Allowed

Idbi Bank v. Indira Gandhi Bharatiya Mahila Vikas Sahakari Sakhar Karkhana Ltd.

DRAT26 Jul 2022REGULAR APPEAL/25/2022

Case brief

AI extract

What is this about?

Debts Recovery Appellate Tribunal allowed two stay applications filed by IDBI Bank and an auction purchaser. The applications sought to stay the operation of an order setting aside a sugar mill auction sale due to procedural defects and non-compliance with SARFAESI Rules.

What did the court decide?

Stay granted on the operation of the impugned order passed by the District Recovery Tribunal; Regular appeals to be replied within four weeks; Hearing fixed for 09/11/2022.

Idbi Bank versus Indira Gandhi Bharatiya Mahila Vikas… — 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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I.A. No. 109/2022 (Stay)

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Appeal No. 25/2022

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Between

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IDBI Bank Ltd. … Appellant/s V/s. Indira Gandhi Bharatiya Mahila Vikas Sahakari …Respondent/s Sakhar Karkhana Ltd. & Ors.

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Ms Rathina Maravarman, Advocate for Appellant.

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Mr. Rishabh Shah along with Mr. Swanand Kulkarni, i/b M/s. ADR Savvy, Advocate for Respondent No.1.

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Mr Dinesh Purandara along with Mr Bhushan A. Walimbe, Advocate for Respondent No.2.

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Mr Raju Shinde, Advocate for Respondent No.3.

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AND

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I.A. No. 102/2022 (Stay) In Appeal No. 28/2022 Between M/s. Athani Sugars Ltd. … Appellant/s V/s. Indira Gandhi Bharatiya Mahila Vikas Sahakari …Respondent/s Sakhar Karkhana Ltd. & Ors.

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Mr Dinesh Purandara along with Mr Bhushan A. Walimbe, Advocate for Appellant.

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Mr Rishabh Shah along with Mr Swanand Kulkarni, i/b M/s. ADR Savvy, Advocate for Respondent No.1.

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Ms Rathina Maravarman, Advocate for Respondent No.2.

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Mr Raju Shinde, Advocate for Respondent No.4.

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-:Order dated: 26/07/2022:-

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Both these appeals arise from the same impugned order dated 06/12/2021 in T.S.A. No.01 of 2019 on the files of the Debts Recovery Tribunal-III, Mumbai (DRT for short). Appeal No. 25 of 2022 is filed by IDBI Bank Ltd, the 1^st respondent in the aforesaid T.S.A. and Appeal No.28 of 2022 is filed by M/s. Athani Sugars Ltd., the successful bidder who had purchased the secured assets involved, in the auction sale and had got impleaded as Respondent No. 3 in the proceedings before the DRT (Auction Purchaser for short). The Interlocutory Applications Nos. 109 and 102 of 2022, filed respectively in these above appeals are filed with the prayer for staying the operation of the impugned order referred to above. Since the points that arise for determination in both these applications are common, the Applications are being disposed of in a common order.

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The Securitisation Application was filed under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, for short) by Indira Gandhi Bharatiya Mahila Vikas Sahakari Sakhar Karkhana Ltd. Kolhapur, originally, before the DRT Pune as S.A.No. 134 of 2016. The application was later transferred to the DRT-III, Mumbai, and renumbered as T.S.A. 01 of 2019.

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The original applicant is a Co-operative Society (hereinafter referred to as ‘Applicant Society’) registered under the Maharashtra Co-operative Societies Act, 1960. The Applicant Society put up a sugar mill at Anturli (Thambhale) Tal, Bhudargad in the district of

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Kolhapur. Ninety per cent of the share capital in the applicant Society is held by The Government of Maharashtra, represented by the Department of Cooperation and Textiles through its Secretary (the 4th Respondent in the TSA).

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The Applicant Society had for putting up the sugar mill approached the IDBI for a term loan and accordingly, Rs.240 Crores and thereafter, a sum of Rs.48 Crores more, was sanctioned, vide letters dated 31/08/2020 03/09/2002 subject to the terms and conditions in those letters. The loans were secured by a mortgage of the immovable properties and Hypothecation of movable assets belonging to the Applicant Society. That apart, a hundred per cent State guarantee was also extended by the Government of Maharashtra.

