Allowed

Shaikh Gulab Shaikh Ahmed and Anr. v. the State of Mah and Ors.

Bombay HC29 Nov 2011WP/10934/2010

Case brief

AI extract

What is this about?

This writ petition challenged private sale orders regarding agricultural land owned by a cooperative sugar factory. The Court held that since the property belongs to a cooperative society, public auction is mandated to ensure transparency and best price. It found material irregularities, including failure to fix a reserve price and non-compliance with the Sugar Commissioner's directives, thereby s

What did the court decide?

The confirmation of sale order and possession order dated 4-11-2010 were set aside. Direction to sell the land by public auction with wide publicity under the supervision of the Commissioner of Sugar.

Shaikh Gulab Shaikh Ahmed and Anr. Vs the State of Mah and… — Property and Title | Bombay HC (2011)

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IN THE HIGH COURT AT BOMBAY APPELLATE SIDE, BENCH AT AURANGABAD

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WRIT PETITION NO. 10934 OF 2010

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Shaikh Gulab Shaikh Ahmed, Age 40 yrs., Occu. Agriculture, R/o. Panwadi, Tq. Phulambri, Dist. Aurangabad.

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Ambadas s/o. Maruti Kale, Age 45 yrs., Occu. Agriculture, R/o. Ganori, Tq. Phulambri, Dist. Aurangabad. ....Petitioners.

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Versus

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The State of Maharashtra, Through Department of Co-operation, Mantralaya, Mumbai.

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The Commissioner of Sugar, Pune.

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The Recovery Officer, Debt Recovery Tribunal, Aurangabad.

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M/s. International Asset Reconstruction Company Private Limited, (A Trustee of IARC-CBOB-01/2007 Trust Body Corporate constituted under the Companies Act, 1956, and Securitization and Asset Reconstruction Company pursuant to Section 3 of Securitization & Reconstruction of Finance Assets & Enforcement of Security Interest Act, 2002 And having its Registered Office at 104, Ashoka Estate, 245 - Barkhamba Road, New Delhi 110 001 and officer at B-302, City Point, Andheri Kurla Road, Andheri (E), Mumbai 400 059, acting in its capacity as Trustee of IARC-BOB-01/07 Trust through its authorised representative/ Managing Director and CEO

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Mr. Birendra Kumar (Through Bank of Baroda)

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M/s. Deogiri Sahakari Sakhar Karkhana Ltd., Girijanagar, Phulambri, Tq. Phulambri, Dist. Aurangabad Through it's Managing Director.

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Zambad Infrastructures, Aurangabad.

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Maharashtra State Cooperative Bank Limited, 9, Maharashtra Chambers, Commerce Lane, Fort, Mumbai.

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....Respondents.

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Mr. D.P. Palodkar, Advocate for petitioners.

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Mr. D.R. Korde, Assistant Government Pleader for respondent Nos. 1 and 2.

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Mr. Alok Sharma, Assistant Solicitor General, for respondent No. 3. Mr. P.K. Joshi, Advocate for respondent No. 4.

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Mr. V.D.Hon Advocate with Shri. K.J. Suryawanshi, Advocate for respondent No. 6.

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Shri. V.S. Kadam, Advocate for respondent No. 7. Shri. S.B. Talekar, Advocate for interveners.

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CORAM : NARESH H. PATIL & T. V. NALAWADE, JJ. DATED : 29th November, 2011.

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JUDGMENT : [ PER T. V. NALAWADE, J. ]

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Rule. Rule made returnable forthwith by consent of both the sides. Heard all the sides including advocates appearing in intervention proceedings.

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The petition is filed under Articles 226 and 227 of Constitution of India to challenge the orders made by the Recovery Officer of Debt Recovery Tribunal (hereinafter referred to as "D.R.T." for short) on Exhs. 117 and 127 in Recovery Proceeding No. 31/2007. Under the orders, the Recovery Officer has confirmed the sale made in recovery proceeding (private sale) and the possession of immovable property is given to the purchaser. A relief of direction to sell the same property, which belongs to respondent No. 5 - Deogiri Co-operative Sugar Factory (hereinafter referred to as the "debtor" for short) by public auction is also sought in the writ petition. Some civil applications are filed for intervention by persons having interest as shareholders in the property as they want to object to the sale and some civil applications are filed by other persons, who wanted to purchase the property at higher price. Writ petition No. 3084/2011 is filed by Village Panchayat Phulambri as it is interested in recovering some tax from the debtor.

