ARCE POLYMERS PRIVATE LIMITED versus M/S. ALPHINE PHARMACEUTICALS PRIVATE LIMITED AND OTHERS on 3 December 2021

[2021] 11 S.C.R. 1059

ARCE POLYMERS PRIVATE LIMITED

v.

M/S. ALPHINE PHARMACEUTICALS PRIVATE LIMITEDAND OTHERS

(Civil Appeal No. 7372 of 2021)

DECEMBER 03, 2021

[L. NAGESWARA RAO, SANJIV KHANNA AND

B. R. GAVAI, JJ.]

Waiver: Meaning and applicability of – Held: Waiver is anintentional relinquishment of a known right – Waiver applies whena party knows the material facts and is cognizant of the legal rightsin that matter, and yet for some consideration consciously abandonsthe existing legal right, advantage, benefit, claim or privilege –Waiver can be contractual or by express conduct in considerationof some compromise – However, a statutory right may also be waivedby implied conduct, like, by wanting to take a chance of a favourabledecision – The fact that the other side has acted on it, is sufficientconsideration – SARFAESI Act.

SARFAESI Act : ss.13(2) and (4) – Failure of Borrower torepay loan as per payment schedule – Loans declared NPA – Noticeissued by Bank under s.13(2) calling upon Borrower to dischargeits liability – However, Borrower neither made any payment norresponded by way of reply – Thereafter, Borrower wrote letter inwhich while accepting defaults and non payment enlisted reasonsfor not being able to adhere to payment schedule and requested togrant further moratorium – Bank granted further moratorium anddeferred action under SARFAESI Act to enable Borrower to submitdetailed project/viability report – Borrower failed to fulfill promisemade – Post this default also there were negotiations with assurancesand promises by the Borrower – Displaying forbearance, the Bankgranted indulgence as action under the SARFAESI Act was deferredfor nearly one year – Thereafter Bank issued notice under s.13(4)and took symbolic possession of subject property – After severalattempts to auction the property, fourth attempt was successful andproperty was sold and sale certificate issued – Before auction,Borrower was given notice of auction – Thereafter borrower filed

A

B

C

D

E

F

G

H

Apetition before DRT challenging the enforcement proceedings inrespect of the subject property including all steps taken right fromissue of notice under s.13(2) of the SARFAESI Act – DRT dismissedborrower’s application – Borrower preferred writ petition –Meanwhile auction purchaser sold the property to second purchaser– High Court held that the Borrower can challenge the possessionBnotice, taking of symbolic possession notice, taking of physicalpossession, sale notice and sale certificate as they all form part ofthe same cause of action – High Court concluded that compliancewith s.13(3A) being mandatory, Bank had failed to respond with

reasons to the representations made by the Borrower – Instant appealCfiled by second purchaser – Held : It is correct that waiver being anintentional relinquishment is not to be inferred by mere failure totake action, but the instant case is of repeated positive acts post thenotices under ss.13(2) and (4) of the SARFAESI Act – Not only didthe Borrower not question or object to the action of the Bank, but itby express and deliberate conduct had asked the Bank toDcompromise its position and alter the contractual terms – TheBorrower wrote repeated request letters for restructuring of loans,which prayers were considered by the Bank by giving indulgence,time and opportunities – The Borrower, aware and conscious of itsrights, chose to abandon the statutory claim and took its chanceEand even procured favourable decisions – Borrower’s conduct hadput the Bank in a position where they have lost time, and sufferedon account of delay and laches, which aspects are material – Actionon the subject property was delayed by more than a year as at thebehest of the Borrower, the Bank gave them a long rope to regularisethe account – To ignore the conduct of the Borrower would not beFreasonable to the Bank once third party rights have been created –In this background, the principle of equitable estoppel as a rule ofevidence bars the Borrower from complaining of violation – TheBorrower challenged the actions taken by the Bank after the SubjectProperty had changed hands and third party interests had beenGcreated – Thus, the Borrower waived and is estopped fromchallenging violation of s.13(3A) of the SARFAESI Act.

Judgment/Order: Remedy/relief – Grant of, scope – Held:Power of the courts/judicial authorities to mould relief – Whileholding that the general approach is that the claimant who succeedsHin establishing the unlawfulness of administrative action is entitled to grant of remedial order, the general proposition does notundermine the discretion which the courts or judicial authoritieshave in assessing “what is fair and just to do in the particular caseto withhold the remedy altogether or to mould the remedy by grantof a declaration rather than a more coercive quashing, prohibitingor mandatory order or injunction which may have been sought” –Relief may be granted in respect of one aspect and not others – Thegeneral approach, therefore, is that a complainant who succeeds inestablishing unlawfulness of an action is entitled to a remedial order,but the court has discretion in the sense of determining what is fairand just to do in a particular case.

Allowing the appeals, the Court

Conclusion

Allowing the appeals, the Court

HELD: 1. Waiver is an intentional relinquishment of a knownright. Waiver applies when a party knows the material facts andis cognizant of the legal rights in that matter, and yet for someconsideration consciously abandons the existing legal right,advantage, benefit, claim or privilege. Waiver can be contractualor by express conduct in consideration of some compromise.However, a statutory right may also be waived by implied conduct,like, by wanting to take a chance of a favourable decision. Thefact that the other side has acted on it, is sufficient consideration.It is correct that waiver being an intentional relinquishment isnot to be inferred by mere failure to take action, but the presentcase is of repeated positive acts post the notices under Sections13(2) and (4) of the SARFAESI Act. Not only did the Borrowernot question or object to the action of the Bank, but it by expressand deliberate conduct had asked the Bank to compromise itsposition and alter the contractual terms. The Borrower wroterepeated request letters for restructuring of loans, which prayerswere considered by the Bank by giving indulgence, time andopportunities. The Borrower, aware and conscious of its rights,chose to abandon the statutory claim and took its chance andeven procured favourable decisions. Even if we are to assumethat the Borrower did not waive the remedy, its conduct had putthe Bank in a position where they have lost time, and suffered onaccount of delay and laches, which aspects are material. Actionon the Subject Property was delayed by more than a year as at AB

C

D

EF

G

H

Athe behest of the Borrower, the Bank gave them a long rope toregularise the account. To ignore the conduct of the Borrowerwould not be reasonable to the Bank once third party rights havebeen created. In this background, the principle of equitableestoppel as a rule of evidence bars the Borrower from complainingof violation. [Para 14][1076-G-H; 1077-A-E]BITC Limited v. Blue Coast Hotels Limited and Others(2018) 15 SCC 99 : [2018] 5 SCR 516 – relied on.