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The Applicant Society defaulted payment of the outstanding amount, and therefore, IDBI had to declare their account as NonPerforming Assets (NPA) on 30/06/2009. IDBI had also resorted to other measures by filing an Original Application No. TA 1543 of 2013 against the Applicant Society and its guarantors. Simultaneous measures were initiated by the IDBI under the provisions of the SARFAESI Act. Notice under Section 13 (2) of the SARFAESI Act was issued to the Applicant Society on 24/09/2012. Consequent to taking symbolic possession of the secured assets, the IDBI applied for physical possession under Section 14 of the SARFAESI Act before the District Magistrate, Kolhapur. Under the order passed by the District Magistrate on 06/11/2015, physical possession of the secured assets was taken by the IDBI on 21/06/2016. The sale

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notice was issued on 25/07/2016, scheduling an E-auction of the secured assets on 29/08/2016.

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At this stage when the auction was to be conducted, the applicant Society filed S.A. No. 134 of 2016, before the DRT Pune, which was thereafter transferred to DRT-III, Mumbai, as stated above. During the pendency of the TSA, the Applicant Society filed several applications for amendment of the original Securitisation Application as I.A. Nos. 1279 of 2016, 1437 of 2016, 1341 of 2018, and 383 of 2020. The IDBI raised objections to all these applications for amendment, mainly on the ground of limitation. The learned PO had, vide order dated 08/01/2020, allowed I.A. Nos. 1279 of 2016, and 1341 of 2018. And I.A. No. 383 of 2020, was allowed vide order dated 04/03/2020. Challenging those orders, IDBI filed Miscellaneous Appeals Nos. 18 and 19 of 2020 before this Tribunal. The main grievance raised by the IDBI in these Miscellaneous Appeals was that the relief incorporated by way of amendment was barred by limitation. After considering the submissions made across the bar by both sides, this Tribunal observed that the issue regarding limitation be decided in the main Securitisation Application, and therefore, directed the DRT to decide the Securitisation Application on merits without being influenced by the earlier orders in the Interlocutory Applications. Thereafter, both sides were heard and the TSA was disposed of vide the impugned order which now stands challenged before this Tribunal, both by the IDBI and also by the Auction Purchaser.

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In the impugned order, the learned presiding officer had admittedly not framed specific issues regarding the question of

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limitation. The Appellants would therefore content that despite there being specific direction from this Tribunal while disposing of Appeal Nos. 18 and 19 of 2020, that the question of limitation has to be decided by the DRT without being influenced by what has been observed in the orders in the interlocutory applications, the learned PO, neither framed issues regarding the limitation nor was there a finding concerning limitation while allowing the applications for amending the original S.A. Based on the amended pleadings and prayers incorporated, in TSA No. 1 of 2019, were allowed, the sale of the secured assets in favour of the Auction Purchaser was found to be not under the provisions of the SARFAESI Rules, and accordingly, the auction sale was set aside and the Sale Certificate cancelled. The Appellants have thus, in appeal, sought a stay of the operation of the impugned order pending disposal of Appeal.

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Heard Ms. Rathina Maravarman the learned counsel appearing for IDBI Bank, Mr. Dinesh Purandare, the learned counsel appearing for Auction Purchaser, Mr. Rishabh Shah, the learned counsel appearing for the Applicant Society, and Mr. Raju Shinde, the learned counsel appearing for the Secretary, Department of Cooperation and Textiles, Government of Maharashtra, at great length. I am not hearing on the merits of the main appeals although the counsel on both sides had extensively argued in support of their cause by relying on material and a catena of precedents. To decide whether it is appropriate at this stage to grant a stay of the operation of the impugned order, I am not inclined to delve deep into the merits of the case on each point that was argued across the bar. The aspects of a prima facie case, the

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balance of convenience and irreparable injury arise for determination to decide these applications for stay. Hence, I am confining my common order to these aspects alone.

