the Company Court. The Company Court Judge incorrectly expanded the role of the OL, ignoring its minimal and procedural character in secured assets The finding disregards rhat 30-day prior notice and dual valuation by registered valuers. The Court ignored binding ratio in United Bank of India v. Satyawati Tandonr on non-interference with SARFAESI measures

vii. Reliance on OTS ofl'er ol Respondent No.1 is misplaced as the said proposal was conditionat and admittedly not complied with. ' 2 or o(8)scc r ro

l0 The Company Court erred in presuming that t uction realization -, of Rs.25.80 Crore shows prejudice to othel creditors, despite outstanding admitted dues of Rs.109.62 crore lx. The interference causes grave prejudice to se,) Lred creditors The Company Court erred in overlooking th r the OL was duly vlll x. 1l intimated of the sale, including dual reg i tered valuations, reserve price, and 30-day pricr auction notic(). 'xith no objection raised, thereby fulfilting all procedural rec rircrnents of OL intimation

11. Whereas, leamed counsel for the OI- ar ] lcarned counsel appearing for ltt Respondent would contend that Once a winding up order is passed, the asset i o I the company in liquidation stand in custody of Company r- rurt and Sections 446(1) and 537(1) ofthe Act, 1956 bar an1' r'oceedings against the assets of the company in liquidation r.r,'i tt r trt the leave of the Company Court. The appellant tailed to obtai r sr,rch leave. Excluding the OL from valuation and sale pr )cesses det-eats the objective of fair and transparent liquidation I rocess. Vide order tsatea Ol.OS.Z019 in C.A No.624 of 2018. lris court has held lt Iu. lv. -.- it. that the secured creditors must associate with the OL in I iquidating secr-rities. Sections 529,52gA and 530 of the Act, 1956, cast a duty on the OL to protect and prioritize claims of secured creditors and workmen. The e-auction conducted by the appettant bank fetched a lower value than could have been realized under Court_supervised liquidation. On consideration of the said aspects only, learned Company Court Judge, passed the impugned order and there is no error in

12. Whereas learned counsel for 5rr, Respondent / auction purchaser contended that the appellant bank suppressed order dated 28.02.2025 and received an amounr of rupees 6.45 Crores from it towards 25Yo of the auction amount. .fherefore, it is entitled for refund of it. All the leamed counsels appearing lor respective parties made their submissions extensivel v.

13. In support ol his contentions, leamed counsel for the appellant frula .etiun.e on rhe principle laid down by the Apex l2 Court in Pegasus Assests (sup.u), Official Li< Pradesh and Uttarakhand Vs. Allahabad Banka' Gupta V. Banaras Bank Ltds, Allahabad Bank'v United Bank of India (s.pr.), Whirlpool Corporal of Trade Marks, MumbaiT, Chandra Proteco L Finance Ltd. & Allahabad BankE, Laxmi Fil Andhra Pradesh Industrial I)evelopmenUcorp'r The Assistant Commissioner of State lax an'l Commercial Steel Limitedr0, Jayanti Ranr Chairman of VTX Industries Ltd' V' Official Lir Kumar V. Pearl Cycle Industries Ltd't2 uidator, Utta r tyothi Bhushan Canara Bank6 on V. Registrar imited V. I-&'l' res Limited V. 'ation Limitede, Otherc V. M/s rchandran Ux- uidatorrr. Vivek

14. In support of his contentions, leamed co: rsel appearing tbr OL placed reliance on the principle laid down in Jin ndra Nath Singh V. Ollicial Liquidatorl3, Pegasus (supra) and ortl r dated 1 08 20 19 in C.A No. 624 of 2Ol8 of this Court '(20r3) 4 scc aEl ' AIR 1962 sc 403 " (2ooo) 4 scc 406 ' ( ree8) 8 scc I I1 20 l8 scc online cal I l7l7 '(zots) t6 scc +6+ 'o Civil Appeal No.512l of202l " 2020 scc Online Mad 21330 'r t98l Tax LR 2405 '' (zo t:) tscc a62

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15. Further,- Respondent No.5 relied on the principle laid down by the Apex Court in llelhi Development Authority V. Corporation Bankla, High Court of Calcutta in Deepak Kumar Agarwal V. Union Bank of Indiars and Division Bench of this Court in K. Indra Mohan V. Union of India16. ANALYSISAND FIIYDINGS OF THE COURT:

16. It is not in dispute that vide order dared 21.0E.2018, Company Court passed winding up order and appointed OL, who in turn, took over the assets and liabitities of 2nd respondent including the secured asset.

17. It is also not in dispute that appellant bank proceeded with conduct of auction of the secured asset contending that 2nd respondent obtained loan by mortgaging the secured assets. l" respondent / Applicant and his wife stood as guarantors lor the said loan.