Commissioner of Customs, Mumbai v. Virgo Steels,Bombay and Another (2002) 4 SCC 316 : [2002] 2 SCRC934; AL.AR. Vellayan Chettiar (Decd.) and Others v.Government of the Province of Madras, Through theCollector of Ramnad at Madura, and Another AIR 1947PC 197; S. Raghbir Singh Gill v. S. Gurcharan SinghTohra and Others (1980) Supp SCC 53 : [1980] SCR1302; Krishan Lal v. State of J&K (1994) 4 SCC 422 :D[1994] 2 SCR 149; Martin & Harris Ltd. v. VIthAdditional Distt. Judge and Others (1998) 1 SCC 732: [1997] 6 Suppl. SCR 380; Bank of India and Othersv. O.P. Swarnakar and Others, (2003) 2 SCC 721 :[2002] 5 Suppl. SCR 438; Shri Lachoo Mal v. ShriERadhey Shyam (1971) 1 SCC 619; Pravesh KumarSachdeva v. State of Uttar Pradesh and Others (2018)10 SCC 628 : [2018] 11 SCR 504 – referred to.

2. In consideration of the facts of the present case, anotherimportant aspect to be duly noted is the power of the courts/Fjudicial authorities to mould relief. While holding that the generalapproach is that the claimant who succeeds in establishing theunlawfulness of administrative action is entitled to grant ofremedial order, the general proposition does not undermine thediscretion which the courts or judicial authorities have inassessing “what is fair and just to do in the particular case – toGwithhold the remedy altogether or to mould the remedy by grantof a declaration rather than a more coercive quashing, prohibitingor mandatory order or injunction which may have been sought.”Relief may be granted in respect of one aspect and not others.The general approach, therefore, is that a complainant who H

succeeds in establishing unlawfulness of an action is entitled to aremedial order, but the court has discretion in the sense ofdetermining what is fair and just to do in a particular case.[Para 17][1078-F-G; 1079-A-B]

Beg Raj Singh v. State of U.P. and Others (2003) 1 SCC726 : [2002] 5 Suppl. SCR 530; Rameshwar and Othersv. Jot Ram and Another (1976) 1 SCC 194 : [1976] 1SCR 847 – referred to.

3. In the present case, it is clear from a bare perusal of theletter dated 7[th] November 2016 sent by the Bank to its ZonalManager that the Bank actively considered the Borrower’srequest for extension of the moratorium period. The Borrowerdid not submit the viability report and failed to bring in Rs.45,00,000/- (Rupees forty five lakhs only). Post this default alsothere were negotiations with assurances and promises by theBorrower. Displaying forbearance, the Bank granted indulgenceas action under the SARFAESI Act was deferred for nearly oneyear from 7[th] November 2016 till 6[th] October 2017. Thereafter,negotiations were held on 30[th] October 2017, 6[th] November 2017and 8[th] November 2017. The email dated 30[th] November 2017addressed by the Bank to the Borrower highlights the dilatoryand tricky approach of the Borrower as it had failed to submitdetails of the additional collateral security offered along with thelegal opinion and the engineer’s valuation report. Even visit tothe proposed collateral security property was not arranged. TheBorrower again tried its luck and submitted a restructuringproposal vide communication dated 18[th] December 2017, but thisdid not fructify into an acceptable settlement. The Bank havinglost faith could not rely on the Borrower. Only thereafter, theBank proceeded with the auctions under the SARFAESI Act on28[th] March 2018 and 14[th] June 2018. The Borrower then keptsilent. As the earlier auctions failed, the Bank issued notice dated20[th] August 2018 informing the Borrower about the fourth auctionto be held on 11[th] September 2018 at a reduced reserve price.The Borrower challenged the actions taken by the Bank afterthe Subject Property had changed hands and third party interestshad been created. Taking into consideration the entire facts ofthe case, which perspicuously reflect disingenuous conduct on A

BC

D

EF

G

H

Apart of the Borrower to gain indulgence, unfulfilled assurancesand promises, their unwillingness to pay, the Borrower has waivedand is estopped from challenging violation of Section 13(3A) ofthe SARFAESI Act and hence, the first issue is decided in favourof the Bank. [Para 18][1080-A-G]

B4. With regard to the issue of the valuation of the machineryand the adverse finding of the High Court on the question ofvaluation before the machinery was sold in auction, it is to benoticed that the valuation report which has been placed on recordis dated 19[th] February 2018, values the land, the building and themachinery separately. The machinery has been valued withCspecific reference to as many as 55 separate items under theHeading ‘Description of Machinery’. The valuation report itselfhas not been disputed or challenged. We do not agree with theHigh Court that the machinery should have been separatelyauctioned or sold. This would be putting fetters and restrictionsDon the Bank by baring the Bank from selling the machinery alongwith the building and the land. Prejudice and loss caused to theBorrower is not shown and established. Auction sale as confirmedwas at a price higher than the fair market valuation of the land,the building and the machinery. Whether or not the price of themachinery should be accounted for the purpose of payment ofEstamp duty on a composite sale wherein the land, the buildingand the machinery located in the building are sold, would not beof any relevance and importance as the issue in question doesnot concern payment of stamp duty and the principles applicable.On the other hand, the law recognises that the lender knows itsFinterests and how to secure best value of the property given thefact that the mortgaged property had to be sold for recovery ofthe debts due and payable to the Bank. [Para 19][1081-B-F]

5. The next issue relating to the date of the valuation reportalso does not help the Borrower. The valuation certificate orGreport is dated 19[th] February 2018. As held above, attempts tosell the property were made thereafter on 28[th] March 2018 and14[th] June 2018 but without success as there were no bidders.Accordingly, it was decided to reduce the reserve price fromRs.2,78,10,000/- to Rs.2,60,00,000/-. However, in the fourth H

ARCE POLYMERS PVT. LTD. v. M/S. ALPHINEPHARMACEUTICALS PVT. LTD.

