M/S SMS PHERMACEUTICALS vs STATE BANK OF INDIA on 9 April 2021

O R D E R

1. This appeal impugns the order passed by the Learned Presiding Officer DRT 2, Hyderabad dated 23.05.2019. The facts of the case may be stated in brief as follows :-

2. The 2nd respondent ie., the applicant in the SA availed a loan of Rs.340 Lakhs under the SME scheme from the 1st respondent bank in the year 2008 and later the 1strespondent bank affixed the possession notice on the schedule premises on 07.07.2011 and thereafter alone the 2nd respondent came to know that the bank had initiated securitization proceedings against heri.e., the 2nd respondent and that they had already issued a Demand Notice under Section

13(2) and Possession Notice under Section 13(4) of the SARFAESI Act. According to the 2nd respondent she had never received the Demand Notice and the Possession Notice. The 1st respondent took physical possession of the assets on 11.02.2001 and issued the auction sale notice fixing the auction for sale on 30.03.2012. The 2ndrespondent hadthen given a written assurance to the bank that she would clear the dues by 28.02.2012 but she did not clear the dues as stated by her. The auction slated to be held on 30.03.2012 did not materialize. Thereafter the 1st respondent bank issued another fresh sale notice fixing the auction on 04.06.2012 and the property was sold at Rs.8.21 Crores. However the auction purchaser in the auction held on 04.06.2012 withdrew from the auction and he was returned 25% of the sale price on 09.02.2015. Later the 1st respondentbank issued e-auction sale notice fixing the auction on 30.03.2017 and the said e-auction failed for want of bidders. Thereafter the 1st respondent issued the 4th e-auction sale notice dated 04.06.2017 fixing the auction on 23.06.2017. The e-auction sale came to be held on 23.06.2017 and the appellant in this case was the successful bidder for Rs.10.55 Crores and later the sale confirmation certificate was issued. The other aspects relating to the securitization proceedings taken up by the Authorized Officer do not come to the forefront as they have not been seriously questioned or challenged by the 2nd respondent and what remained for consideration in the securitization application was the validity of the auction sale in respect of e-auction sale that was held on 23.06.2017. It can be seen that the Learned Presiding Officer DRT-2, Hyderabad has considered this point in detail in her order.

3. The Ld. Counsel appearing on behalf of the appellant explained the case in detail and stated that the auction has resulted in the appellant becoming the successful auction purchaser and that the appellant is entitled to the property as he has purchased it validly and prayed that the appeal may be allowed.The Ld. Counsel filed written submissions on behalf of the appellant and the same forms part of record. The Ld. Counsel relied upon the following decisions in support of her case.

i. 2019 SCC online KAR 3027 “Srinidhi Stone Crushers and another versus Authorised Officer, South Indian Bank Ltd, Bangalore & ors”

ii. AIR 1954 SC 429 “Commissioner of Income Tax, Bombay South, Bombay versus Ogale Glass Works Ltd, Ogale Wadi”

iii. 2019 SCC online SC 1059 “Shakeena and another versus Bank of India and others”

5. The Ld. Counsel appearing on behalf of the 1st respondent bank took this Tribunal through the facts of the case and stated that the auction has been conducted properly and there are no flaws in the actions of the Authorised Officer.

6. The Ld. Counsel appearing on behalf of the 2nd respondent clearly explained the factual aspects of the case and stated that a reading of the pleadings would reveal that the auction is invalid and the appeal requires only to be dismissed.

7. The 2nd respondent filed detailed written arguments and filed copies of documents which she had relied upon in this appeal and the same form part of the record.

8. The 2nd respondent relied upon the following cases in support of her case.

i. AIR 2012 Guj26 III (2012) BC 364 “Sushen Medicaments Pvt Ltd versus Ashok Enterprise, Proprietorship firm of Ashok Desai and 2 others”

ii. AIR 2018 SC 1286 “Dwarika Prasad versus State of Uttar Pradesh & others”

iii. AIR 2010 SC218 “Sardar Associates and others versus Punjab and Sind Bank and others”

iv. AIR 2015 SC 3095 “Central Bank of India versus Ravindra and others” v. WP (C) 8749 / 2020 In the High Court of Delhi “Lalit Mohan Agarwal and others versus Andhra Bank and others”

vi. AIR 2016 SC 3814 “Central Coalfields Ltd and others versus SLL-SML (Joint venture consortium) and others”

vii. 1936 38 BOMLR 987 “Nazir Ahmad versus Emperor” viii.1995 AIR 2195 SCC “Rao Mohamed Ahmed Khan versus Ranbir Singh”

ix. 1954 AIR 349 “Manilal Mohanlal Shah and others versus Sardar Syed Ahmed and another”

x. AIR 1989 MP177 “Progressive Industrial versus Bank of Baroda and others”

9. The points that arises for consideration in this appeal may be stated as follows :-

i. What is the procedure for payment of auction money in this case ? ii.Whether the auction purchaser that is the appellant in this case has abided by the procedure prescribed under the rules ? If not whether sale can be said to be valid in the eyes of law ?