18. It is the specific contention of the l" respondent / Applicant and OL, that the said auction is in violation of the provisions of the Act, 1956, SARFAESI Act, and the appellant bank lailed to put the 'o 2025 lNsc I 16l '' wPA No.2557t of2024 tu O.der dated 14.10.2025 in W.P.No.14510 of 2025 of Division Benchof this Courl. \_

t4 OL on notice and it has conducted auction withou. seeking leave of the Company Court, which is mandatory.

19. In the light of the said contentiops, it is ag I to refer Sections 446, 529(A), 537 of the Act, 1956 and cert.in provisions of SARFAESI Act and Rules which are relevant are er Lracted below:- Section 446:- SUITS STAYED ON 1YINDING t P ORDER (l) When a winding up order has teen made or the Offici; I Liquidator has been appointed as provisional liquidator, no suil or other legal proceeding shall be commenced, or if pending at .he date o[ the winding up order, shall be proceeded with, against. th( ompany, except by leave of the [Tribunal] and subject to such terms , s the [Tribunall may impose.

(2) The [Tribunal] shall, notwithstanding anything t cntained in any other law tbr the time being in force, have jurisdicti,r , to entertain, or dispose of- (a) any suit or proceeding by or against the company (b) any claim made by or against the company (inclt.< ing claims by or against any of its branches in lndia) ;

(c) any apptication made under section 391 by or I respect of the compan)'; (d) any question of priorities or any other quei Lon ra'hatsoever. u,hethcr of law or fact, which may relate to or aris: in course of the winding up of the company ; whcther such suit or proceeding has been instituted, c ' is instituted, or such claim or question has arisen or arises or such app ication has been made or is made before or after the order for the 'r nding up ol the company, or before or after the commencement o the Companies (Amcndment) Act, 1960. r)

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(4) Nothing in sub-secti.rn (l) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme C-ourt or a high Court. Section 529A. : OVERRIDING PREFERENTIAL PAYMENTS

(l) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up ofa company - (a) workmen's dues ; and (b) debts due to secured creditors to the extent such deSs rank under clause (c) of the proviso to sub- section (l) of section 529 pan passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (l) shall be paid in full, unless the assets are insuflicient to meet them, in which case they shall abate in equal proportions. Section: 537, AVOIDANCE OF CERTAIN ATTACHMENTS, EXECUTIONS, ETC,, IN WINDING UP BY TRIBUNAL

(l) Where any company is being wound up by the Tribunal - (a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or (b) any sale held. without leave of the Tribunal of any of the prope(ies or eflects of the company at'tcr such commencement; shall be void. (2) Nothing in this section applics to any proceedings foi the recovery of any tax or impost or any dues payable to the Govemment.

20. Relevant Provisions of SARFEASI Act are as follows:-

13. Enforcement of security interest.-

(l) Notwi0rstanding anything contained in section 69 or section 694 of the Transfer of Property Act, lEE2 (4 ol t882), any security intercst created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance u'ith the provisions of this Act.

(2) Where any hrrower, who is under a liability to a secured creditor under a security agrcement, makes any default in repayment of secured debt or any installment thereoi and his account in respecl ol such debt is classified by the secured credi{or as non-performing asset, then. the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to thc secured crcditor withrn sixty days \

l6 from the date of notice failing which the secgred :reditor shall be entitled to exercise all or any ofthe rights under sub-.;r ction (4). Provided that (i) the requirement of classification o secured debt as non-performing asset under this suEsection shal t not apply to a borrower who has raised funds through.issue ofdebt r :curities; and (ii) in the event ofdefault, the debenture trustee shall be r rtitted to enforce security interest in the same manner as provided undr:; this section with such modifications as may be necessary and in acc rrdance with the terms and conditions of security documents executec in favour of the dcbenturc lrustee

(4) In case the borrower fails to discharge his liability in full within rhe period specified in sub-section (2), the secured r:r :ditor may take recoursc to one or more of the following measut € i to recover his sccured debt, namely:- (a) takc posscssiorr of the secured assets ofthe borrrr ver including the right to transf'er by way of lease, assignment or sale for realising the sccured asset:

(h) takc cvcr the nlanagement of the business of the tx rrower including the right to transfer by way oflease, assignment or sat for realising the sccured asset. [)ro',,idctl rhat the right to transfer by way of lease, r signment or salc shall hc excrcised only where the substantial part of t e business olthe horro"vcr is hcld as security for the debt: Provided l rther that ,uvhere thc manaqcnrcnt of whole of the business or part I the busincss is scvcrable. lhe secured creditor shall take over the miu agement of such hLrsincss ot'the bonower which is relatable to the iecru ty for thc debr;

(c) appoint any person (hereafter referred to as I re manager). to nranage the securcd assets the possession of which hrr: been taken over br thc sccu red creditor; (d) rcquirc ar any time by notice in writing, any acquircd anv ol'the secured assets from the borrorver an\ n)onc\ is due or may become due to the bor.i sccured crediror, so much of the money as is sufl sccurcd dcbt. rerson who has and from rvhom wer, to paY the :ient to pay the Sccuritr lntcrest Enforcement Rules, 2002