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While the TSA was pending, the Applicant Society filed a number of Interlocutory Applications for amendment of the securitisation application. I.A. 1279 of 2016 and I.A. 1341 of 2018 were allowed by the DRT vide order dated 08/01/2010, keeping all issues and contentions, including the right to agitate limitation open. Thereafter, the Applicant Society filed IA No. 383 of 2020, again for amending the TSA, and that application was allowed by the DRT on 04/03/2020, again keeping all issues and contentions open for the parties to agitate. The IDBI challenged the order is allowing IA No. is 1341 of 2018 and 383 of 2020in appeal before the Tribunal and those Appeals were disposed of as stated earlier. In view of the fact that the DRT has kept the contentions, including the question of limitation open to be agitated in the TSA. The main objection pertaining to the limitation was about incorporating the prayer to set aside the auction sale was that the sale was over on 29/08/2016 and the amendment was incorporated only in the year 2000.

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The Government of Maharashtra raised contentions to the effect that the IDBI did not serve any notice on the government, either, pertaining to the dues or to the auction sale. It was further contended that the secured assets are properties allotted to the Applicant Society by the Government and fall under the description of agricultural land and a portion of the land is 'Gairan lands' which means grazing land which cannot be sold under the provisions of

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Maharashtra Revenue Code, 1966 and the auction sale conducted without the prior permission of the District Collector under the Maharashtra Land Revenue Act, 1966, was illegal.

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The Applicant Society has pointed out various technicalities which were violated. The SARFAESI measures include the Act of taking symbolic possession under sub-section 4 of section 13, physical possession under Section 14 of the SARFAESI Act, the auction sale notice, errors in the description of the land mortgaged mentioned in the memorandum of entry dated 04/03/2002, the discrepancy in the notice under 13 (2) dated 24/09/2012 and the sale notice dated 25/07/2016, with regard to the description of the subject property, the proper valuation and fixing the reserve price of the properties put up for sale, violation of Rule 9 (3) and Rule 9 (4) of the SARFAESI Rules are all contentions raised challenging the SARFAESI measures as well as the auction sale.

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IDBI had countered all these allegations in the reply. In the proceedings of the auction, apart from the auction purchaser, there are other bidders too like M/s. Vyankatesh Suppliers as well as M/s. Dalmia Sugars and M/s Vyankatesh Suppliers were presented by the Applicant Society itself. When after the sale, the Auction Purchaser became the highest bidder, the other two bidders offered to pay more, and in consequence of that, the learned PO DRT Pune directed an inter-party sale, and some other orders were also made. Those orders were challenged before the Hon’ble High Court of Bombay and the Hon’ble High Court set aside all those orders of the learned PO in Writ petition No. 10743 of 2016 on 29/09/2016 directing that in the event, the Authorised Officer is desirous of

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conducting a fresh sale, he shall strictly proceed in accordance with the Rules and uninfluenced by any directions of the Tribunal to date. The Authorised Officer proceeded to confirm the sale to the Auction Purchaser.

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The learned PO had in the impugned order framed 7 issues for consideration. They are as follows:

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“(i) Whether Application under Sec.14 of SARFAESI Act made by Respondent No.2 AO to the DM, Kolhapur, has made proper material disclosure;

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(ii) Whether action of taking physical possession by Tahsildar of Secured Assets without seeking extension of timeline from DM is valid;

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(iii) Having regards to the fact that Assets of Sugar Mill is being sold as composite one, whether proper Valuation done of Assets before putting them for Auction Sale;

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(iv) Whether Bid/ Tender Document dated 25.07.2016 is in compliance of SARFAESI Rules;

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(v) Whether Sale confirmation by Respondent NO.2 AO after the Hon’ble Bombay High Court Order dated 29.09.2016 in WP No. 10743 of 2016 was correct;

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(vi) Whether Sale completion in favour of Respondent No.3 Company is in accordance with SARFAESI Rules;

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(vii) If SA is to be allowed, whether compensation, as prayed for in Para 6(p) of SA, is allowable. If so, what compensation.”

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It is clear from the above that there is no issue framed regarding the question of limitation. The Learned counsel appearing for the IDBI as well as the Auction Purchaser submitted that despite there being a specific direction given by the D.R.A.T., the Learned P.O did not frame any issue regarding the question of limitation and nor was it discussed. Hence, at the very outset, the impugned order is defective.

