M Mathivanan versus Indian Overseas Bank

1. The Branch Manager/ Authorised Officer, Indian Overseas bank, Thirukattuthurai Branch, D.No.118, SF No.100 A, Kodumudi Main Road, Nadayanoor Post, Karur District 639 117.

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2. The Sub-Registrar, Sub-Registrar Office, Velayuthampalayam, Pugalur Taluk, Karur District 639 117.

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3. Mr. R. Kumarasamy, S/o Mr. Ramasamy Gounder, No.3, Swastik Illam, LIC Nagar,Moolapalayam, Erode 638 002.

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…..Respondents

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Counsel for Appellants : Senior Counsel Shri Srinath Sridevan for M/s J. Prince and Co. Counsel for R1 Bank : Senior Counsel Shri E. Om Prakash for Ms. V. Rajeswari Counsel for R3 : M/s T. Renu & Co.

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R2 is given up.

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ORDER

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This Appeal is filed under Section 18 of SARFAESI Act, challenging the Final

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Order dated 12.10.2023 passed in SA 909/2022 by Learned Presiding Officer, DRT, Coimbatore

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The aforesaid SA No.909/2022 was filed, challenging the Sale Notice dated

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3.8.2022 and the sale held on 25.8.2022 and consequent issuance of Sale Confirmation Letter dated 16.9.2022. After contest, SA 909/2022 was dismissed, therefore, this appeal is filed.

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Learned Senior Counsel Shri Srinath Sridevan for appellants submitted that no clear 30 days time was given for the first Sale Notice dated 17.2.2020. It was served on the appellants on 20.2.2020, fixing the sale on 19.3.2020. It is obvious that no clear 30 days notice was given for the sale

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as required under Rule 9(1) of Security Interest (Enforcement) Rules,

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There have been repeated sale notices dated 5.3.2021, 8.7.2021, 10.5.2022 and 8.6.2022. On the basis of these sale notices, no sale had taken place. The impugned sale notice dated 3.8.2022 was given fixing the auction sale on 25.8.2022 wherein also no 30 days notice was given. Not giving clear 30 days notice from the date of receipt of notice by the appellants and fixing the sale within 30 days of time is against the provisions and rules of SARFAESI Act. Thus, the sale notice, consequent sale and sale confirmation letter are all liable to be set aside. That apart, it is submitted that affixture of notice was not done by Authorised Officer himself. Photograph filed shows that the some lady official of the bank affixed it and therefore, affixture is not proper. The sale was concluded on 25.8.2022 but the balance sale consideration was not paid within 15 days

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as required under Rule 9(4) of SIE Rules and was paid only on 14.9.2022, which is beyond 15 days.

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It is further submitted by Learned Senior Counsel that valuation report on the basis of which the upset price was fixed at Rs.1,10,25,000/- was dated

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29.4.2022 . As per Rule 8(5) of SIE Rules , it is required that valuation report should be obtained prior to every sale. No valuation report was obtained for the sale fixed through sale notices dated 10.5.2022, 8.6.2022 and 3.8.2022. Even in the valuation report dated 29.4.2022, only valuation of land alone was considered and building in the land was not

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considered for valuation. As per valuation report market value of the land alone was fixed at Rs.1,57,50,000/- but the distress value of the property was fixed at Rs.1,10,25,000/-. The reason stated by the valuer for reducing 30 to 35% of market value and to arrive at distress value cannot be accepted.

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It is further submitted by the Learned Senior Counsel that appellants made a payment of Rs.35,30,000/- before the Tribunal below, i.e., the amount claimed in the Sale Notice. Without considering this payment, property was sold for Rs.1,10,75,000/- and the balance amount was used toward appropriation of some unsecured debts.

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It is further submitted by Learned Senior Counsel that when appellants

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were ready and willing to make payment claimed in the sale notice, sale of the property without following proper procedures, as detailed above, is not in accordance with law and is liable to be set aside.