8. Sale of immovable secured assets.-

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(6) the authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub- rule (5): 2l.In Pegasus Assets Reconstruction (supra), the Apex Court held that a secured creditor, can enforce its security independent of winding-up proceedings, and thaf Section 529-A priority appties only to the distribution of sale prooeeds, at post sale stage or sale stage. The Court further clarified that the Company Court's jurisdiction is limited in dealing with surplus, after satisfaction of the s€cured debt. It was also held that OL, as a representative of the borrower company under winding up, has to be associated not for supplying any omission in the SARI-EASI Act, but because of express provisions therein as well as in the Rules.

22. Paragraph No.30 of the said judgment is relevant and it is extracted below:- "30. .....If the borrower is a company in liquidation. the sale proceeds have to be distributed in accordance with th€ provisions of Section 529-A of the Companies Act; even where the company is being wound up after coming into force of the Sarfaesi Act, if the secured creditor of such company opts to stand out of the winding-up proceedings, it is entitled to retain the sale proceeds ol its secured ass€ts after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529-A of the Company Acr. The third proviso is also meant to work out the provisions of Section 529-A of the Companies Act, in case the workmen's dues cannot be It ascertained, by relying upon communication of estirr by the liquidator to the secured creditor, who has to (.( ofsuch estimated dues with the liquidator and then it c proceeds ofthe secured assets. The other two provisos the liquidator to discharge his duties and obligati: Section 529-4 of the Companies Act. Thus, it is required provisions of the Companies Act have ber:r the Sarfaesi Act for harmonizing this Act with the l respect of dues ol workmen and their protection unrl of the Companies Act. [n view of such exercise aL'e legislature, there is no plausible reason as to tak(: provisions ol thc Companies Act and permit irt proceedings under the Sarfaesi Act either by the Conq liquidator. As noted, earlier, the Official I- i representativc of thc borrower company under u'i be associated, not for supplying any omission in but because of cxpress provisions therein as wcl Hence, the exercisc of harmonising that this Court ha the context of the SFC Act or the RDB Act is no [c,r respect of the Sarlaesi Act vis-d-vis the Companies Ac

23. 'I'he Apex Court in Official Liquidar:r and Uttarakhand (Supra), refcrring to the princi in Jyothi Bhushan Gupta (supra) held that DRl' jurisdiction to adjudicate and sell secured assets l of Debts due to lJanks and Financial Institutions l\ 'RDDB Act'). overriding Company Court powers under the Act, 1956. The Apex Court referred ir Central Bank of IndiarT wherein it was held tha, jurisdiction to sell the properties in a proceedirr rte of such dues losit the amount ur retain the sale rlso are in aid of rs arising under :vident that the incorporated in rmpanies Act i1r r Section 529-A rdy done by the recourse to any rference in the any Judge or the luidator as a rding up has to he Sarfaesi Act rs in the Rules. I to undertake in ger warranted in r, Uttar Pradesh rle laid down by it )xercises exclusive nder the Recovery :t, 1993 ( for short, during winding-up Pravin Gada V. DRT has exclusive I instituted by the '' 120t];z scc Iot a l9 banks or financial institutions, such sale must be conducted with a notice and association of the oL so that the interests of workman and other stakeholders are duly represented at auction stage.

24. The Apex Court in Allahabad Bank vs. Canara Bankr8, held that Section 34 of the RDDB Act, has overriding effect over other [aws, including provisions of the Act, 1956 to the extent of rnconslstency.

25. It was further held that a secured creditor can realize its security without obtaining leave of the Company Court, by standing outside winding-up. The Apex Court clarif,red that Company Court,s jurisdiction is not over the enforcement or sale of secured assets, but is limited to the stage of distribution of surplus, if any, remaining after lull satisfaction of the secured creditor's debt, ensuring that such surplus, once remitted, is dealt with as per Section 529_A of the Act, 1956, priorities in winding-up. The decision did not expand rhe powers of the OL to supervise, control, or veto the sale of secured assets, nor did it hold that the secured asset forms part of the liquidation estate ar the stage ofrealization. '' (:ooo) ,r scc +or

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26. Paragraph Nos.62 and 64 of the said jud3 :Irent are relevant and the same are extracted be[ow:- "62. Secured creditors fall under two categories. Thr> e who desire to go before the Company Court and those who ike to stand outside the winding-uP.