A

auction the successful bid given by Basa Chandramouli was forRs.2,91,20,000/-, which is much higher than the reserve price ofRs.2,60,00,000/- or the fair market value of Rs.2,73,80,000/- interms of the valuation report. [Para 20][1081-F-H; 1082-A]

Blue Coast Hotels Limited v. IFCI Limited and Another2016 SCC OnLine Bom 2663; Authorised Officer,Indian Overseas Bank and Another v. Ashok Saw Mill(2009) 8 SCC 366 : [2009] 11 SCR 599 – referred to.

B

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7372Of 2021.

F

From the Judgment and Order dated 24.01.2020 of the High Courtfor the State of Telangana in Writ Petition No.13936 of 2019.

With

Civil appeal No. 7373 of 2021.

G

S. Niranjan Reddy, Sr. Adv., Raavi Venkata Yogesh, Ms. SnigdhaSingh, K. Anirudh Reddy, Advs. for the Appellant.

Dhruv Mehta, Sr. Adv., P. B. A. Srinivasan, Parth D. Tandon,Ms. Chandralekha, Ms. Ichchha Kalash, Avinash Mohapatra, Ms. Nikitha H

ARoss, Ms. Sneha R. Iyer, Keith Varghese, Amit K. Nain, G. K. Despande,A. V. S. Raju, Somanath Padhan, Aabhas Parimal, Advs. for theRespondents.

The Judgment of the Court was delivered by SANJIV KHANNA, J.B

1. Leave granted.

2. The impugned judgment dated 24[th] January 2020 passed by theDivision Bench of the High Court of Telangana at Hyderabad allowsWrit Petition No. 13936 of 2019 preferred by M/s. AlphineCPharmaceuticals Private Limited and Bejjenki Bhaskara Chary(collectively referred to as the ‘Borrower’) and thereby sets aside andquashes the proceedings initiated by M/s. Andhra Bank (the ‘Bank’, forshort) for sale of the mortgaged asset, namely, plot No. 66/B-1, Phase-I, IDA Jeedimetla, Quthbullapur Mandal, Medchal Malkajgiri District,Hyderabad, Telangana (hereinafter referred to as the ‘Subject Property’)Das being in violation of the provisions of the Securitisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002 and the Security Interest (Enforcement) Rules, 2002(hereinafter referred to as the ‘SARFAESI Act’ and the ‘Rules’respectively).E3. Aggrieved by the said judgment, the present appeals have beenpreferred by M/s. Arce Polymers Private Limited, (for convenience, wewould refer M/s. Arce Polymers Private Limited as the ‘SecondPurchaser’) who had purchased the property from the original auctionpurchaser, namely, Basa Chandramouli; and by the Bank.

F4. The impugned judgment had formulated five points forconsideration, which read:

“(a) Whether the 1[st] respondent Bank had an obligation to complywith Section 13(3A) of the Act and give a response to thepetitioners’ representation dt.01.11.2016 and whether the DebtsGRecovery Tribunal was correct in holding that there was no suchobligation on the part of the 1[st] respondent Bank?

(b) Whether any of the reliefs claimed in the O.A. by the petitionersis barred by limitation?

(c) Whether it was proper for the 1[st] respondent Bank not toHseparately value the machinery in the subject property when it ARCE POLYMERS PVT. LTD. v. M/S. ALPHINEPHARMACEUTICALS PVT. LTD. [SANJIV KHANNA, J.]

obtained the valuation before it sold the property to the 2[nd]respondent?

(d) Whether it was incumbent on the part of the 1[st] respondent toobtain a fresh valuation certificate dt.19.02.2018 in view of thelong gap between the valuation report and the e-auction sale heldon 11.09.2018?

(e) Whether the petitioners are entitled to any relief?”

The impugned judgment decided the first four points in favour ofthe Borrower and restored the physical possession of the Subject Propertyto the Borrower inter alia recording that the secured creditor, namelythe Bank, was at liberty to act, in order to recover its dues from theBorrower, strictly in accordance with the SARFAESI Act and the Rules.

5. Before we delve into the legal aspects and issues with referenceto the above quoted five questions, we would like to refer to the facts ofthe case as we believe that they portray a different story and this factualbackground has not been duly reckoned and considered in the impugnedjudgment. We, therefore, proceed to narrate the facts in some detail:

(i) The Borrower was sanctioned working capital limit ofRs.35,00,000/- (Rupees thirty five lakhs only) and grantedterm loan of Rs.1,52,00,000/- (Rupees one crore fifty twolakhs only) by the Bank in March 2015 with moratoriumperiod of six months to enable the Borrower to purchaseM/s. Alphine Pharmaceuticals Pvt. Ltd. from its erstwhilepromoters.

(ii) In accordance with the terms of the loan, the SubjectProperty was mortgaged by the Borrower with the Bank.

(iii) The Borrower failed to repay the loan as per the paymentschedule as a result of which, on 31[st] July 2016, the loanswere declared as a Non-Performing Asset.

(iv) On 1[st] August 2016, the Bank issued notice to the Borrowerunder Section 13(2) of the SARFAESI Act calling upon theBorrower to discharge its liability within sixty days failingwhich the Bank would be entitled to exercise all or any ofits rights under sub-section (4) to Section 13 of theSARFAESI Act.