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The debtor factory is registered under the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred to as "State Co-operative Societies Act") as a cooperative society and the petitioners are its shareholders. The

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sugar factory was indebted to Bank of Baroda for an amount of around Rs. four crore. Respondent No. 4 M/s. International Asset Reconstruction Company Private Limited (hereinafter referred to as "certificate holder" for short) is a company, acting for Bank of Baroda for recovery of this loan amount.

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The debtor owns agricultural lands at Sawangi [Tahsil Aurangabad] which totally admeasure 62.51 Hectors. It owns 19.76 Hectors of agricultural land at village Chokha, Tahsil and District Aurangabad. Charge in respect of the loan amount was created in the year 2006 on these lands by certificate holder. These lands were already mortgaged to Maharashtra State Cooperative Bank Limited, respondent No. 7, in the year 1998 for getting loan and entry in respect of this mortgage was made in revenue record. At the relevant time, the amount of more than Rs. 19.24 Crore was due to respondent No. 7 from the debtor. The debtor had other creditors also including Maharashtra State Electricity Board.

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In aforesaid recovery proceeding, the lands from both Sawangi and Chokha came to be attached on 13.2.2009. Respondent No. 7 filed objection petition before Recovery Officer (Exh. 23) and requested to add it as a party as the amount of

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more than Rs. 19 Crore was due to it. This application came to be allowed. But the sale order came to be made and the Recovery Officer directed to pay the amount of certificate holder first and then hand over excess amount, if any, to respondent No. 7 after the sale of aforesaid properties. (Order dated 8.1.2010). On 1.2.2010 and 2.2.2010 orders came to be made in the recovery proceeding for settling proclamation and for publication of proclamation in newspaper. On 3.3.2010 Recovery Officer made order that reserve price was to be fixed.

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By application dated 5.10.2008 the debtor had applied to Maharashtra State Co-operative Bank Limited/respondent No. 7 for permission to sell the aforesaid lands. Subject to some conditions, the respondent No. 7 had granted permission on 14.1.2009. By letter dated 24.6.2009 the debtor had applied to the Sugar Commissioner, the authority, for permission of sale of lands from Sawangi and Chokha. The Sugar Commissioner had given the permission to the debtor on 1.7.2009, subject to conditions which include condition of sale of the property in public auction. The State Co-operative Bank had also put some conditions like previous approval of Sugar Commissioner for sale and approval of the rate by the Sugar Commissioner in addition to a condition of sale in public auction.

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By the application dated 1.1.2010 the debtor requested the Recovery Officer to sell the property situated at Sawangi first (Exh. 25). Submissions were made before the Recovery Officer for debtor that the certificate holder had given no objection for sale of the property at Sawangi first and permission of Sugar Commissioner was also obtained. This application came to be rejected on 8.1.2010, the date on which the sale order was made. However, the Recovery Officer observed that the properties from both the villages can be sold as per the procedure laid down in this regard and that may be either by public auction or under Rule 66 of the Rules framed under Income Tax Act.

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On 17.3.2010 the debtor applied to the Recovery Officer vide Exh. 55 for permission to sell the lands from Sawangi, to intending purchaser, respondent No. 6/ Zambad Infrastructure Limited, Aurangabad under private sale under Rule 66. The respondent No. 7/ Maharashtra State Co-operative Bank Limited gave consent for such sale. Intervention applications were already made by other creditors of the debtor. Nifad Co-operative Sugar Factory, a creditor, had filed dispute before the Co-operative Court for recovery of the amount and had obtained order of attachment

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of these properties on 25.2.2010. This factory gave consent for private sale. Samarth Sugar Factory was entitled to recover more than Rs. 3 Crore from debtor and it also filed consent on 3.4.2010 for private sale. The certificate holder collected Rs. 40 lacs from prospective purchaser, respondent No. 6, and gave consent for such private sale. It was informed to Recovery Officer by debtor that the respondent No. 7/ State Co-operative Bank had the first charge on the properties as the lands were mortgaged with it in the year 1998. It was informed that the certificate holder had the second charge and Samarth Co-operative Sugar Factory had third charge. On 17.3.2010 itself, the date on which the application for permission of private sale was made by debtor, the respondent No. 6, the proposed purchaser filed an application to inform that it was ready to purchase the lands from Sawangi at the rate of Rs. 12.05 lacs per Acre.