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64. The second class ol secured creditors referre<l those who come under Section 529-A( l)(b) read wit t Section 529(l). These are those who opt to star.l winding-up to realize their security. lnasmuch as S permits distribution to secured creditors only in a': Section 529-A, the said category is the one consist I who stand outsidc thc uinding up. These securr: certain circumstances can come before the Compal.l the Tribunat) and claim priority over all other credil of amounts ou1 of thc othcr monies lying in the o (here, the Tribunal). This limited priority is declt 529-A(l) but it is rcstrictcd only to the extent spcc (b) of Section 529-A( I ). l'he said pr-ovision refers t the proviso to Section 529(1) and it is necessary tc scope of the said provision." to above are proviso (c) to I outside the :ction 19(19) ordance with g of creditors creditors in , Court (here, rrs for release rmpany Court ed in Section fied in clause r clause (c) of rnderstand the

27. The Delhi High Court, in Vivek Kumar (supra), held that the applicant therein. not being a crcditor, sharehrl der or contributor, possessed no locus to contest decrees passed agailr 't the company and applicant right to chatlenge was confined only to he personal deqee passed against hirn. I hc Coun analyzed the scopx of Section 446 of the Act, 1956, and realfirmed that unless an appl I ant falls within the €ateglbrlcs recognized under the Act' creditor, c. ltributor or person -/ l

2t affected in law, he cannot maintain an application challenging decrees binding on the company in liquidation.

28. The High Court of Madras in Jayanthi Ramachandra (supra) held that a sale pursuant to a valid assignment cannot be interdicted unless fraud or jurisdictional error is demonstrated. Interim protection was granted only to prevent an irreversible situation pending adjudication of the main application, but the Court observed that the company court's jurisdiction cannot be invoked to unsettle transactions completed under statutory frameworks and recognized by prior binding orders.

29. In Jitendra Nath Singh (supra), the Apex Court has unequivocally held that, in Iiquidation proceedings, the dues of workmen and secured creditors enjoy a pari passu charge under Section 529-,4. ol the Act, 1956. The Court further affirmed thar rhe Official Liquidator acts as the statutory custodian and representative of the liquidation estate, and any sale or transfer of the company's assets cannot be carried out without due notice. The Apex Court emphasized that such transparency is essential to safeguard the rights (} 't) of stakeholders and to ensure that the tiquidation esi, .te is not alienated without the knowledge of its lawful custodian.

30. Relying on the principte laid down b;' it, in Whirlpool Corporation (supra), Apex Court in Assistant lommissioner of State Tax (supra), held that the existence of an alrt mate remedy does not bar to maintain a writ petition under Article 22(' cf the Constitution of India. However, it may be ente(ained in exceptic I al cases involving:

(i) breach of fundamental rights; (ii) violation ol I atural justice; (iii) excess of jurisdiction; or (iv) clrallenge ic the v;, es of a statute or delegated legislation.

31. In Laxmi Fibres Lttl. (supra), the Apt x Court exarnined whether the OL could claim autirority to adjrr licate or quantiff secure&creditor claims outside rvinding-up proc( edings' AnalyzinS Sections 529, 529-A and 445 of the Act, 1956, tr: Court reaffrrmed that secured creditors retain thc statutory option eil rer to stand outside the winding-up and realize their security indepe I lently, or to come within the winding-up fold and prove their debt:; The Court further held that where a secured creditor exercises i-: right outside the winding-up, the OL's role is lirnited to ensuring those workrnen's dues and pari passz rights are protected.

32. The High Court at Calcutta in Chandra proteco Ltd. (Supra) while relerring to pegasus (Supra) it held that the OL if satisfied that the assets of the company in liquidation are secured asset of the bank he should make over the symbolic possession thereof to the applicant bank to efrecr the sale. The applicant bank should .conduct the sale observing all formalities upon prior.notice to the oL : and after the sale proceeds availabre for distribution so that the oL after scrutinizing thc claims or the workmen; if any and other secured creditors apart fiorn thc ba'ks can formulate a sctrems to distribute the same amongsr thc secured credirors including the applicant bank.

33. The Aper Courr in United Bank of India (supra), reaffirmed that the High courts rnust exercise extreme reshaint in interfering with flnancial-rccovery proceedings under SARFAESI Act, and other debt-rcco\ er!- statutes. f he borrower therein challenged SARFAESI measurcs initiatcd bi, the bank directly under Article 226 of constitution ol- India. on cxar.ination of the facts of the said case, the Supremc Cour-t hcld that thc. I{igh Court should not have /1

entertained the writ petition and passed interim order r lnoring the fact that the respondent had an effective and alternative re nedy under the provisions of the SARFAESI Act

34. The sum and substance of the principlc r id down in the aforesaid judgments is:-

a. A secured creditor can conduct auctiorl ol r;, cttrcd asset' by invoking the procedure laid down undcr i \liI'.AI]SI Act, without seeking leave of the Cotnparry' ( o 11 but secured creditor shall necessarily associatc "vitlr tlrc ()1. and involrc the OL at every stage including thc stagc ol' t,t't ining valuation report ofa 'secured asset.'