AB

C

D

E

F

G

H

[2021] 11 S.C.R.

(v) The Borrower neither made any payment nor respondedby way of a reply within sixty days of the notice underSection 13(2) of the SARFAESI Act.

A

(vi) On 1[st] November 2016 and 6[th] November 2016 theBorrower wrote letter(s) in which, while accepting defaultsBand non-payment, it had enlisted reasons for not being ableto adhere to the payment schedule, namely, delay incommencement of production of pharmaceuticals due tothe requirement of renewal of licenses from differentstatutory bodies, and policy changes by M/s. SingareniCollieries Company Limited, their prime customer,Cdisqualifying them from participating in the tenders. Thebank was requested to grant further moratorium of twelvemonths.

(vii) The letters dated 1[st] and 6[th] November 2016, do not professbeing a reply or objection to the notice dated 1[st] AugustD2016 issued by the Bank under Section 13(2) of theSARFAESI Act.

(viii) On 7[th] November 2016, the Bank informed the ZonalManager of the Recovery Management Department, in rethe proposal submitted by the Borrower for restructuringthe term loan, extension of the moratorium period andinduction of fresh capital, with the following stipulations:

E

“Sub : NPA A/c M/s Alphine Pharmaceuticals Pvt Limited –Request for restructuring of Term Loan and extension ofmoratorium period.

F

Ref : Company Letter dated 06.11.2016.

With reference to the above, we inform you that the companywas sanctioned OCC limit of Rs. 35.00 lakhs and Term Loan limitof Rs.152.00 lakhs vide SME.Sn.Lr.No.2265/52/SMECPC/ 2236/S-197 dated 10.03.15 to acquire the unit. The unit was acquiredGby the company on 19.06.2015 and due to change in the constitutionof the company from proprietary to Private Limited company, thecompany had to get all the approvals / licenses modified in thename of the company which had taken time and production wasstarted in the month of Sept. 2015. The limits are fallen due forHrenewal on 09.03.16.

As per sanction gestation for the Term Loan was 6 months fromthe date of disbursement and accordingly repayment was startedin the month of Dec 2015. Meanwhile M/s Singareni CollieriesCompany Ltd which is to place orders to erst while firm M/sAlphine Pharmaceuticals stopped placing orders to the companystating that the entity should have Rs.10.00 crore turnover as perthe change in their procurement policy which disqualified thecompany in participation of tenders. This hampered the companyorders and they had to look for other clients for new business.

During the period the company had serviced the interest andinstalment payments by which they had liquidity problem in theworking capital and could not execute orders obtained from thenew clients.

The account was identified as NPA on 31.07.2016 and we haveissued Notice under SARFAESI Notice under Section 13(2) wasissued on 01.08.2016 and the acknowledgement of notice fromthe borrower and guarantors has been received on 12.08.16.

The company earlier informed that they are entering MOU withan investor group for infusion of Rs.1.00 crore and the liquidityproblem will be solved and they can revive the production activityat higher level. It is informed that the investors have invested onlyRs.15.00 lakhs from which the company had remitted Rs.10.00lakhs into OCC account and utilized Rs.5.00 lakhs for payment ofsalary and other dues. The investors have opted out withoutinvesting further amount.

The present position of limits and liabilities is as under:

The present position of limits and liabilities is as under:

Company informed that though they are running the unit with lowcapacity production i.e. Rs. 3 to 4 lakhs per month the fixedexpenses and interest charges are amounting to nearly Rs.5.00lakhs per month by which they are incurring losses. Companyvide their letter dated 06.11.16 informed that they will to remit AB

C

D

E

F

G

H

Rs.6.00 lakhs by 15[th] of this month in the OCC account to bringthe liability in the OCC account within the limit and infuse Rs.60.00lakhs within three months by which the Working capital liquidityproblem will be solved and can execute the orders on hand / to beprocured. It is also informed that they have approached M/sSingareni Collieries Company Ltd authorities to reconsider theeligibility of the company in participation of tenders as the erstwhile firm M/s Alphine Pharmaceuticals was acquired by themand converted to limited company. Now the company is requestingus to restructure the Term Loan limit with further gestation of 12months and is planning to remit Rs.6.00 lakhs by 15[th] of this monthin the OCC account to bring the liability in the OCC account withinthe limit and permit them to operate the OCC account.

A

B

C

We have vide our letter dated 06.11.16 advised the company tosubmit Detailed Project Report / Techno Economic Viability Reportwith regard to restructuring of the loan and extension of moratoriumperiod along with ABA as on 31.03.16 and Provisional BalanceSheet as on a latest date at the earliest, to assess the viability ofthe project and advise to remit Rs.6.00 lakhs into OCC accountas promised.

D

On receipt of the Detailed Project Report / Techno EconomicViability report, we shall take up the matter with our Zonal office.

E

In view of the above and considering that the production of theunit is continuing at a minimum level, which can be increased tothe full extent by infusing Rs.60.00 lakhs within three months bythe company as promised and payment of Rs.10.74 lakhs intoOCC account after NPA date, we recommend for deferring actionFunder SARFAESI till the TEV Report is appraised and viability ofthe company is established by our approved agency and allowoperations in the OCC account after bringing the liability to withinthe limit in OCC account.”

Thus, the action under the SARFAESI Act wasrecommended to be deferred to enable the Borrower tosubmit detailed project/viability report, bring OCC accountwithin limit and increase production to the fullest extent byinfusing Rs.60,00,000/- (Rupees sixty lakhs only) towardsthe working capital. The Borrower was to be allowedoperations in their bank account after bringing the OCCliability within the prescribed limit.

G

H

(ix) The third party investor brought in Rs.15,00,000/- (RupeesAfifteen lakhs only), out of which Rs.5,00,000/- (Rupees fivelakhs only) was utilised for payment of salary andRs.10,00,000/- (Rupees ten lakhs only) was remitted to theOCC account. Thereafter, the third party investor optedout and did not bring in the balance Rs. 45,00,000/- (RupeesBforty five lakhs only). Detailed project/viability report wasnot submitted.