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In support of his submissions, Learned Senior Counsel for appellants relied on the order of Hon’ble High Court of Madras in WP No.8020/2017 in re, P. Magudeeswaran Vs. The Authorised Officer dated 17.8.2017, for the

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proposition that 30 days notice is mandatory. The relevant portion reads as follows:

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“31. Once the said legal position is ascertained, the statutory prescription contained in Rules 8 and 9 have also got to be examined as the said rules

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prescribe as to the procedure to be followed by a SECURED CREDITOR while resorting to a sale after the issuance of the proceedings under Section 13(1) to (4) of the SARFAESI Act. Under Rule 9(1), it is prescribed that no sale of an immovable property under the rules should take place before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers as referred to in the proviso to sub-rule (6) of Rule 8 or notice of sale has been served to the borrower. Sub-rule (6) of Rule 8 again states that the authorized officer should serve to the borrower a notice of 30 days for the sale of the immovable SECURED ASSETS. Reading sub-rule (6) of Rule 8 and sub-rule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days time gap for effecting any sale of immovable SECURED ASSET is a statutory mandate. It is also stipulated that no sale should be effected before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days individual notice to the borrower and also a public notice by way of publication in the newspapers. In other words, while the publication in newspaper should provide for 30 days clear notice, since Rule 9(1) also states that such notice of sale is to be in accordance with proviso to subrule (6) of Rule 8, 30 days clear notice to the borrower should also be ensured as stipulated under Rule 8(6) as well. Therefore, the use of the expression or in Rule 9(1) should be read as andas that alone would be in consonance with Section 13(8) of the SARFAESI Act”

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Learned Senior Counsel drew the attention of this Tribunal to the

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judgment of Hon’ble Supreme Court of India rendered in re, Ram Kishun and others Vs. State of Uttar Pradesh and others reported in (2012) 11 SCC 511 for the proposition that bank, as trustee of the secured asset, should endevour to sell the property so that it may fetch the best price. If the property is not sold for best price, it may cause substantial injury to the borrower/guarantor and would materially affect and vitiate the

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sale proceedings. For better understanding, relevant paragraphs are extracted herein.

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“17. Therefore, it becomes a legal obligation on the part of the authority that property be sold in such a manner that it may fetch the best price . Thus essential ingredients of such sale remain a correct valuation report and fixing the reserve price. In case proper valuation has not been made and the reserve price is fixed taking into consideration the inaccurate valuation report, the intending buyers may not come forward treating the property as not worth purchase by them, as a moneyed person or a big businessman may not like to involve himself in small sales/deals.

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VALUATION & RESERVE PRICE :

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The word ‘value’ means intrinsic worth or cost or price for sale of a thing/property. (Vide: Union of India & Ors., v. Bombay Tyre International Ltd. & Ors., (1984) 1 SCC 467; and Gurbachan Singh & Anr. v. Shivalak Rubber Industries & Ors.).

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In State of U.P. v. Shiv Charan Sharma & Ors., AIR 1981 SC 1722, this Court explained the meaning of “reserve price” explaining that the price with which the public auction starts and the auction bidders are not permitted to give bids below the said price, i.e. the minimum bid at auction.

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In Anil Kumar Srivastava v. State of U.P. & Anr., AIR 2004 SC 4299, this Court considered the scope of fixing the reserve price and placing reliance on its earlier judgment in Duncans Industries Ltd. v. State of U.P. & Ors., AIR 2000 SC 355, explained that reserve price limits the authority of the auctioneer. The concept of the reserve price is not synonymous with valuation of the property. These two terms operate in different spheres. An invitation to tender is not an offer. It is an attempt to ascertain whether an offer can be obtained with a margin. The valuation is a question of fact, it should be fixed on relevant material. The difference between the ‘valuation’ and ‘reserve price’ is that, fixation of an upset price may be an indication of the probable price which the property may fetch from the point of view of intending bidders. Fixation of the reserve price does not preclude the claimant from adducing proof that the land had been sold for a low price.