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By the order dated 24.7.2010 the Recovery Officer directed the debtor to place on record the resolution of the Managing Committee of the Factory. The Recovery officer gave direction to make fresh valuation of lands situated at Sawangi.

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In the recovery proceeding the certificate holder had already filed its valuation report on 12.12.2007 and it was

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informed that the value of the lands from Sawangi was around Rs. 1.54 Crore and the price per Acre was around Rs. 2.47 lacs. After the order dated 27.4.2010 the valuer of D.R.T. gave report on 10.5.2010 and informed that the fair market value of all the lands situated at Sawangi was around Rs. 18.70 Crore. This was exactly the price already offered by respondent No. 6, the intending purchaser.

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On 14.5.2010 the Recovery Officer passed order to allow the sale under private treaty under Rule 66 of Rules framed under the Income Tax Act. The main part of the order is as follows :-

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"2) M/s. Zambad Infrastructure Ltd. is hereby directed to deposit the sale consideration amount for the land mortgaged by certificate debtor no. 1 in favour of Maharashtra State CoOperative Bank @ 12,05,000/- (Rupees twelve Lacs Five Thousand Only) in installment within the considerable time however for delay period 10% P.A. interest will be charged."

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Some Ex-Directors of the debtor filed objection at Exh. 79 before Recovery Officer on 11.6.2010 and they requested for sale of the lands by public auction. They also requested for the sale of only 14 Acres of land by contending that as per the record

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the amount of only Rs. 3.48 Crore was to be given to certificate holder. It was contended that the sale of all the lands from Sawangi was not necessary. It was contended that the properties situated at Sawangi are adjacent to the Corporation limits of Aurangabad and they have non-agricultural potential. It was contended that the market value of the lands per Acre was more than Rs. 25 lacs. On 18.6.2010 the Recovery Officer made an order in recovery proceeding that as the amount of Rs. 17.01 Crore and interest on it as per the aforesaid order dated 14.5.2010 was not deposited by the intending purchaser, the purchaser was to pay the remaining amount and after such payment the sale was to be treated as confirmed. On 18.6.2010 itself the objection application of Ex-Directors/Members of the debtor factory came to be rejected. One of the reasons given was that, these persons had no locus standi. On 24.6.2010 present petitioners filed their objection to the aforesaid sale. The petitioners contended that the procedure to sell the property by public auction was not followed and the land was being sold for meagre amount, when the market value of the land per Acre was more than Rs. 50 lacs. This objection application is not yet decided by the Recovery Officer.

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By order dated 4.11.2010 the incharge Recovery

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Officer issued order of confirmation of sale by observing that auction purchaser had deposited the sale consideration. On the same day by making order at Exh. 127 the incharge Recovery Officer directed to hand over the possession of the lands from Sawangi to the respondent No. 6. The respondent No. 6 made a request to the Recovery Officer to issue the said certificate in favour of Zambad Mount View Private Limited, a sister concern of the respondent No. 6 and this request was also allowed.

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The contentions made in the present petition are similar to the contentions which are made in objection petition filed before the Recovery Officer. Allegations are made against the Recovery Officer, the purchaser, the debtor and also against respondent No. 7 that they have joined hands to see that the property of the debtor is sold at such low price to respondent No. 6, when the value per Acre is around Rs. 50 lacs. Allegations are made that the procedure of sale in public auction is avoided only to see that the property is sold at such low price to respondent No. 6.

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In the present proceeding, respondent No. 6, the purchaser, has filed an affidavit in reply and it is contended that appropriate procedure was followed in recovery proceeding for

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sale of property to it. The debtor factory has also made similar contentions. These two respondents have contended that alternative remedy is available under the provisions of Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "R.D.B. Act" for short) and so the writ petition is not tenable. It is contended by them that similar objections filed before the Recovery Officer by other persons like Ex-Directors are decided on merits and appeals are filed against these orders before Debt Recovery Appellate Tribunal (appellate authority).

