Allowed

Rajendra Hiralal Shah v. Bank of Baroda & Ors.

DRAT28 Oct 2022REGULAR APPEAL/212/2015

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal allowed an appellant's appeal challenging a sale confirmation and certificate issued after the underlying recovery proceedings were withdrawn via a settlement. The tribunal set aside the sale, noting the Recovery Officer erred in restoring a disposed matter without notice, and directed the return of the auction price.

What did the court decide?

Impugned order set aside; Confirmation of sale and Certificate of sale set aside; Auction purchaser to be returned the deposited sale price with interest.

Rajendra Hiralal Shah versus Bank of Baroda & Ors. — Banking and Recovery | DRAT (2022)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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Appeal No. 212/2015

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Between

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Rajendra Hiralal Shah … Appellant/s

V/s.

Bank of Baroda

…Respondent/s

Mr Rajesh Nagori, i/b Ms Sanjana Ghogare, Advocate for Appellant. Mr Anant B. Shinde, i/b M/s Anant B. Shinde & Co., Advocate for the Respondent.

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-: Order dated 28/10/2022:-

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This appeal impugns the order of the Debts Recovery Tribunal, Pune (‘D.R.T’ for short) in appeal No. 10 of 2012 dated 20/03/2015.

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The 1^st Respondent herein is the Bank of Baroda, which filed Original Application No. 581/2001 (‘O.A’ for short) against M/s Arihant Spinning Mills Ltd and others for the realisation of the debt due from them. The OA was allowed and a Recovery Certificate was issued in favour of the Applicant Bank. Recovery proceedings were initiated by the bank as R.P No. 136/2007 before the Recovery Officer. The mortgaged property was sold in auction for a sum of ₹ 42 lakhs. Thereafter, the bank moved for attachment of the personal assets belonging to the Appellant who was defendant No. 9 in the O.A by virtue of being one of the directors of the company. An immovable property in which the Appellant

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had one-third share was attached and put up for sale vide auction notice dated 26/01/2009. The objections raised by the Appellant were overruled, and in consequence of that notice, an auction was conducted on 27/02/2009 and the 2^nd Respondent herein became the successful highest bidder. Aggrieved by the rejection of his objections by the Recovery Officer, the Appellant preferred an appeal before the P.O., D.R.T Pune as No. 03/2009, under S. 30(1) of the RDDB&FI Act. An interim order of stay was granted by the Ld. Presiding Officer on 16/03/2009 and prevented the 3^rd Respondent Recovery Officer from confirming the sale. The interim order continued till 27/10/2010.

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In the meanwhile, the 1^st Respondent bank and the defendants arrived at an agreement to settle the dispute. An OTS proposal was agreed upon for a total sum of ₹ 134.5 lakhs. ₹ 42 lakhs which was the amount received by way of the auction of the mortgaged property was to be appropriated towards the debt, and the balance amount of ₹ 92.52 lakhs was agreed to be paid by the directors including the Appellant from their contributions. The attached properties and collateral securities were agreed to be released. In accordance with the settlement, the entire amount that was due to be paid to the Certificate Holder bank was paid. On 03/06/2010 vide Ext. 107, the bank filed a withdrawal pursis informing the Recovery Officer about the settlement arrived at by the parties and requested for withdrawal of the Recovery Proceedings. On the same date, there is a handwritten order of the Ld. Recovery Officer which reads thus: “the Certificate is allowed to be withdrawn as a/c of CH bank having entered into and receive the compromise amount.” (sic)

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Thereafter, an order in a printed format is also passed by the Ld. Recovery Officer thus:

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“Read the withdrawal application at Exhibit 107 filed by advocate for CH bank.

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The certificate holder bank has received a sum of ₹ 13,452,000/- (Rupees one crore thirty four lakhs fifty two thousand only) from the defendant as a full and final compromise amount and does not intend to proceed further and prayed for withdrawal of these proceedings.

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In the result, the Recovery Proceedings is disposed of as withdrawn.” (sic, emphasis is mine)

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Six months after the withdrawal and disposal of the Recovery Proceedings, an application is filed by the 3^rd Respondent auction purchaser at Exhibit 108 dated 06/12/2010 requesting the recovery proceedings to be listed on board. And the Ld. Recovery Officer allowed the matter to be taken on board. At Exhibit 110 is the application filed by the auction purchaser stating that he has deposited the entire purchase price of ₹ 936,000/-and that in consequence of the Appellant preferring appeal as No. 3 of 2009 before the Presiding Officer, an interim order prohibiting the Recovery Officer from confirming the sale was passed. It was submitted that vide order dated 27/10/2010 the stay was vacated followed by the disposal of the appeal for want of prosecution by the Appellant. Under the circumstances, the auction purchaser requested for issuance of the Sale Certificate after confirmation of the sale. The Ld. Recovery Officer passed the following handwritten order thus: “ as per order of Hon’ble PO dated 01/11/2010 the appeal filed by Rajendra

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Hiralal Shah has been disposed off for want of prosecution. The prayer of auction purchaser to issue Sale Certificate is allowed.” (sic)

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Accordingly, the order of confirmation of sale at Exhibit 113 was issued by the Ld. Recovery Officer on 14/12/2010. This was followed by the issuance of a Certificate of sale at Exhibit 114.