(x) On failure of the Borrower to translate its promise intoaction, the Bank issued notice under Section 13(4) of theSARFAESI Act read with Rule 8(1) of the Rules and tookCsymbolic possession of the Subject Property vide possessionnotice dated 3[rd] March 2017.

(xi) Thenceforth, the Bank filed Crl.M.P.No.343/2017 underSection 14 of the SARFAESI Act before the ChiefMetropolitan Magistrate, Cyberabad, Ranga Reddy DistrictDand took physical possession of the secured asset on 3[rd]May 2017 through Advocate Commissioner appointed bythe court.

(xii) On 1[st] June 2017, the Bank issued notice under Rule 6(2)read with Rule 8(6) of the Rules informing the Borrowerthat the Subject Property was being put to auction with aEreserve price of Rs.2,78,10,000/- (Rupees two croresseventy eight lakhs ten thousand only). The Borrower wasgiven an option to repay the amount due along with interestso that the auction could be halted.

F

(xiii) The Borrower did not respond to this letter. It neitherprotested nor made any payment.

(xiv) The auction held on 6[th] October 2017 did not fructify as nobidder came forward to purchase the Subject Property.

(xv) On 20[th] October 2017, 8[th] November 2017 and 17[th]GNovember 2017, the Borrower made representations forregularisation of the account. The last letter dated 17[th]November 2017 refers to meetings with senior officers ofthe Bank on 30[th] October 2017, 6[th] November 2017 and 8[th]November 2017 and that the Bank had agreed to restructurethe Borrower’s account upon furnishing of additionalH

H

Acollateral security of Rs.50,00,000/- (Rupees fifty lakhsonly) for which the Borrower had been advised to furnishdocumentation. To establish bona fides, the Borrower hadfurnished an undated cheque of Rs.25,00,000/- (Rupeestwenty five lakhs only) which could be presented uponapproval of the restructuring proposal. The Borrower wouldBfurnish techno economic viability study-cum-restructuringproposal. The Bank on consideration of the restructuringproposal would allow the Borrower to reopen the factory.The Bank was requested to handover keys to enable theBorrower to assess the stock and build the unit forCcommercial production.

A

(xvi) The Bank vide letter dated 30[th] November 2017, recappedthe Borrower the need to submit the restructuring proposalin the prescribed format along with the details of additionalcollateral security as well as legal opinion and valuationDreport. The documentation, it was stated, was not received.Also, visit of the Bank officers to the proposed collateralsecurity property had not been arranged. The Borrowerwas informed that the Bank would take a call onBorrower’s request for opening the factory, which was inthe Bank’s possession, after receipt of the aforementionedEpapers etc. along with realisation of cheque presented bythe Borrower. The Borrower was advised to comply withthe terms immediately to enable the Bank to consider theproposal for restructuring, with a warning that in case ofdelay, the Bank would set into motion the proceedings underFthe SARFAESI Act which had been temporarily halted.

F

(xvii) On 18[th] December 2017, the Borrower again wrote seekingregularisation of the account and waiver of penal chargeslevied in terms of the loan agreement. A restructuringproposal was submitted as per the format with a requestGthat the same should be considered and the Borrower bepermitted to bring the unit to commercial operation as aone-time opportunity.

(xviii) As per the Bank there was non-compliance and failure. Nopayment was made. In these circumstances, the Bank madeHsecond and third attempts to sell the Subject Property by way of auctions held on 28[th] March 2018 and 14[th] June2018. Both the attempts failed as no bidder came forwardto participate in the auction.

(xix) Importantly, the attempts to sell the Subject Propertyremained unchallenged by the Borrower.

(xx) On 20[th] August 2018, the Bank issued the fourth notice forauction, regarding which the Borrower was duly informed.Given the fact that in the earlier auctions no bidder hadparticipated, the Bank reduced the reserve price fromRs.2,78,10,000/- (Rupees two crores seventy eight lakhsten thousand only) to Rs.2,60,00,000/- (Rupees two croressixty lakhs only). Yet again, the Borrower did not respond.It neither questioned the sale notice, the reduction in reserveprice, nor made any payment.

(xxi) In the auction held on 11[th] September 2018, two biddershad participated and the Subject Property was sold at a bidprice of Rs.2,91,20,000/- (Rupees two crores ninety onelakhs twenty thousand only) to Basa Chandramouli. On 14[th]September 2018, sale confirmation letter was issued to BasaChandramouli. On 27[th] September 2018, after BasaChandramouli had made the total payment, the salecertificate was issued.

6. In October 2018, the Borrower approached and filed a petitionbefore the Debts Recovery Tribunal challenging the enforcementproceedings in respect of the Subject Property including all steps takenright from issue of notice under Section 13(2) of the SARFAESI Act.

7. The Debts Recovery Tribunal, Hyderabad by its judgment dated1[st] July 2019 dismissed the Borrower’s application holding that the Bankhad followed the prescribed procedure under the SARFAESI Act andthe sale was valid.

8. Thereupon, the Borrower had preferred a writ petition beforethe High Court of Telangana. The Borrower did not go in appeal to theDebts Recovery Appellate Tribunal, Kolkata as it was not functioningdue to want of members. In the meanwhile, on 8[th] July 2019, the auctionpurchaser Basa Chandramouli sold the Subject Property to the SecondPurchaser, the appellant herein. Before this sale, Basa Chandramoulihad already sold machinery and equipment. It is the case of the Second A

B

C

D

E

F

G

H

APurchaser that he had no information or knowledge about the writ petitionpreferred by the Borrower on 6[th] July 2019. The Second Purchaser hadacquired the plot with the bare structure, which the Second Purchaserclaims was in a dilapidated condition. The Second Purchaser had anexisting industrial establishment on a plot of land adjacent to the SubjectProperty. After the purchase, the structure standing on the SubjectBProperty was demolished and the Second Purchaser has constructed anew structure, as per the Second Purchaser at the cost of overRs.70,00,000 (Rupees seventy lakhs only).