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In Desh Bandhu Gupta v. N. L. Anand & Rajinder Singh, (1994) 1 SCC 131, this Court held that in an auction sale and in execution of the Civil Court’s decree, the Court has to apply its mind to the need for furnishing the relevant material particulars in the sale proclamation and the records must indicate that there has been application of mind and principle of natural justice had been complied with. (See also: Gajadhar Prasad & Ors. v. Babu Bhakta Ratan & Ors., AIR 1973 SC 2593; S.S. Dayananda v. K.S. Nagesh Rao &

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Ors., (1997) 4 SCC 451; D.S. Chohan & Anr. v. State Bank of Patiala, (1997) 10 SCC 65; and Gajraj Jain v. State of Bihar)

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In view of the above, it is evident that there must be an application of mind by the authority concerned while approving/accepting the report of the approved valuer and fixing the reserve price, as the failure to do so may cause substantial injury to the borrower/guarantor and that would amount to material irregularity and ultimately vitiate the subsequent proceedings.

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In reply to the submissions made by Learned Senior Counsel for appellants, Learned Senior Counsel Shri E. Om Prakash for first respondent submitted that none of the grounds now raised before this Tribunal had been raised by the appellants before Tribunal below. With regard to lack of 30 days notice when the first sale notice was served, she submitted that first sale notice was issued on 17.2.2020 and if appellants were really aggrieved against not giving 30 days clear notice, they ought to have challenged the said sale notice by filing a SARFAESI application before the Tribunal below. Having not done, it is now not open to the appellants to raise this ground in the application which was filed challenging the subsequent sale notice.

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It is his further submission that sale was confirmed on 1.9.2022 and within 15 days from 1.9.2022 i.e., on 14.9.2022, balance sale consideration was paid. There is no question of violation of Rule 9(4) of SIE Rules. It is further submitted that bank had considered the value of building also, while fixing

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the upset price and it is not correct on the part of the appellants to contend that value of the building was not considered. In case of the

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property auctioned through SA proceedings, there may not be many takers, apprehending litigation. Therefore, taking all these aspects into consideration, valuer reduced the market value of the property by 30 to 35%. Under such a situation property sold for distress value is correct. It is further submitted that appellants have not challenged the 4^th and 5^th sale notices fixing the same upset price. When that be the case, it is not open to the appellants to challenge the upset price fixed in the impugned sale notice.

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In support of his submission that a measure cannot be challenged beyond the period of limitation and no plea can be raised without pleading, Learned Senior Counsel pressed into service the common order of this Tribunal in RA (SA) Nos.15, 16, 17 & 18 of 2023 dated 24.11.2023. The relevant portion reads as follows:

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“15. It is well known principle that the submissions have to be in consonance with pleadings and evidence. Any length of submission, without pleadings and evidence is of no use. “

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12.1 The order of Hon’ble High Court of Karnataka in WP 19756/2021 (GM-RES) dated 14.12.2022 in re, T.S. Nataraj and another Vs. State Bank of India and another is relied for the proposition that conduct of the borrower is

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also relevant in challenging the proceedings initiated under the SARFAESI Act.

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12.2 In the case before hand, previously five sale attempts were made. None of the sale notices was challenged by the appellants. The plea, now taken with regard to lack of 30 days notice, undervaluation of the property, had not been taken, by challenging the previous sale notices.

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12.3 In a similar case, decided in the above Writ Petition, Hon’ble High Court held that property was put to auction on 29.9.2021, which was the 4^th in line. That time, petitioner therein had notice of the auction, but did not come forward to pay the reserve price and clear the property from being auctioned. Once sale certificate is registered, right on mortgage to redeem it stands extinguished. Therefore, once the borrower failed to avail the opportunity of redeeming the property, he cannot challenge after sale certificate is issued.