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The State, respondents No. 1 and 2 have filed affidavit in reply. The State has contended that no information about the aforesaid sale was given to it and the sale is not in conformity with the directions given by the Sugar Commissioner. It is contended that no publicity was given to the proposed sale. In the present proceeding, a letter of the authority is produced to show that it intends to take action under section 83 of the State Co-operative Societies Act against the Managing Committee and the concerned persons.

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Submissions were made by the advocates of both the sides in relation to aforesaid contentions and some reported cases

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are cited by both the sides. This Court has perused the relevant record which includes various orders made by the Recovery Officer. Copy of Rozanama of recovery proceeding is also produced by the petitioners.

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Section 29 of R.D.B. Act shows that the provisions of Income Tax (Certificate Proceedings) Rules, 1962 are applicable for recovery proceeding started on the basis of certificate issued under R.D.B. Act. General procedure is given in part I of Schedule II of Income Tax Act, 1961 and special procedure in respect of immovable property is given in part II of Schedule II. Before considering these Rules, it is necessary to keep in mind the admitted position that the proclamation was not published, though the notice to draw such proclamation was given to debtor. It needs to be kept in mind that the debtor is supporting the orders made by the Recovery Officer and the record of confirmation of the sale. The State is supporting the petition by contending that there are material irregularities in the process of sale. The relevant provisions in this regard from the aforesaid schedule are as under :-

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"Sale and proclamation of sale.

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52. (1) The Tax Recovery Officer may direct that any immovable property which has been

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attached, or such portion thereof as may seem necessary to satisfy the certificate, shall be sold.

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(2) Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district.

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Contents of proclamation.

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53. A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible.-

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(a) the property to be sold;

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(b) the revenue, if any, assessed upon the property or any part thereof;

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(cc) the reserve price, if any, below which the property may not be sold; and

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(d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property.

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Mode of making proclamation.

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54. (1) Every proclamation for sale of immovable property shall be made at some place on or near such property by beat of drum or other customary mode, and a copy of the proclamation shall be affixed on a conspicuous part of the property and also upon a conspicuous part of the office of the Tax Recovery Officer.

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(2) Where the tax Recovery Officer so directs, such proclamation shall also be published in the Official Gazettee or in a local newspaper, or in both; and the cost of such publication shall be deemed to be costs of the sale.

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(3) Where the property is divided into lots for the purpose of being sold separately, it shall not be necessary to make a separate proclamation for each lot, unless proper notice of the sale cannot, in the opinion of the Tax Recovery Officer, otherwise be given.

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Postponement of sale to enable defaulter to raise amount due under certificate.

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66. (1) Where an order for the sale of immovable property has been made, if the defaulter can satisfy the Tax Recovery Officer that there is reason to believe that the amount

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of the certificate may be raised by the mortgage or lease or private sale of such property, or some part thereof, or of any other immovable property of the defaulter, the Tax Recovery Officer may, on his application, postpone the sale of the property comprised in the order for sale, on such terms and for such period as he thinks proper, to enable him to raise the amount.

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(2) In such case, the Tax Recovery Officer shall grant a certificate to the defaulter, authorising him, within a period to be mentioned therein, and not withstanding anything contained in this Schedule, to make the proposed mortgage, lease or sale:

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Provided that all moneys payable under such mortgage, lease or sale shall be paid, not to the defaulter, but to the Tax Recovery Officer :

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Provided also that no mortgage, lease or sale under this rule shall become absolute until it has been confirmed by the Tax Recovery Officer."

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The record, submissions made for purchaser and submissions made by debtor show that the permission of private sale was obtained under Rule 66 and the transaction needs to be treated as the transaction of private sale under Rule 66. In the

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order of permission, no time was fixed for sale. Permission was given to make payment in installments and if there was delay in making the payment, interest at the rate of 10% p.a. was to be charged. The aforesaid Rules show that for private sale time is required to be fixed and the purchaser is required to be directed to deposit the money payable under the sale before the Recovery Officer. The time is required to be fixed against the debtor who is given permission of private sale. As it is not auction sale the provisions of Rule 57 of aforesaid Schedule II cannot be applied for such private sale.