b. The secured creditor shall put the OI- on trotic(' tt cr cry stage ol the auction of the secured asset right {iorn tht' ' rec ol'obtaining valuation report to conduct ol auction atttl rcal . atiorl ol'secured debt. Despite availability of altcrnativc rcntcth.. rr rrrit pctition ts c maintainable under Article 226 ol' tltc ('otr: t tution of lndia, under the following exceptional

l) breach ol CitSCS LL fundamental rights, 2) violalion ol' principlcs , l nartrral .iustice

3) Excess of jurisdiction 4) challenge to the vires of the statute or delegated legislation.

d. The secured creditor may, in principle, enforce security outside the winding up, however, such enforcement is subject to the limited supervisory jurisdiction of the Company Court to ensure equitable treatment of all the creditorc and compliance with injunctions issued by DRT

35. In the light of the said principle, coming to the facts of the case on hand, as discussed supra, the undisputed facts in tire present case are as follows:- 2nd respondent has obtained loan tiom appellant bank anil failed to repay the samc. 'l'herefbre, appellant bank has filed OA No.302 of 2017 and obtained recovery certificate from DRT-II , Hyderabad lor an amount of Rs.69,60,61 ,165.16 against the 2nd respondent and its Directors including ls respondent herein and his ir.if-e. iD 2nd respondent was ordered to be wound up on 21.08.2018.

iii) On 07.01.2019, a meeting was held with secured creditors of 2nd respondent at the otlce of OL, Corporate Bhavan, ['

l" floor, Bandlaguda (Nagole), Hayath Irz District, wherein Mr. C.P.Srivatsava. Manager of the appellant bank participatec ir) I't respondent is an Ex-Director of 2nd res :r

v) He and his wife stood as guarantors to tl ( 2nd respondent by mortgaging their persoru vi) He along with his wife has submitted C' appellant bank by way of sending e-mar I sum of Rs.3 Crores towards fu[ and fin r extent of value of their personal assets.

vii) He has also identified a buyer i.e. 3"r res;r is ready and willing to buy the pr,r respondent for an amount of Rs.32.39 Cr r ,t gar, Ranga Reddy \ssistant General rndent. loan obtained by lasscts. 'S proposal to the offcring to pay a settlement to the rndcnt herein who )!-11! of the l''d 'cs ri ithin l0 da_vs of acceptance of the proposal by tht appellant bank According to l"t Respondent herein, 3'r [i, spondent has also obtained a Demand Draft for an amour r o1' Rupees 10.00 Crores to pay it to the appellant bank.

viii) Vide letter dated,29.09.2023, the comperi rr alrrhorirv of rhe appellant bank approved the said OTS br arl arnounr of

Rs.29 Crores towards full and final settlement of running ledger of 2nd respondent on certain conditions. i*) Vide letter undated, appellant bank informed ls respondent and his wife that the upfront OTS amount of Rs.0.l0 Crores deposited in no lien account will be adjusted immediately upon sanction communication and borrower shall pay the balance OTS amount of Rs.2.9 Crores within sixty days from the date of communication of sanction to the borrower.

x) Vide letter dated. 27.03.2023, l'' respondent has stated that he has identified one prospective buyer namely; Mr. Balakrishna Rao, Ilyderabad, who deposited an amount of Rs.3 Crores with thc appellant bank by way of D.D.Nos.53 I 97 l, 53 l9l 2, 5 3 I 9 7i. 53 197 4, 5 3 197 5, 53 1979 dated 16.03.2023 and I7.0l.l0ll respeclively drawn on Kotak Mahindra Bank. xi) Vide letter dated 29.09.2011. thc appellant bank, while approving the O'l'S submitted by, the l'r respondent, informed the 2nd respondcnt rhat the O-l'S amount of Rs.2.90 Crores deposited in no lien accounr wil I be adjusted immediately upon sanction of cornntunication- xii) Vide letters dated 30.10.2023, Ol.t2.2O2:, appellant bank informed the I't respondent that he failed to pay the balance OTS amount of Rs.26.10 Crores withir the rimetines committed by him and sanctioned by bank, I is OTS sancrion stands lapsed and the upfront amount paic by him stands [orfeited.

xiii) The Appellant Bank, vide letter dated 07.Ol 2\lg exprcsscd its intention to stand outside the winding-r 1 proceedings in the creditors' meeting held at the office ol thc Ol'licial L iqu idator.

xiv) 'f he Appellant, thereafter issued a sa l. notice dare d 27 .12.2024 proposing to sell the secure I Asser public auction, which was scheduled on 10. ) l.l0l5.

xv) The OL, by communication dated 07.01.it( r25, obiecrcd t<r the auction attempt on the ground that leavr I I the (lornpan_r Court had not been obtained and that bids :ught not ro Lrr- invited without such leave.