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13 The judgment rendered in re, General Manager, Sri Siddeshwara Cooperative Bank Limited and another Vs. Ikbal and others, reported in (2013) 10 SCC 83 is relied on for the proposition that even if an provision is mandatory, it can always be waived by a party /parties, for whose benefit such provision has been made.

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14 The order of DRAT, Allahabad in Appeal No.R-39/2019 in re, Authorised Officer, State Bank of India and another Vs. Ku. Kalpana Agaral and two others dated 2.12.2019 is relied for the proposition that when property was

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sold for more than the distress value and when it was not the case that sale

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price was not proper, it cannot be said property was sold for a lower price

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or that bank acted in violation of the statutory provisions of the law.

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15 The judgment of Hon’ble Supreme Court of India in re, Rajendra Kumar Barjatya and another Vs. U.P. Avas Evam Vikas Parishad & others in Civil Appeal No.14604/2024 (arising out of SLP (C) No.36440/2014) is relied on for the proposition that constructions which are audaciously put up without any building plan approval, cannot be encouraged.

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15.1 This judgment is relied on for the reason that, there is no plan approval produced for the building constructed in the land, on which, mortgage was created. Therefore, taking that in the absence of building plan, building cannot be assessed for any value and ‘nil’ value was recorded for the building.

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16 Learned Counsel for 3^rd respondent viz. the auction purchaser supported the arguments of Learned Senior Counsel for first respondent bank. He further submitted that Auction purchaser invested huge amount and that he is a bona fide purchaser. This appeal is filed as an attempt to protract the proceedings and to deny the fruits of purchase. He prayed for dismissal of the appeal.

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17 I have considered the rival submissions and perused the record.

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18 Perusal of records shows that 1^st sale notice dated 17.2.2020 was issued without giving 30 clear days of notice from the date of receipt of notice by the borrower for sale of property. However, it should also be borne in mind that any measure has to be challenged within 45 days. That is not done in respect of the sale notice dated 17.2.2020. When the first sale notice was not challenged within 45 days, this Tribunal is of the view that it cannot be challenged now, when challenge is to a subsequent sale notice, sale and sale confirmation. When the first sale fails, it is enough that 15 days clear notice has to be given for subsequent sale attempts. That was done in this case. Therefore, there is nothing illegal and irregular in the issuance of sale notice.

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19 Similarly, the contention of the appellants that sale was confirmed on 25.8.2022 and balance sale consideration was paid only on 14.9.2022, beyond 15 days, therefore, sale cannot be confirmed, cannot also be accepted for the reason that sale was conducted on 25.8.2022, confirmed on 1.9.2022 that the balance sale price was paid on 14.9.2022, which is well within the stipulated period of 15 days.

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20 Insofar as affixture of sale notice is concerned, record shows that affixture was done properly. It is not required that Authorised Officer should go and

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personally affix the notice himself/herself on the property. What is required is that affixture should be done properly in time and that was done. Thus,

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this ground taken by Learned Counsel for appellants also fails.

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21 With regard to omission to include building in the valuation report and reducing the market value by 30 to 35%, this Tribunal finds that there is merit in the case of the appellants. Valuation report dated 29.4.2022

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shows as follows:

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As per Approval Plan area;-

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Present market value of the property : Rs.1,57,50,000/Book value (or) Guideline value of : Rs. 7,93,000/Realisable value of the Property : Rs.1,26,00,000/Property Distress sale value of the property : Rs.1,10,25,000/-

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As per actual construction area:-

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Present Market value of the Property : Rs.1,91,99,000/Book value (or) Guideline value of the Property Rs. 42,42,000/Realisable sale value of the property : Rs.1,53,60,000/Distress sale value of the Property : Rs.1,34,40,000/-

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As per actual area of construction area:-

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				Residen	tial Buildin	g (R.C.C.Roo	f)
S.No.	Particulars Of items	Plinth area	Roof height	Age Of the building	s Estimated Replacement rate constructions	Replacement Cost In Rs.	Depreciation In Rs.	Net Value After Depreciation In Rs.
1.	G. floor	1425.00	10’0’’	33	1600/-	22,80,000/-	8,43,600/-	14,36,400/-
2.	F. floor	1425.00	10’0’’	33	1300/-	18,52,500/-	6,85,425/-	11,67,075/-
				Resident	ial Building	(M. Tiled ro	of)