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20. Rule 6 of Schedule II runs as under :-

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"Purchaser's title.

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6. (1) Where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified.

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(2) Where immovable property is sold in execution of a certificate, and such sale has become absolute, the purchaser's right, title and interest shall be deemed to have vested in him from the time when the property is sold, and not from the time when the sale becomes absolute."

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The aforesaid Rules [6 and 66] show that unless, there is a private sale by debtor, there cannot be order of confirmation by the Recovery Officer. Rule 66 shows that the intention behind this rule is to give opportunity to the debtor to raise money by selling either immovable property - attached in recovery proceeding or by selling other property of the debtor. Though there is no clear mention in these Rules, from the aforesaid Rules it can be inferred that the question of confirmation will arise, only when the property attached in recovery proceeding is allowed to be sold in private sale under Rule 66. The private sale is to be made by the debtor directly and as it is not auction sale made by Recovery Officer, the general conditions of sale of immovable property become applicable to such private sale.

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Section 54 of Transfer of Property Act, runs as under :- "54. “Sale” defined .- “Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

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Sale how made.- Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered

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instrument.

In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

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Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

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Contract for sale .- A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.

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It does not, of itself, create any interest in or charge on such property. "

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In the present case, a query was made to the advocate of respondent No. 7, as to whether there was any sale by debtor in favour of respondent No. 6. It was submitted for the respondent No. 7 that there was no sale transaction, as contemplated under section 54 of the Transfer of Property Act. The documents on record, which are copies of applications filed by the debtor and the purchaser before the Recovery Officer in respect of negotiations which they had made, show that the value

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of the property to be sold was shown as more than Rs. 18 Crore. In view of the aforesaid provisions of Transfer of Property Act regarding the sale transaction and the rival contentions, there is no other alternative than to hold that there was no conveyance, sale of the lands from Sawangi by respondent No. 5 in favour of respondent No. 6. In view of this circumstance, further orders made on Exhs. 117 and 127 of confirmation of sale and of giving of possession, have no meaning in law. As there was no effective conveyance, the fact of delivery of possession in this case has also no relevance. This single circumstance is sufficient for setting aside the orders made on Exhs. 117 and 127.

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It was submitted for petitioners that the property involved belongs to Co-operative Sugar Factory, thousands of its shareholders and so the mode of sale in public auction ought to have been adopted. On this point some reported cases were cited. In the case reported as 1995 (4) SCC 595 [Chairman and Managing Director, Sipcot, Madras Vs. Contromix Pvt. Ltd. by its Director (Finance) Seetharaman, Madras], the Apex Court has held that :-

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"In the matter of sale of public property, the dominant consideration is to secure the best price to property to be sold. This can be achieved only when there is maximum

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participation, in the process of sale and everybody has an opportunity of making an offer. Public auction after adequate publicity ensures participation of every person, who is interested in purchasing the property and generally secures the best price."

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In the case reported as (1986) 3 SCC 391 [Chenchu Rami Reddy and Another Vs. Government of Andhra

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Pradesh and others] the Apex Court was considering the sale of property belonging to religious and charitable endowments by private negotiations. The Apex Court observed that normally the mode of sale of such properties should be by public auction. It is observed that the authorities exercising powers must remain alert and show awareness towards ugly realities of the life. It is observed that the authorities must be aware that in such matters the trustees or persons authorizes to sell by private negotiations, can, in a given case, enter into a secret or invisible underhand deal or understanding with the purchasers at the cost of the concerned institution. In this case there was question of interpretation and the use of section 74 (1) (c), proviso of Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1966. As per this provision, for giving the permission of private negotiations - sale, it was necessary for the

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Government to reach to satisfaction that such private negotiation - sale would be in the interest of the institution. Similar observations are made in the case reported as 1993 (2) SCC 279 [Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others] while discussing the powers of State Finance Corporation. In this case the property of one industry was sold. No institution like Co-operative factory or religious endowment was involved. But, in that case also the Apex Court has observed that it is always desirable to have sale in public auction by the authority.