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The Appellant contends that before passing the order confirming the sale and issuing the sale certificate to the auction purchaser, no notice whatsoever was issued either to the Certificate Holder Bank or to the Appellant and the other debtors. It is also pertinent to note that the sale price of ₹9,36,000/- paid by the auction purchaser was never appropriated towards the decree amount by the bank. Based on the sale certificate issued in favour of the second respondent proceeded to register the same before the Sub-Registrar Shirol as Serial No. 143/2012 on 23.03.2012. Consequently, the auction purchaser attempted to effect mutation in the revenue records pertaining to the subject property. The Circle Officer and Talathi called upon the Appellant seeking his objections, if any, on carrying out the mutation in the name of the auction purchaser. It is during the month of May 2012 that the Appellant comes to know about the confirmation of the sale and issuance of the sale certificate in favour of the second respondent after the Recovery Petition was disposed of as withdrawn. Shocked and surprised, the Appellant approached the D.R.T. for getting copies of the Recovery Proceedings which he obtained on 19.06.2012. Thereafter, the Appellant preferred the Appeal No. 10 of 2012 before the Presiding

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Officer, D.R.T Pune under Sec. 30 of the RDDB & FI Act challenging the order of the Recovery Officer dated 14.12.2012 in R.P No. 136/2007.

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After hearing both sides, the Ld. Presiding Officer, vide the impugned order dated 20.03.2015 dismissed the Appeal holding that there was a delay in filing the Appeal and that the Appellant and the Respondent Bank had acted in concert and surreptitiously. The Ld. Presiding Officer observed that once the sale is confirmed by the Recovery Officer certain rights accrued in favour of the second Respondent auction purchaser and cannot be extinguished except in exceptional cases such as fraud. The Appellant and the Bank were found guilty of having surreptitiously arrived at an OTS and withdrawn the R.P. without notice to the second Respondent and the rights of the second respondent cannot be disturbed and extinguished merely for the asking. It was also observed that no application was filed under Rules 60 or 61 to the second schedule of the Income Tax Act. It was also observed that no satisfactory explanation was given by the Appellant for abandoning Appeal No. 3 of 2009 and not approaching the Tribunal in this Appeal No. 10 of 2012 within the period of limitation.

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Though the Respondents appeared. A reply was filed only by the second Respondent. No reply was filed by the first Respondent Bank. At the time of the arguments, there was no representation for the second Respondent. Heard the Ld. Counsel appearing for the Appellant Mr Rajesh Nagori and the Ld. Counsel Mr Anant B. Shinde

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for the first Respondent. Records including the proceedings in R.P. No. 136/2007 were called for and perused.

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In the impugned order the Ld. Presiding Officer had put the blame entirely on the Appellant and the first Respondent Bank for having surreptitiously arrived at a settlement and compromise in consequence of which the Recovery Proceedings were withdrawn by the Bank after recording full satisfaction. The Ld. Presiding Officer had gone on a tangent and had not verified the records before the Recovery Officer in R.P. No. 136/2007. It is pertinent to note that the Appellant had challenged the sale notice in the R.P. The Recovery Office refused to grant any stay and in consequent to that the sale was conducted. The second Respondent came out as the highest bidder. It is true that he had also deposited the entire bid amount. The Appellant however challenged the refusal to grant a stay and conducting of the sale before the Presiding Officer as Appeal No. 03 of 2009. An interim stay was also granted to the confirmation of the sale by the Presiding Officer in that Appeal. It was when the stay was in place that the Appellant and the other defendants who were the certified debtors approached the certified creditor bank for a settlement and in consequently that the entire debt was settled. ₹42 lacs lying in deposit as proceeds from an earlier sale of mortgaged property was permitted to be appropriated towards the loan by the bank and a balance of ₹92.54 lacs was paid by the Bank by the certified debtors including the Appellant and the R.P. No. 136/2007 was withdrawn following a pursis for withdrawal was filed by the bank and the Ld. R.O had

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withdrawn the Certificate in view of the settlement. R.P. No. 136/2007 was disposed of by the Ld. R.O. on 03/06/2010. Thereafter, on an application filed by the second Respondent auction purchaser to take up the matter, it was taken up after six months and restored to file even without any notice to the Appellant or the Bank. It is surprising that the Ld. R.O had no qualms about listing a matter which was disposed of on a request made by the auction purchaser who was not even a party to the proceedings, and that too without notice to the parties to the R.P.