xvi) In response, the appellant bank sent a reptl datcd 27.01.2025, to the OL stating that upon obtaining opinion, its counsel had advised that no pr or leare of thc thror,rqh lega

Company Court is required for sale of secured assets under the SARFAESI Act, 2002 and therefore it has decided to stand outside the winding-up proceedings. Appellant bank also placed reliance on the principle laid down in Pegasus Assets Reconstruction (supra).

xvii) Appellant bank has issued notices under Section 13(2) and l3(a) of the SARFAESI Act, d,ated 26.03.2024 and possession notice dated 01.10.2024 and notice dated I I .10.2025 with regard to sale of sccured asser.

xviii) Appellant bank has conducted auction ol the secured asset on 28.02.2025, pursuant to the E-auction notice dated 27.0r.2025.

xix) 5th respondent stood as successful bidder b1, oft-ering an amount of Rs.25.80 Crores and it has paid an amount of Rs.6.45 Crores, 25Yo of the bid amount including EMD

xx) Vide its letter dated 27.12.2024, appellant bank sought NOC from OL for recovery through SARFAEST iO I'S/DRT

36. As discussed supra, there is no need ol appeltant bank obtaining leave from the company court to conduct auction of secured asset. At the same time, appellant bank shall put the OL on notice right from obtaining valuation of the secured asset The OL, as a representative of the borrower company und: winding up proceedings, has to be associated not for supplying my omission in the SARFAESI Act, but because of express provisiorr, therein as well as in the Rules.

37. In the tight of the same, it is to be noted .l at the appellant bank has obtained valuation reports dated 29.11.r-022 from l:.R K.Vamshikrishna Reddy, panel valuer, for an amour t of Rs. 644.1,1 Lakhs in respect of 1239. l3 sq.yards in Sy.No..).1 and 317 o(' Quthbullapur lvlandal, Medchal Malkajgiri Disr ict and datcd 15.02.2023 liom Varasiddi Vinayaka Associates, a tr: nk panel valucr tbr an amount of Rs. 10,53,24,000/- in respect of '.39.13 sq.yards. situated in Sy'.No.3 I I and 3 l7 of Bahadurpalli 'l llage, Mcdchal Matkajgiri District. Further, the appellant bank has ol; ained Valuatiorr Report dated 19.0 I .2024 from SRA Consultants v,r ere the Market value of the property is mentioned as Rs, 24,75,55,00( L and realizablc sale value is 21.04,21,000L. lt has also obtained valuz Lion report fll)nr Navaniramarr Associates dated 22.01.2024 whereir the fair market value is mentioned as 23,51,00,000/-. The bank, i ,de letter dateil 3l 14.02.2025, has fumished the copies of the aforesaid valuation reporrs to the OL. The above valuations are without association of the OL.

38. It is apt to note that appellant bank did not pur the OL on notice while obtaining the said valuation reports. It has also not inlormed the said fact to the OL and fumish copies of the said valuation reports.

39. It is also relevant to note that the appellant bank did not serve copy of demand notice issued by it under Section l3(2) of SARFAESI Act upon 2nd Respondent. In the said notice, appellant bank has mentioned comp ry address i.e. plot No.40, in Sy.No.3l5, 317,318, 319 and 336 phase-l, TSIIC - [ALA, pashamylaram Vitlage, Patancheru Mandal, Sanga Reddy District. Appellant Bank did not even serve possession notice dated Ol.lO.2O24 on the OI_.

40. It is mandatory to serve notices issued under the SARFAESI Act and Rules on the OL as held by Apex Court in Mathew Varghese (Supra). Without serving the said notices, appellant bank cannot contend that l't respondent / OL has to avail altemative remedy arzailable under SARFEASI Act. It is also apt to note that appellant bank has not even serve e-auction notice dated 27.01.2025 on the OL.

44. l'he appellant bank has fixed reserve pr asset as Rs.2 1,18,00,000/- w'hich according to tht: side compared to valuation price of Rs.25.02 buildings plant & machinery etc.). Thus, the appe l rescn e price behind the back ol' OL, and ,otJtfr. ,

41. Thus, the appellant bank conducted auction without involving the OL and without serving valuation reports, statutory notices under SARFAESI and without putting OL on notice. It has obtained valuation reports behind the back of OL md did not serve copies of the same on 2"d respondent. Thus, the I pellant bank has conducted the auction behind the back of the OL.

42. It is also apt to note that it is stated by the .'t respondent that he and his wife have paid an amount of Rs.3 Crott s towards upfront price of OTS to the appettant bank. The said fact ir also admitted by the appellant bank in the aloresaid letters.

43. It is the specific contention of the l't rest lndent that he has identified 3'd respondent buyer and it has off,: ed an amount of Rs.32.29 Crores, and enclosed a Demand Draft br an amount of Rs. l0 Crores ce of the secured OL is very lower 3rores (for [and, mt bank fixed the ecured asset to 5'n respondent for an amount of Rs.25.g0 Crores. 56 respondent has paid an amount of Rs.6.45 Crores.