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In 2008 (1) D.R.T.C. 493 Madras High Court [Hannu Reddy Realty India Pvt. Ltd. & Ors. Vs. Jignesh & Ors.], the High Court has discussed Income Tax Act Rules 1961 which are used in the present case also. It is observed by the High Court that in ordinary course the Recovery Officer must see that the property is sold for market price in a free auction made with wide publicity. As there were material irregularities in that regard in the procedure, the sale was set aside.

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The Recovery Officer in the present case being statutory authority and as the property of one Co-operative Institution was to be sold, he ought to have followed the

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procedure of sale in public auction. This Court has no hesitation to hold that in such cases, the property must be sold in public auction which can make the things transparent. Admittedly, in correspondence of the factory made with the Sugar Commissioner two years prior to the date of sale order. Management of the Factory had informed to the authority that the property would fetch more than Rs. 28 Crore at the rate of Rs. 50 lacs per Hector. It is the case of the objection petitioners that the price in auction sale would have been more than Rs. 50 lacs per Acre. It appears that one intending purchaser had offered to give atleast Rs. 80 lacs more before the Recovery Officer before the confirmation. These circumstances are sufficient to create probability that factory could have received more amount in public auction.

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The record shows that reserve price as required by the aforesaid Rules was never fixed by the Recovery Officer. The opinions, Reports on the market price of these lands collected within span of two years show that there is considerable difference in the figures given in the two opinions. In the second report obtained from valuer of D.R.T., the value shown is eight times more than the value which was shown in the first report. The value mentioned in the second report is almost the same which was already offered by respondent No. 6, the purchaser.

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When the certificate holder was ready to accept Rs. 3.75 Crore by way of settlement, it was not necessary to sell all the lands from Sawangi. But all the lands were put for sale to be sold by the Recovery Officer. The Recovery Officer virtually considered all the claims made before him by other creditors. When the Rules show that the amount needs to be deposited before the Recovery Officer, huge amount was directly paid to certificate holder and the direction was given to deposit remaining amount with State Co-operative Bank. These circumstances show that the Recovery Officer did not follow the procedure and did not even apply mind while passing various orders. These irregularities are certainly material in nature.

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Submission was made in this proceeding for petitioners that it was necessary to follow the provisions of State Co-operative Societies Act, as the factory is registered under this Act and the provisions of this Act including the directions given by the Sugar Commissioner, the supervisory authority, were binding on the sugar factory. The Recovery Officer refused to consider the conditions imposed by the Sugar Commissioner before allowing the private sale when he used the permission given for sale. On this point, for purchaser reliance was placed on the provisions of Section 34 of R.D.B. Act. Section 34 (1) of this Act runs as

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follows :-

" 34. Act to have overriding effect.- (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act."

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In reply to submissions made for purchaser, the submission was made for the petitioners that the provisions of State Co-operative Societies Act are not superseded by R.D.B. Act. Reliance was placed by the advocate of one intervenor on the case reported as (2007) 6 SCC 236 [Greater Bombay Co-op. Bank Ltd. Vs. United Yarn Tex (P) Ltd. and others]. This Court has carefully gone through the facts of this case and observations made by the Apex Court. The Apex Court has discussed the definition given in R.D.B. Act, 1993 [Section 2 (c)], Section 2(1) and Section 56(1) of Banking Regulation Act, 1949. The Apex Court has also discussed the legislative competence of the State Legislature and Parliament in relation to Schedule VII, List I, Entries No. 43 to 45 and List II, Entry No. 32 of Constitution of India. The relevant paras are as follows :-

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"97. For the reasons stated above and adopting pervasive and meaningful

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interpretation of the provisions of the relevant statues and Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh Schedule of the Constitution, we answer the reference as under :

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"Cooperative banks" established under the Maharashtra Cooperative Societies Act, 1960 (the MCS Act, 1960), the Andhra Pradesh Cooperative Societies Act, 1964 (the APCS Act, 1964), and the Multi-State Cooperative Societies Act, 2002 (the MSCS Act, 2002) transacting the business of banking, do not fall within the meaning of "banking company" as defined in Section 5(c) of the Banking Regulation Act, 1949 (the BR Act). Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the RDB Act) by invoking the doctrine of incorporation are not applicable to the recovery of dues by the cooperative from their members.

