A writ petition challenging the bank's set-off of mortgaged property and withdrawal from auction proceedings, holding the action legal as the debt remained unpaid and interim order conditions were not met.
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THE HON’BLE SRI JUSTICE M. GANGA RAO
Writ Petition No.4960 of 2021
ORDER
This writ petition, under Article 226 of the Constitution of India, is filed seeking the following relief/s:
“…to issue an appropriate Writ, Order or Direction more particularly one in the nature of a Writ of Mandamus declaring the action of the 2nd respondent in setting-off the secured residential building of an extent of 500 Square Yards situated in R.S.No.278/3 at D.No.16/356-4, Machilipatnam for an amount of Rs.1,06,62,000/- which is extended as security under deposit of title deeds vide Regd.Doc.No.3152/2016 dated 25.05.2016 on the file of Joint S.R.O Machilipatnam deposit for the loan amount of Rs.75,00,000/- as illegal, arbitrary and unconstitutional and consequently direct the 2nd respondent to either conduct auction for sale of subject secured property or to set off the subject property basing on the report of approved valuer and to pass such other order or orders..”
Heard learned counsel for the petitioner and Sri A. Rajendra Babu, learned standing counsel appearing for the 2nd respondent.
The case of the petitioner is that she availed secured over draft loan from the 2nd respondent bank for an amount of Rs.25,00,000/- by securing title deeds of her residential building in the land admeasuring 530 Square Yards situated in R.S.No.278/3 at D.No.16/356-4, Machilipatnam. In the same transaction, she extended the residential building as security and stood as guarantor to two other borrowers by name Tata Aruna and Tata Venkata Subba Rao, for an amount of Rs.25,00,000/- each. Thus, the property has been mortgaged in favour of the bank for a total amount of Rs.75,00,000/-, vide registered document bearing No.3152 of 2016. The petitioner and two others are jointly liable to pay the said amount of Rs.75,00,000/-. The petitioner and two others used to pay the interest amount regularly without any default.
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Subsequently, when the petitioner’s husband, who is the Assistant General Manager, has been falsely implicated in a crime by the 2nd respondent alleging that he has committed fraud in sanctioning loans, the petitioner approached the 2nd respondent and offered to repay the entire loan amount availed by the petitioner along with pending interest. The 2nd respondent refused to receive the loan amount stating that as the petitioner stood as guarantor in other loan transactions, she has to clear the other loans also and then only they would receive the loan amount availed by her. Thereafter, the 2nd respondent affixed sale auction notice without mentioning any date. Aggrieved by the said action, the petitioner filed W.P.No.6942 of 2020. This Court granted interim order on 16.03.2020. Due to pandemic circumstances thereafter, the petitioner could not obtain the order copy and the bank also could not proceed with auction sale of subject property. Subsequently, the petitioner deposited an amount of Rs.5,00,000/- in connection with the pending loan account and expressed her intention in payment of total dues and getting the property released. The 2nd respondent refused and stated to clear the loans for which the petitioner stood as guarantor. Later another sale notice was issued stating that the subject property would be put to auction on 29.01.2021. The officer holding the auction proceedings has fixed the base price as Rs.1,95,00,000/-. The auction was postponed to 04.02.2021. No bidders came forward to purchase the property for the base price. However, the petitioner’s sister-in-law K. Durga Bhavani and her husband K. Naga Sudhakar had bid the subject property for an amount of Rs.1,25,00,000/-. Without considering the same, the 2nd respondent stopped the auction proceedings on 04.02.2021. Thereafter, it was informed by the 2nd respondent that the bank has set-off the subject property for an amount of Rs.1,06,62,000/-. Assailing the arbitrary action of the 2nd respondent, the present writ petition is filed.
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Learned counsel for the petitioner submits that even as per the valuation report as on 01.02.2021, the value of the subject property is Rs.2,20,99,740/-. The 2nd respondent has also initially fixed the base price as Rs.1,95,00,000/-. Therefore, the setting-off the property for Rs.1,06,62,000/though in the auction the sister-in-law of the petitioner had bid for Rs.1,25,00,000/- is nothing but an action to deprive the rights of the petitioner as a borrower to yield maximum benefit on sale of subject property. The 2nd respondent ought to have declared the subject property in favour of highest bidder participated in the auction. The 2nd respondent, for the reasons best known to him, has refused to consider the bid of the sister-in-law of the petitioner and had set-off the subject property for an amount of Rs.1,06,62,000/-, due to which the petitioner was put to suffer irreparable loss and injury.
Learned standing counsel, on instructions, submits that when Form 9 notice under Rule II(e) of Section 52 of the Co-operative Societies Act was issued and the 2nd respondent bank was proposing to put the mortgaged property for sale, the petitioner along with two others approached this Court and filed W.P.No.6942 of 2020. This Court granted interim direction ‘directing the respondents not to execute the sale certificate in respect of the 1st petitioner’s mortgaged property on condition that the petitioners deposit entire loan amount along with interest within a period of four (04) weeks from the date of receipt of a copy of this order. On the failure of the petitioners to deposit the entire loan amount along with interest within the stipulated time, the respondent authorities are at liberty to proceed further as per law.’ As the petitioner failed to comply with the interim orders of this Court granted in W.P.No.6942 of 2020, the 2nd respondent proceeded to auction the subject property. Since no bidders have come forward to purchase the subject property for the upset price fixed by the 2nd respondent, the subject property
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was set-off by the 2nd respondent towards the outstanding due amount, on 04.02.2021. The set-off was made in favour of the 2nd respondent bank and not any third party. If the petitioner approaches the 2nd respondent, within a month from the date of set-off, and pays the outstanding amount to the 2nd respondent, the property will be released to the petitioner.
Having heard learned counsel for the petitioner and learned standing counsel, this Court found that the petitioner, having availed loan from the 2nd respondent and having obtained an interim order from this Court, has failed to repay the loan and also failed to comply with the interim orders granted by this Court. This Court do not find any illegality or irregularity in the action of the 2nd respondent in setting off the subject secured property for the outstanding due amount. The writ petition is liable to be dismissed.
Accordingly, the Writ Petition is dismissed. There shall be no order as to
costs.
As a sequel, pending miscellaneous applications, if any, shall stand closed.
______________ M.GANGA RAO, J
02.03.2021 Vjl
3 issues framed by the court
Whether the set-off of mortgaged property by the bank towards outstanding dues constitutes an arbitrary action violative of Constitution.
Whether the bank was justified in stopping the auction and setting off the property after interruption in auction proceedings.
Whether the petitioner's failure to comply with interim order alters the legality of the set-off action.
1 provisions across 1 enactments
Petitioner
2nd Respondent
M. Ganga Rao
As recorded by the court registry
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