45. It is also apt to note that on 2g.02.2025 in C.A.No.70 of 2025 in C.p.No. 170 of 2Ol2 and batch, leamed Company Court Judge, directed the appellant bank not to finalize the sale pursuant to the auction held on 2g.02.2025 and it was extended until further orders on 03.03.2025.In view of the same, 5m respondent could not pay the balance sale consideration in terms ofthe auction notice to the appellant bank. It is seeking retum of the 25yo of the amount and EMD paid by it on the ground that the appellant bank suppressed about the pendency of the C.A.No .70 of 20ZS filed by Io respondent herein and the interim order granted by this Court.

46. lt is apt ro note that appellant bank has conducted auction on 28.022025 pursuant to the auction notice dated 27.O].ZOZ5 and 5,n respondent, being the successful bidder, has paid an amount ol Rs.6,45,00.000u'-. Leamed Company Court Judge, vide order dated 28.02.2025, directed the appellant bank not to finalize rhe same pu rsuant ro rhe aucrion hetd on 29.02.2025 till the next date of hearing and the same was extended on 03.03.2025 until further orders. \

47. It is apt to note that the said orders were p Lssed on hearing leamed counsel appeared for appellant bank' Thus' tt : appellant bank is aware of the aforesaid order dated2S'02'2025 ac! even then' did not inform the said fact to the 5th respondent' succesl; ut bidder' On the other hand, it has received an amount of Rs'6'45 Cror :s on 0l '03 '2025 including EMD amount of Rs'2,i1,80'000/- r;' bmitted by 5'n respondent on 2 8.02'2025.

48. Thus, the entire action of the appeltant trr nk in conducting auction is in violation of the procedure taid down r-r der the Act' 1956 and SARFAESI Act, and also the principle taid dov n in the aforesaid judgments. At thc cost ol repetition, it is apt to nol( that the appellant bank though obligated to put the O[- on notice righ' 'rom the obtaining the valuation repoft to auction and receipt of sale onsideration from {te+uccessful bidder, did not Put the OL on not ce. Therefore, the auction conducted by the appettant bank shalt be sr: aside'

49. OL, being statutory custodian and rt1 resentative of the liquidation estate, any sale or transt-er of the coml tny's assets cannot be carried out without due notice to him and he I ns to disburse dues of workmen and secured creditors, who enjoy zs pari passu charge under Section 529-A of the Act, 1956- Transpar rncy is essential to r_l

safeguard the rights of stake horders and to ens,re that the liquidation esrare is not alienated without knowledge of its Iawful custodian.

50. It is contended by leamed senior counsel appearing for the appellant bank that the appeltant bank has sent a mail on 04.03.2025 informing 5'h Respondent that argument in the above company application has been completed by the parties before this Court on 03.03.2025 and after pronouncement of the order, the bank will inform 5'h respondent accordingly. In its reply dated 13.03.2025, 5b respondent expressed its readiness and willingness to pay the balance sale consideration. Therefore, it is aware of the pendency of the albresaid application and interim order granted by this Court. The said contention ol the appellant bank cannot be accepted since there is suppression ol'interim order dated 2g.02.2025 and03.03.2025 on the part of the appellant bank and suppressing the said orders, it has receivcd an amount of Rs.6.45 Crores from the 5m respondent. Thcrelbre, the appellant bank has to retum/refund the said amount to the 5tr' respondent. 5l . ln Delhi Development Authority (supra), the Apex court held that e-aucrion norice and sale held by the DRT were invalid for r)

non-disclosue of statutory dues of Delhi Developmen Authority and also failed to comply with the provisions of the Incorr : Tax Act' The Bank failed to disclose encumbrances of property ir auction notice invalidates sale. The Court set aside the auction and r;r le confirmation and directed refund with an interest of 9 o/o to the ar lion purchaser' The Auction Purchaser entered the auction in good tii h' ptaced its bid and deposited is hard earned money in the betief thir the law clothed the auction with legitimacy' 't he Auction Purchaser reither breached the covenant nor failed in diligence and did not seek c profit from the ilegality. The restitution therefore becotnes not me'1 ly a tegal device but a moral imperative' 'the jurisdiction to make re st tution is inherent in every Court and will be excrciscd rvherever the ] rstice of the case demands.

52. The Divisional Bench of Calcutta Fligt Ciourt in Dcepak Kumar Agarwal (Supra) observed that tl-re 'rit petitioner' a successful auction purchaser' had paid the entile ale consideration' but possession could not be lranded over due to an i tterim order of the Debt Recovery Tribunal' fhe learned Singte Judge directed refund of the entire consideration with simple interest' n I ing that the bank retained the petitioner,s money despite the subsisting stay and the writ petitioner was put to prejudice on account of the order of stay. Finding no arbitrariness in the exercise of discretion, the Division Bench upheld the order and directed refund arong with interest of 4yo withirr l5 days.