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The field of cooperative societies cannot be said to have been covered by the Central Legislation by reference to Entry 45, List I of the Seventh Schedule of the Constitution. Cooperative banks constituted under the Cooperative Societies Acts enacted by the respective States would be covered by cooperative societies under Entry 32 of List II of

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the Seventh Schedule of the Constitution of India."

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The aforesaid observations show that the provisions of R.D.B. Act have no overriding effect over the provisions of State Co-operative Societies Act. It is made clear by the Apex Court that authorities, Courts created under the State Co-operative Societies Act will continue to work even after the establishment of Tribunals under R.D.B. Act. Thus there is no force in the aforesaid defence.

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In the present case, some directions were already given by Sugar Commissioner, authority created under the State Co-operative Societies Act, to the factory while granting permission of sale. One Committee was also constituted to supervise the same. The letters of Maharashtra State Cooperative Bank and the permission granted by Sugar Commissioner show that it was necessary to make the sale in public auction and to get the approval of Sugar Commissioner in respect of the rate. As soon as the Recovery Officer allowed private sale to the factory, the factory was expected to act under the provisions of State Co-operative Societies Act and it was necessary for the factory to follow the directions given by Sugar Commissioner. It is already observed that in such a case the

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proper course is only the sale by public auction. Surprisingly, the orders of Recovery Officer also show that he was expecting the factory to do wide publicity of proposed sale. Though no specific mode was given, there was no public notice issued in respect of the proposed sale and no record is produced by the factory to show that wide publicity in any other way was given to the proposed sale. It appears that the factory attempted to collect some offers. But, in view of the aforesaid circumstances, this Court has no hesitation to hold that an attempt was made to give go-by to the directions given by Sugar Commissioner and the provisions of State Co-operative Societies Act. In view of these circumstances, this Court holds that there were material irregularities in the procedure followed by the Recovery Officer and the procedure followed by the sugar factory.

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To oppose the petition, it was submitted that there is alternative remedy and the orders made by the Recovery Officer under R.D.B. Act can be challenged first before D.R.T. and then before D.R.A.T. under section 30 and 20, respectively of the R.D.B. Act. It was submitted that writ petition is not tenable in view of these circumstances. Reliance was placed on the case reported as (2001) 6 SCC 569 [ Punjab National Bank Vs. O.C. Krishnan

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and others]. The facts of this reported case show that order of sale made by D.R.T. in respect of property mortgaged with the bank was challenged under Article 227 of Constitution of India on the ground that D.R.T., Calcutta had no territorial jurisdiction over the property which was situated in Chennai. The High Court set aside the order made by the Recovery Officer. The Apex Court made following observations with regard to the provisions of R.D.B. Act, 1993 and the provisions of Articles 226 and 227 of Constitution at para No. 6 :-

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"6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitution provisions. This was a case where the High

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Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act."

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Reliance was placed for purchaser on other case reported as (2008) 13 SCC 323 [Shivanand Gaurishankar Baswanti Vs. Laxmi Vishnu Textile Mills & Anr]. A worker of the mill had filed writ petition second time when the previous writ petition was dismissed and he was advised to approach the appropriate authority. The worker challenged a sale made by the Recovery Officer. There was compromise between the Union and the employer and larger interest was to be protected. The High Court dismissed the petition by holding that there was alternative remedy. Supreme Court also held that there was alternative remedy. Further, the worker had no case at all on merits and the interference could have affected interest of all the remaining workers, who had compromised with the employer. In another case reported as (2010) 8 SCC 110 [United Bank of India Vs. Satyawati Tondon and Ors.], Supreme Court held in view of the facts of that case that interference by High Court in the exercise of powers of creditor bank was not proper by using writ jurisdiction. The creditor bank had issued notice and it was using the provisions of section 13 (2) (4) and section 14 of SARFAESI

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Act. It was observed that such interference would defeat very object of the Act. Further, action of bank was stayed immediately after issuance of notice under section 13 (2) of the Act. The Apex Court held that there was remedy under section 17 and 18 of the same Act and so, the interference under Article 226 of Constitution of India was not advisable.