9. After a detailed perusal of the facts in the present matter, wewould like to refer to the findings of the High Court and our findings onCthe legal issues with reference to the points formulated by the HighCourt, as set out in paragraph 4 above. For convenience, we would liketo simultaneously deal with points (a) and (b).

10. In brief, the impugned judgment upholds the contention onviolation of Section 13(3A) of the SARFAESI Act relying on the judgmentDof this Court in ITC Limited v. Blue Coast Hotels Limited and Others,[1]that compliance with Section 13(3A) being mandatory, the Bank hadfailed to respond with reasons to the representations made by theBorrower dated 1[st]/6[th] November 2016. The stance of the Bank thatthese representations were not in response to the notice under SectionE13(2) dated 1[st] August 2016 was rejected as the Borrower throughrepresentations had pleaded difficulties being faced by it in repaying theloan instalments and sought extension of moratorium/more time forrepayment. The High Court held that it was not necessary for theBorrower to specifically mention that the representations were inresponse to the notice under Section 13(2) of the SARFAESI Act. Further,Frelying upon the decision of the Bombay High Court in Blue Coast HotelsLimitedv. IFCI Limited and Another,[2] which decision on challengebecame the subject matter of the appeal and decision of this Court inITC Ltd. (supra), the High Court held that there is no specific provisionor mandate under Section 13(3A) of the SARFAESI Act that theGrepresentation of the Borrower to the demand notice under Section 13(2)should be filed within a period of sixty days from the date of notice. Theimpugned judgment also refers to the letter dated 7[th] November 2016 toobserve that the Chief Manager of the Bank had recommended deferring 1 (2018) 15 SCC 99H2 2016 SCC OnLine Bom 2663

of action under the SARFAESI Act with the intent that the unit runningin the Subject Property should be granted benefit of deferment of action.The Bank had proceeded to issue possession notice on 3[rd] March 2017under Section 13(4) of the SARFAESI Act long after receipt of therepresentations dated 1[st]/6[th] November 2016, but without making anyreference to the aforesaid representation. Accordingly, on the first point,the High Court concluded that there had been a violation by the Bank ofits mandatory statutory duty under Section 13(3A) of the SARFAESIAct.

11. On the second question, reference was made to Section 17(1)of the SARFAESI Act which deals with the right of appeal by a partyaggrieved by the measures referred to in sub-section (4) to Section 13.Relying on the decision of this Court in Authorised Officer, IndianOverseas Bank and Another v. Ashok Saw Mill,[3] it was held that theseries of steps from the date of action by the secured creditor underSection 13(2) of the SARFAESI Act up to the date of auction and saleconfirmation can be challenged by the Borrower when it challenges themeasures referred to in the sub-section (4) to Section 13 under Section17 of the SARFAESI Act. In this view of the matter, the High Courtwith respect to the second issue held that though the O.A. was filed on1[st] October 2018, the Borrower can challenge the possession noticeissued on 3[rd] March 2017, taking of symbolic possession, taking of physicalpossession in May 2017, the sale notice issued on 2[nd] July 2018, and thesale certificate dated 27[th] September 2018 as they all form part of thesame cause of action. Consequently, it was observed that challenge tothe actions/measures prior to 2[nd] July 2018 would not be barred bylimitation.

12. In view of the factual matrix of the present case, which hasbeen set out in detail above and the aspect of waiver and estoppeldiscussed subsequently, it is not necessary for us to examine the questionof violation of Section 13(3A) of the SARFAESI Act and also whetherthe cause of action from the date of issue of notice under Section 13(2)of the SARFAESI Act till the issuance of the sale certificate is acontinuing cause of action. Suffice it would be to observe that in thecase of ITC Ltd. (supra), this Court in spite of holding that there wasviolation of Section 13(3A) of the SARFAESI Act and consequently thenotice of possession under Section 13(4) was vitiated, had allowed the ABC

D

E

F

G

H

Aappeal in view of the attendant circumstances set out in sub-paragraphsof paragraph 30 on the ground that the debtor, post the notice underSection 13(4) of the SARFAESI Act, had given proposals with assurances,letter of undertaking for repayment of the mortgage debt, pursuant towhich time was granted and consequently the sale notice was deferred.Only when payments were not made as promised that the creditor hadBproceeded to recover the dues. Paragraph 31 and 32 of the decision inITC Ltd. (supra) record as under:

“31. From the above, it is clear that the creditor was induced bythe debtor not to take action against them through assurances andpromises. The creditor appeared to have entered into negotiationsCfor the settlement of the dues and even accepted cheques inrepayment much after the notice [Dated 26-3-2013] under Section13(2) and after the debtor’s letter of representation [Dated 27-5-2013] . Many opportunities were granted by the creditor to thedebtor to repay the debt which were all met by proposals forDextension of time. Eventually, the debtor even executed “A Letterof Undertaking [On 25-11-2013] “ acknowledging the right of IFCIto sell the assets in the case of default.

32. In these circumstances, we have no doubt that the failure tofurnish a reply to the representation is not of much significanceEsince we are satisfied that the creditor has undoubtedly consideredthe representation and the proposal for repayment made thereinand has in fact granted sufficient opportunity and time to the debtorto repay the debt without any avail. Therefore, in the fact andcircumstances of this case, we are of the view that the debtor isnot entitled to the discretionary relief under Article 226 of theFConstitution which is indeed an equitable relief.”

13. We would like to elaborate on the aforesaid principle as thedictum, as declared in ITC Ltd. (supra), will equally apply to proceedingsbefore the Debts Recovery Tribunal and the Appellate Tribunal underthe SARFAESI Act. The principle applied is that of waiver and estoppel.