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True, the proceeding under the D.R.T. does not require specific issues to be framed as in a civil suit. All that is required are the framing of points for determination, be it called an issue or a point. The Ld. P.O has not framed any point of consideration of the question of limitation which was raised by the IDBI in their Written Statement and the reply to the amendment application. In fact, while allowing the application for amendment, the issue regarding the limitation was kept open by the Ld. P.O. Yet, it has not been specifically framed as a point for consideration.

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The learned counsel appearing for the Applicant Society, Mr Rishabh Shah, strenuously argued that in the impugned order the Ld. P.O. has not only considered and decided the issue of limitation but has painstakingly set out the conduct of all the parties, particularly that of the Auction Purchaser Athani Sugars Ltd. It is pointed out that the conduct of the Auction Purchaser in preferring I.A. No. 201/2020 seeking the deletion of the name from the party array in the T.S.A. and determination of the issue of delay in filing I.A. 1341/2018 which was raised by the IDBI has been substantially decided by concluding that the proposed amendments were clarificatory and had set out events subsequent to the filing of the T.S.A. Even though Mr Shah desperately tried to convince this Tribunal that the question of limitation has been substantially answered in the impugned order, even on reading the entire order, I could hardly find a sentence to the effect that prayers for amendment are not hit by the plea of limitation. On the other hand, the Ld. P.O. has extensively dealt with the action of the Auction Purchaser in first attempting to get impleaded and then get itself

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deleted from the party array. Much has been discussed also about the conduct of the earlier learned P.O. D.R.T., Pune while conducting the auction which all were interfered with by the Hon’ble High Court and set aside. Thereafter, the Ld. P.O. has gone to find that the D.R.T Rules pertaining to the auction were all defective and, therefore, the auction was set aside.

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The Hon’ble High Court of Bombay has not set aside the auction in favour of the Auction Purchaser. In view of the fact that the Ld. P.O had permitted a further inter se auction between the three highest bidders, the said order was set aside and it was specifically directed that the Authorized Officer shall proceed to conduct a fresh sale if he desires to do so, and if such a sale is conducted, it shall be strictly in accordance with the Rules, and uninfluenced by the earlier directions of the P.O.

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The Authorized Officer opted to confirm the sale in the favour of the present Auction Purchaser, which was within his right. And on submission before the Hon’ble High Court, the Auction Purchaser was also permitted to deposit the entire bid amount. The bidder introduced by the Applicant Society, M/s. Vyankatesh Suppliers as well as M/s. Dalmia Sugars were not the highest bidder and the inter-se bidding between the three of them was set aside by the Hon’ble High Court. The allegation that the 25 % of the amount was not paid on time is also justified by the Auction Purchaser stating that the orders of the then P.O had intervened in the process and subsequently, the matter was challenged before Hon’ble Bombay High Court, and thereafter, also before the Hon’ble Supreme Court by M/s. Dalmia Sugars.

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The objection regarding the 'Gairan lands' raised by the Government also is not prima facie sustainable because the Government was well aware of the borrowings by the Applicant Society in which the Government of Maharashtra is a major stakeholder. When they had eventually executed the mortgaged deed, they are bound by that, and therefore, the provision of the Land Reform Act would not stand in the way of proceeding against the secured property which was furnished as security with the knowledge and consent of the Government.

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Most of the precedents relied upon by the parties refer to the merits of the case. As I have already expressed, I am not inclined go into the merits of the case at this stage, as it would literally amount to disposal of the Appeal itself those precedents and the implications are not discussed. It would suffice to conclude that the Appellants have made out a strong prima facie case in their favour in challenging the impugned Order. The balance of convenience would be in maintaining the status quo. Irreparable injury would be caused both to the IDBI and the Auction Purchaser in declining to grant of stay pending appeal.

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Taking all these facts into consideration, I find that the operation of the impugned order needs to be stalled, and therefore, the application (I.A. No. 109/2022) filed by the IDBI as well as the application (I.A. No. 102/2022) filed by the Auction Purchaser for a stay are both are allowed as prayed for, and the operation of the impugned order passed by the Ld. P.O., D.R.T-III, Mumbai, hereby stand stayed.

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