¶175

For petitioners and interveners reliance was placed on some reported cases on the point of tenability of the writ petition. In the case reported as 1971 (1) SCC 309 [State of West Bengal Vs. North Adjal Coal Co. Ltd.] the Apex Court has observed that :-

¶176

"Normally before a petition under Article 226 is entertained, there should be recourse to statutory authorities which have power to give relief. But that is a rule of practice and not of jurisdiction. Therefore, a High Court is competent to entertain a petition even where the aggrieved party has not exhausted the remedies available under the statue"

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In this reported case, the question of exemption from sales tax on account of being a sale in the course of export was involved. In view of the facts of the case, it was held by Supreme Court that in appropriate case High Court may entertain the petition under

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Article 226 and in view of the facts of the case, High Court had not committed any error.

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The aforesaid observations made by the Apex Court in various cases show that whether the High Court should use the extraordinary jurisdiction, would always depend upon the facts of the case. In the present case, it is necessary to consider the provisions of not only R.D.B. Act, but also the provisions of State Co-operative Societies Act, Transfer of Property Act, Registration Act and Indian Stamp Act. The dispute cannot be decided only by using the provisions of R.D.B. Act. The discussion already made shows that even when there was an opportunity, go-by was given to the directions issued by Sugar Commissioner and the provisions of State Co-operative Societies Act, 1960. Even the Recovery Officer had given directions of wide publicity while making order on Exh. 55, but those directions were not followed with ulterior motive. There are material irregularities in the procedure adopted by the Recovery Officer. In fact and in law there was no sale, but the orders were passed on Exhs. 117 and 127 by Recovery Officer. When it is necessary to sell the property of such institution by way of public auction, private sale mode was adopted and loss is caused to the institution. In the interest of the factory, its members and also in the interest of creditors, it has

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become necessary to set aside the orders made by the Recovery Officer and also to give a direction of sale by public auction in this proceeding. There is clear possibility that in a sale by public auction after wide publicity, the factory will get huge amount. In view of these circumstances, this Court holds that the use of provisions of Articles 226 and 227 of Constitution of India has become necessary in this case.

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In view of poor financial condition of debtor, the fact that lands from Sawangi are not necessary for running factory, the Sugar Commissioner has given permission to sell the lands and the sale may help factory to come out of the financial problems, the sale of these lands cannot be prevented.

¶186

Some submissions were made by interveners and other creditors regarding the amount due to them. This Court is not expected to give any finding on such claims. Submissions were made for Phulambri Village Panchayat in respect of dues to it from the sugar factory. But, for the same reasons, these submissions cannot be considered in the present proceedings. However, Phulambri Village Panchayt had also prayed similar relief in respect of the procedure adopted by the Recovery Officer. As this Court is allowing the writ petition No. 10934/10, all other

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proceedings including writ petition No. 3084/2011 can be disposed of. So the following order.

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O R D E R

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The writ petition is allowed. The order dated 4-11-2010 passed below Exhibit 117 in R.P. No.31 of 2007 about confirmation of sale and the order dated 4-11-2010 passed below Exhibit 127 in R.P. No.31 of 2007 by the Debt Recovery Tribunal Aurangabad about handing over possession of the subject land in favour of respondent No.4 are set aside.

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We direct that the land Gut Nos.37, 41, 43, 44, 45/1, 45/2, 46, 53, 54 and 102 total admeasuring 62.51 hectares of village Savangi, Taluka and District Aurangabad shall be sold by holding public auction by giving wide publicity in the State / National level news papers. The public auction shall be conducted sunder the supervision of Commissioner Sugar Pune. In case possession is handed over to respondent No.6 we direct the authorities to take back possession of the subject land forthwith. Rule is made absolute in the above terms with no order as to costs.

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At this stage learned counsel for the respondent-Bank prays for stay of the operation of the order for a period of 8

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weeks. Learned counsel appearing for the petitioners and the respondents except the respondent bank have strongly opposed the prayer. This order shall not be operative for a period of six weeks from today.

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In view of final disposal of the petition, all the pending civil applications are disposed of.

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[ T. V. NALAWADE, J.] [ NARESH H. PATIL, J.]

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ssc/

Shaikh Gulab Shaikh Ahmed and Anr. v. the State of Mah and Ors.

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Shaikh Gulab Shaikh Ahmed and Anr. v. the State of Mah and Ors.

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