G

14. Waiver is an intentional relinquishment of a known right. Waiverapplies when a party knows the material facts and is cognizant of thelegal rights in that matter, and yet for some consideration consciouslyabandons the existing legal right, advantage, benefit, claim or privilege.Waiver can be contractual or by express conduct in consideration of H

some compromise. However, a statutory right may also be waived byimplied conduct, like, by wanting to take a chance of a favourable decision.The fact that the other side has acted on it, is sufficient consideration. Itis correct that waiver being an intentional relinquishment is not to beinferred by mere failure to take action, but the present case is of repeatedpositive acts post the notices under Sections 13(2) and (4) of theSARFAESI Act. Not only did the Borrower not question or object to theaction of the Bank, but it by express and deliberate conduct had askedthe Bank to compromise its position and alter the contractual terms. TheBorrower wrote repeated request letters for restructuring of loans, whichprayers were considered by the Bank by giving indulgence, time andopportunities. The Borrower, aware and conscious of its rights, chose toabandon the statutory claim and took its chance and even procuredfavourable decisions. Even if we are to assume that the Borrower didnot waive the remedy, its conduct had put the Bank in a position wherethey have lost time, and suffered on account of delay and laches, whichaspects are material. Action on the Subject Property was delayed bymore than a year as at the behest of the Borrower, the Bank gave thema long rope to regularise the account. To ignore the conduct of theBorrower would not be reasonable to the Bank once third party rightshave been created. In this background, the principle of equitable estoppelas a rule of evidence bars the Borrower from complaining of violation.

15. The question of waiver of mandatory requirement of a statutewas considered by this Court in depth in Commissioner of Customs,Mumbai v. Virgo Steels, Bombay and Another,[4] by referring to a catenaof judgments beginning from the judgment of the Privy Council in AL.AR. Vellayan Chettiar (Decd.) and Others v. Government of theProvince of Madras, Through the Collector of Ramnad at Madura,and Another[5 ]wherein it was held that though notice under Section 80 ofthe Code of Civil Procedure, 1908 is mandatory, the suit would not bebad if the non-issuance of notice is waived by the party for whose benefitthe provision has been enacted. Similarly, in S. Raghbir Singh Gill v. S.Gurcharan Singh Tohra and Others,[6] the argument that the requirementof Section 94 of the Representation of Peoples Act, 1951 cannot bewaived was rejected observing that a privilege conferred or a right createdby a statute, if it is solely for the benefit of a party, the said party can 4 (2002) 4 SCC 316

5 AIR 1947 PC 197

6 (1980) Supp SCC 53

ABC

D

E

F

G

H

4 (2002) 4 SCC 316

5 AIR 1947 PC 197

6 (1980) Supp SCC 53

ABC

D

E

F

G

H

Awaive it. However, where a provision enacted is founded on public policy,the courts would be slow to apply the doctrine of waiver. The doctrineapplies in the first situation as the right to waive inheres in the concept ofpersonal privilege and right. Reference in this regard can be also madeto the ratio in Krishan Lal v. State of J&K[7] and Martin & Harris Ltd.v. VIth Additional Distt. Judge and Others.[8] In Bank of India andBOthers v. O.P. Swarnakar and Others,[9] and in Shri Lachoo Mal v.Shri Radhey Shyam,[10] this Court elucidated the general principle thateveryone has a right to waive and to agree to renounce an advantage oflaw or rule made solely for the benefit and protection of the person inprivate capacity. If a party gives up the advantage that could be taken ofCa particular position in law, it cannot later be permitted to change andturn around so as to avail of that advantage. However, this rule will notapply when there is a prohibition against contracting out of the statute,which prohibition would have its consequences or in case the waiverwould be contrary to public policy. Further, a person cannot waive aright of a third person.D

16. This principle has been subsequently followed in PraveshKumar Sachdeva v. State of Uttar Pradesh and Others,[11] to hold thatwaiver is abandonment of a right which normally everybody is at libertyto waive. Waiver is nothing unless it amounts to release, albeit it can beadduced from acquiescence or may be implied. The essence of waiverEis an estoppel and they are questions of conduct and, therefore, necessarilydetermined on the facts of each case. As a rule and judicial policy, thecourts of law do not allow a litigant to take inconsistent position to gainadvantage through the aid of judicial proceedings.

17. In consideration of the facts of the present case, anotherFimportant aspect to be duly noted is the power of the courts/judicialauthorities to mould relief. While holding that the general approach isthat the claimant who succeeds in establishing the unlawfulness ofadministrative action is entitled to grant of remedial order, the generalproposition does not undermine the discretion which the courts or judicialGauthorities have in assessing “what is fair and just to do in the particular 7 (1994) 4 SCC 4228 (1998) 1 SCC 7329 (2003) 2 SCC 72110 (1971) 1 SCC 619H11 (2018) 10 SCC 628

case – to withhold the remedy altogether or to mould the remedy bygrant of a declaration rather than a more coercive quashing, prohibitingor mandatory order or injunction which may have been sought.”[12] Reliefmay be granted in respect of one aspect and not others. The generalapproach, therefore, is that a complainant who succeeds in establishingunlawfulness of an action is entitled to a remedial order, but the courthas discretion in the sense of determining what is fair and just to do in aparticular case. This discretionary aspect of grant of relief even withreference to post litigation events has been highlighted in Beg Raj Singhv. State of U.P. and Others,[13] wherein it was held as under:

“7. Having heard the learned counsel for the petitioner, as alsothe learned counsel for the State and the private respondent, weare satisfied that the petition deserves to be allowed. The ordinaryrule of litigation is that the rights of the parties stand crystallizedon the date of commencement of litigation and the right to reliefshould be decided by reference to the date on which the petitionerentered the portals of the court. A petitioner, though entitled torelief in law, may yet be denied relief in equity because ofsubsequent or intervening events i.e. the events between thecommencement of litigation and the date of decision. The relief towhich the petitioner is held entitled may have been renderedredundant by lapse of time or may have been rendered incapableof being granted by change in law. There may be othercircumstances which render it inequitable to grant the petitionerany relief over the respondents because of the balance tiltingagainst the petitioner on weighing inequities pitted against equitieson the date of judgment. Third-party interests may have beencreated or allowing relief to the claimant may result in unjustenrichment on account of events happening in-between. Else therelief may not be denied solely on account of time lost inprosecuting proceedings in judicial or quasi-judicial forum and forno fault of the petitioner. A plaintiff or petitioner having been foundentitled to a right to relief, the court would as an ordinary rule tryto place the successful party in the same position in which hewould have been if the wrong complained against would not havebeen done to him...”