53. A Division Bench of this Court in K. Indra Mohan (Supra) held that the Bank failed to disclose restraint orders passed by the High Court while demanding payment of the balance amount. The failure on the part of the Bank to make full disclosure of the Court order to the petitioner assumes importance since the Bank proceeded to demand the balance 75oZ consideration price from the petitioner despite its obligation to keep the petitioner informed of the restaint order. The Bank, being under an unequivocar restraint from confirming the sale, cannot invoke Rule 9 (5) of the 2002Rules, the Court directed relund o[Rs. 2, 16,25,000/_ within four weeks.

54. On considcration ol- rhc said aspects only, vide impugned order date 2g.0j.2025, leamed Ciompany Court Judge allowed the C.A.No.70 ol 2025 in Cp No. 110 of 2Ol2and batch setting aside the auction dated 2g.02.2025 conducted by the appellant bank. However, ()

Iiberty was granted to the appellant bank to prc:ced with the liquidation process' by involving the OL in valuatkrrr and the sale as observed vide order dated 01'08'2019 passed in C'A' 'io'624 of 2018 in C.P.No.39 of 2016 and 60 of 2013 by another )ompany Oourt Judge of this Court'

55. As rightly held by the learned Company Company application filed by the l" Respondent' I Respondent is maintainable' Since the appellant auction of the secured asset in gross violations of pri rciples laid down by the Act 1956, SARFAESI Act' and Rules tiarlt I thercundcr and the principte laid down by the by the Apex Cou( r Pegasus (supra) and also this Court by order dated I'08'20 l9 in (" n \o 624 ol-2018 in CPNo. 39 of 20l6and 60 ol'l0l'i and it \\ill (l tinircly al'lict the rights of secured creditors including worktuetr r r d will ncllatively impact the liquidation Process'

56. l,r Respondent, being Ex-Director' has lc litinrate irtterest in challenging the impugned action ol the appcllant 'zrnk in conducting auction since he has subrnittetl ()'t'S proposal' laid an alnoulrt ol Rs.03 Crores, and also identitled 3,J respondent l -ryer wl.rich o l.fered to purchase the secured assct lbr zrn amount ol-t's'31'19 Crores and lourt Judgc the :-Director ol' 2nd bank conducted a\

J9 obtained a demand draft for Rs.lo crores. Therefore, 1$ respondent can be treated as an informant as held by the Madras High Court in Jayanthi Rama Chandra (Supra). Therefore, despite availability of alternative remedy, the aforesaid company application filed by I s respondent is maintainable.

57. The impugned order is a reasoned order and well founded' Appellant bank herein failed to make out any case to interfere with the said order. Thus, this appeal is liable to be dismissed and is dismissed'

58. The appellant bank shatl refund an amount of Rs'6'45 Crores to the 5th respondent along with 6% interest per annum from the date of receipt of this order till payment' As a sequel thereto, misccllaneous applications, if any, pending in this appeal shall stantl closcd SDI K. SRINIVASA RAO JOTNT R€GIST //TRUE COPYI' CTION OFFICER To The Assistant General Manager' Union- Bank of. lnrtia Stressed Asset Management Branch 3'd ;6Y' iJhiJ e""k Building' Sultan Bazar' Koti'

2 1ilf;6?P,"13i.i.q,+e1,e11"ift:Si::,b[g':f f r,[tY:SYS;If B.T,]i*, for the State of Telangana, t H;;ir;;;; Nrs"ie,"HYoera6ad - 500068 Y[?:,158 il",liJ; Xli ??['X3'"' "3i:'::]S]:: #'::1?fllJ''ftTf-?'E1"3- I, ioe binoiri illagar, HYderabad' Mr.ChandraPrakashRankaS/o.lateKanhaiyalalRankaM/s.KJSlndia Private Limited, having rts .;#i;'iil"of#-it'Plot Nos 1 & 2' Phase lll' IDA' balfr;ryia'L;' slnqir.eoovlrclanoana - 50?i07 '

5. One CC to M/s. PEARL LAW ASSOCIATES Advocat'l

6. One CC to SRl. L. VENKATESHWAR RAO Advocate l(

7. One CC to Sri G. KALYAN CHAKRAVARTHY, Advoczl

8. One CC to Sri DUWA PAVAN KUMAR, Advocate (OF I

9. Two CD Copies kul/PSL Yv [oPUC] PUCI r (OPUC) c)

I \ HIGH COURT DATED:08/01/2026

ORDER

OSA.No.1 ot 2O25 DISMISSING THE OSA WITHOUT COSTS \ (( B1HES 0 I rlB 2026 zs PAT o -,k * \\ ,"@t fo'u* >-..-