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The Ld. the P.O. observes that a sale that is confirmed cannot be set aside unless there is proof of fraud alleged and proved. in the instant case, the sale was confirmed after the withdrawal of the R.P. on the recording of full satisfaction of the decree. The learned P.O. has relied upon the decision of the Madhya Pradesh High Court in Gaurav Enterprises (supra) to hold that the sale cannot be set aside by compromising the dispute between the creditor and the borrower behind the back of the auction purchaser. The Ld. P.O. has extracted para 15 of the judgment to bolster his findings. Unfortunately, the Ld. P.O. did not notice para 16 of the same judgment where it is held thus:

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“ 16. The bank in order dated 10-8-2011 has solely relied on section 13(8) of SARFAESI Act. As analyzed above, section 13(8) does not permit the bank to accept the amount from the borrower after sale is confirmed. Thus, for the aforesaid reasons, the action of the bank cannot be approved.” (emphasis supplied)

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10. There is no dispute that the sale cannot be set aside after it is confirmed unless there is an element of fraud pleaded and proved. In the

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instant case, the confirmation of sale was stayed by the P.O. in appeal No. 03/2009. The sale is confirmed only after the disposal of the R.P and the recall of the certificate. The action of the Ld. R.O. is rather queer. He himself permitted the withdrawal of the R.P. and after six months, strangely lists a disposed of matter without notice to the interested parties and issues a sale certificate in favour of the auction purchaser. In case, the R.P. was permitted to be disposed of, he could very well have made orders pertaining to the sale as well. The Ld. R.O was aware of the sale and should therefore have simultaneous to the withdrawal of the R.P., made orders regarding the fate of the sale as well. The consequence of the withdrawal of R.P on the confirmation of the sale should have been contemplated by the R.O. He cannot at his will restore disposed of matters on an application filed by the auction purchaser without hearing the Petitioner who the master of the proceedings. The Ld. P.O. does not make any mention of the queer action of the R.O. in his order.

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11. The other point on which the Appeal was dismissed was that it is barred by limitation for not having been filed within 30 days of the Order. He opines that there is no provision to condone the delay under section 30 of the RDDB&FI Act. He is right in stating so. The proposition that delay cannot be condoned in filing an Appeal under S. 30(1) is no longer Res Integra . A reading of section 30 is essential in the instant case.

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“30. Appeal against the order of the Recovery Officer .-

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(1)Notwithstanding anything contained in section 29, any person aggrieved by an order of the Recovery Officer made under this Act may,

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within 30 days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal”

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12. This indicates that the appeal is to be filed within 30 days from the date on which a copy of the order is issued to him. The Appellant was not given notice of the restoration of the R.P. that was disposed of. This was the mistake of the Recovery Officer. There is no doubt that a litigant must be vigilant and take care. But when a litigant goes to Court and asked for assistance from the Court so that his obligations under a decree might be fulfilled, it is incumbent on the Court, if it does not leave the litigant to his own devices, to ensure that the correct information is furnished. There is no higher principle for the guidance of the court than the one that no act of the Courts should harm a litigant and it is the bounden duty of the Courts to see that if a person is harmed By a mistake of the Court he should be restored to the position he would have been but for that mistake. This is aptly summed up in the maxim “ Actus curiae neminem gravabi t”.

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13. In the impugned order, the learned Presiding Officer did not go into the merits in detail and dismissed the appeal without delving deep into the facts and circumstances of this case. The provisions under sub-section(25) of section 19 of the RDDB & FI Act should have been liberally resorted to by the learned Presiding Officer. The impugned order, therefore, needs to be set aside.

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Resultantly, the appeal is allowed and the impugned order of DRT Mumbai in A ppeal No. 10 of 2012 dated 20/03/2015 is hereby set aside. Appeal No. 10 of 2012 is allowed and accordingly, the order of

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confirmation of sale at Exhibit 113 issued by the Ld. Recovery Officer on 14/12/2010 followed by the issuance of a Certificate of sale at Exhibit 114 are hereby set aside. The auction purchaser 2nd Respondent herein is at liberty to get back the sale price deposited by him shall be returned to him together with accrued interest if any.

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Sd/Chairperson

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mks-01

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Rajendra Hiralal Shah v. Bank of Baroda & Ors.

Case brief

What is this about?

What did the court decide?

Rajendra Hiralal Shah v. Bank of Baroda & Ors.

Case brief

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