12 De Smith’s Judicial Review, Eigth Edition (2018), at page 1006

13 (2003) 1 SCC 726

A

B

C

D

E

F

G

H

AReference in this regard can be also made to an earlier decisionof this Court in Rameshwar and Others v. Jot Ram and Another.[14]

18. In the present case, it is clear from a bare perusal of the letterdated 7[th] November 2016 sent by the Bank to its Zonal Manager thatthe Bank actively considered the Borrower’s request for extension ofBthe moratorium period. The Borrower did not submit the viability reportand failed to bring in Rs. 45,00,000/- (Rupees forty five lakhs only). Postthis default also there were negotiations with assurances and promisesby the Borrower. Displaying forbearance, the Bank granted indulgenceas action under the SARFAESI Act was deferred for nearly one yearfrom 7[th] November 2016 till 6[th] October 2017. Thereafter, negotiationsCwere held on 30[th] October 2017, 6[th] November 2017 and 8[th] November2017. The email dated 30[th] November 2017 addressed by the Bank tothe Borrower highlights the dilatory and tricky approach of the Borroweras it had failed to submit details of the additional collateral security offeredalong with the legal opinion and the engineer’s valuation report. EvenDvisit to the proposed collateral security property was not arranged. TheBorrower again tried its luck and submitted a restructuring proposal videcommunication dated 18[th] December 2017, but this did not fructify intoan acceptable settlement. The Bank having lost faith could not rely onthe Borrower. Only thereafter, the Bank proceeded with the auctionsunder the SARFAESI Act on 28[th] March 2018 and 14[th] June 2018. TheEBorrower then kept silent. As the earlier auctions failed, the Bank issuednotice dated 20[th] August 2018 informing the Borrower about the fourthauction to be held on 11[th] September 2018 at a reduced reserve price.The Borrower challenged the actions taken by the Bank after the SubjectProperty had changed hands and third party interests had been created.FTaking into consideration the entire facts of the case, which perspicuouslyreflect disingenuous conduct on part of the Borrower to gain indulgence,unfulfilled assurances and promises, their unwillingness to pay, and inlight of the law laid down by this Court, we are of the view that theBorrower has waived and is estopped from challenging violation of

Section 13(3A) of the SARFAESI Act and hence, the first issue is decidedGin favour of the Bank. Given the aforesaid position, we do not think weare required to examine the second point, i.e. whether in an applicationunder Section 17 of the SARFAESI Act, which can be filed when aBorrower is aggrieved by any of the measures referred to in sub-section H14 (1976) 1 SCC 194

(4) to Section 13 within forty five days from the date such measures aretaken, the Borrower can challenge other measures, steps and procedureswhich preceded the ultimate sale even if barred by the limitation periodof forty five days.

19. With regard to the third issue of the valuation of the machineryand the adverse finding of the High Court on the question of valuationbefore the machinery was sold in auction, it is to be noticed that thevaluation report which has been placed on record is dated 19[th] February2018, values the land, the building and the machinery separately. Themachinery has been valued with specific reference to as many as 55separate items under the Heading ‘Description of Machinery’. Thevaluation report itself has not been disputed or challenged. We do notagree with the High Court that the machinery should have been separatelyauctioned or sold. This would be putting fetters and restrictions on theBank by baring the Bank from selling the machinery along with thebuilding and the land. Prejudice and loss caused to the Borrower is notshown and established. Auction sale as confirmed was at a price higherthan the fair market valuation of the land, the building and the machinery.Whether or not the price of the machinery should be accounted for thepurpose of payment of stamp duty on a composite sale wherein the land,the building and the machinery located in the building are sold, would notbe of any relevance and importance as the issue in question does notconcern payment of stamp duty and the principles applicable. On theother hand, the law recognises that the lender knows its interests andhow to secure best value of the property given the fact that the mortgagedproperty had to be sold for recovery of the debts due and payable to theBank.

20. The fourth issue relating to the date of the valuation reportalso does not help the Borrower. The valuation certificate or report isdated 19[th] February 2018. As held above, attempts to sell the propertywere made thereafter on 28[th] March 2018 and 14[th] June 2018 but withoutsuccess as there were no bidders. Accordingly, it was decided to reducethe reserve price from Rs.2,78,10,000/- (Rupees two crores seventyeight lakhs ten thousand only) to Rs.2,60,00,000/- (Rupees two croressixty lakhs only). However, in the fourth auction the successful bid givenby Basa Chandramouli was for Rs.2,91,20,000/- (Rupees two croresninety one lakhs twenty thousand only), which is much higher than thereserve price of Rs.2,60,00,000/- (Rupees two crores sixty lakhs only)

A

BC

DE

F

G

H

Aor the fair market value of Rs.2,73,80,000/- (Rupees two crores seventythree lakhs eighty thousand only) in terms of the valuation report.

21. Resultantly, we allow the present appeals and set aside theimpugned order dated 24[th] January 2020 passed in Writ Petition No.13936 of 2019. The writ petition would be treated as dismissed. TheBorder passed by the Debts Recovery Tribunal dated 1[st] July 2019upholding the procedure and sale of the Subject Property under theSARFAESI Act is upheld.

However, in the facts of the present case, there would be noorder as to costs.

C

Devika Gujral

Appeals allowed.

D

E

F

G

H