10. Point No.i A reading of the pleadings reveals that as per the terms and conditions of the e-auction sale dated 04.06.2017, 10% of the reserve price shall be paid in the form of pay order / demand draft drawn in favour of State Bank of India, payable at Hyderabad. The successful bidder who has offered the highest sale price has to pay 25% of the bid amount less EMD on the same day and the remaining balance amount of the bid amount within 15 days by means of a Pay Order or a Demand Draft favoring State Bank of India, payable at Hyderabad. The above may be stated to be the procedure for payment of e- auction money in this case. This point is answered accordingly.

11. Point No.ii The 2nd respondent filed IA No.6107 of 2018 in DRT II, Hyderabad seeking the details of payment made by the auction purchaser in this case and the said IA was allowed on 24.12.2018. The 1st respondent furnished the details of payment received from the auction purchaser and as per the details, the auction purchaser deposited EMD by way of cheque dated 21.06.2017 for Rs.87,20,000/- and this cheque came to be debited in the account of the auction purchaser on 23.06.2017. Thereafter the auction purchaser issued a cheque on 23.06.2017 for Rs.1,76,55,000/- towards 25% sale amount and the said cheque amount came to be debited in the account of auction purchaser on 03.07.2017. It can be seen that the payment made by the auction purchaser who is the appellant herein towards 25% of the sale amount is contrary to the terms and conditions stipulated in the e-auction sale notice. The mode of payment is specified in the terms and conditions of e-auction sale notice. Unless the appellant / auction purchaser had paid EMD on 21.06.2017 it was not eligible to participate in the e-auction sale and it can be easily seen that the very participation of the appellant is against the terms and conditions. Further once the bid amount of the appellant is accepted, he has to pay 25% of the sale amount less EMD either on the same day or not later than the next working day. The payment towards 25% of the sale price was not paid on the date of auction and also not on the next working day and it can also be seen that the appellant had made the EMD Payment through an unapproved mode of payment of cheques and by issuance of cheque against the conditions, the appellant had already become unqualified to participate in the e-auction. Similarly after the appellant became successful in the auction he had made payment of the bid amount in violation of the terms and conditions and the bank had accepted the same and therefore from the above it can be easily seen that the appellant had clearly contravened the terms and conditions of the e-auction sale notice and Rules 9 (3) and 9 (4) of Security Interest (Enforcement) Rules, 2002 as to the payment of EMD amount and 25% of the sale amount and therefore the confirmation of the sale in favour of the appellant cannot be sustained as a consequence of which, the e-auction sale dated 23.06.2017 has to be declared improper and it has to be held that the e- auction conducted by the Authorized Officer is not valid in the eyes of law.

12. This point is answered against the appellant and it is held that the sale is not valid.

13. A reading of the order passed by the Ld. Presiding Officer DRT 2, Hyderabad reveals that the Ld. Presiding Officer has considered all the aspects of the case from the issuance of Section 13 (2) till the sale was complete and that she has rightly come to the conclusion that the auction of the Authorized Officer in selling the property was improper and the sale requires to be set aside. It is also seen that the Presiding Officer has correctly framed the question for consideration in the appeal and has clearly held that the sale conducted by the Authorized Officer is not validbased on the material available.

14. Therefore from the fact that the Ld. Presiding Officer DRT 2, Hyderabad has correctly dismissed the SA filed by the second respondent

Shri Sahaja Rao ; from the fact that Point No.ii has been answered against the appellant and it has been held therein that the sale is invalid this Tribunal is driven to conclude that the order passed by the Ld. Presiding Officer DRT 2, Hyderabad does not warrant any interference and the appeal being bereft of merits deserves only to be dismissed and accordingly the appeal is dismissed.

In the result the appeal is dismissed.

(Dictated to the Stenographer, transcribed by him, corrected, signed and pronounced by me on this the 9th day of April, 2021).

Sd/= (Dr. T. Ravi Shankar) Chairperson

True / Free copy Sd/= (Dr.T. Ravi Shankar Chairperson)