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3.	G. floor	1068.00	10’/7’ Commer	35 cial Buil	250/- dings (A.C	3,73,800/- . Sheet & M.	1,98,114/- Tiled roof)	1,75,686/-
4.	Service station	621.00	10’	35	350/-	2,48,400/-	1,56,492/-	91,908/-
5.	Store	523.00	10’	35	400/-	2,09,200/-	1,31,796/-	77,404/-
6.	Toilet	110.00	7’	35	400/-	35,750/-	22,523/-	13,228/-
7.	Cattle Shed	1402.00	10’	15	325/-	4,55,650/-	1,23,026/-	3,32,625/-
8.	Godown	187.00	10’/7’	14	250/-	46,750/-	11,688/-	35,063/-
							Total	33,29,388/-

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In the Valuation Report, it is recorded as follows:

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I) As per Approval (Land value only):

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a) Value of property based on present market value in my opinion is Rs.1,57,50,000/- (Rupees One crore fifty seven lakhs and fifty thousand only)

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b) Value of property based on Book (or) Guideline value is Rs.7,93,000/- (Rupees Seven lakhs and ninety Three thousand only)

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c) Value of property based on realizable value is Rs.1,26,00,000/- (Rupees one crore twenty six lakhs only)

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d) Value of the property based on Distress value in my opinion is Rs.1,10,25,000/- (Rupees one crore ten lakhs and twenty five thousand only).

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22 As per the valuation report it is seen that distress value of land alone was

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fixed at Rs.1,10,25,000/- and only on the basis of this valuation report, sale

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notice dated 3.8.2022 was given fixing the upset price at Rs.1,10,25,000/-. It is obvious that market value calculated in the valuation report for the

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land alone was considered for fixing the reserve price in the sale notice.

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However, description of the property to be sold shows that ‘RCC Terrace

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Building with Door No.46/4, 47, 48 with land of 63 cents’. The valuation report valued the land alone at Rs.1,10,25,000/-. It is clear that while fixing the value of the property, building with Door No.46/4, 47 and 48 have not been considered. On the basis of upset price, property was sold for Rs.1,10,75,000/-.

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23 It is the submission of Learned Counsel for the first respondent across the Bar that, as per the additional affidavit filed by the Authorised Officer of the first respondent dated 17.1.2025, a memo was filed on 22.4.2025stating that bank considered the value of the building and took it as ‘nil’ since approval for building was not provided by the appellants at the time of mortgage and subsequently also. Building constructed unapproved, cannot have value due to the reason that it may be demolished at any time.

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24 It is true that plan approval for the building constructed in the land is not produced either before the DRT or before this Appellate Tribunal. However, this Tribunal found from the documents produced especially, Memo of Deposit of title dated 8.12.2014 that mortgage was created in respect of land and building. There is specific mention about RCC Terrace building constructed in ground and first floor bearing No.4/46, with electrical service connections Nos.73, 375 and 384. In the demand notice issued under Section 13(2) of the SARFAESI Act dated 26.9.2019, Possession Notice dated 20.1.2020, previous sale notices dated 17.2.2020, 5.3.2021, 8.7.2021,

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10.5.2022, 8.6.2022 and in the impugned sale notice dated 3.8.2022, description of the property shows existence of aforesaid building. Valuation report also clearly shows the availability of this building in the land.

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25 At the time of advancing the loan, bank should have taken decision and informed that that building cannot be considered for valuation in the absence of approved building plan. It should have intimated the appellants and should also have avoided sanctioning of loan by including the building in the mortgage documents or expressly indicated that the value of the building was not considered. Having approved the loan on the basis of land and building without approved plan, it is not open to the bank, now to contend that since there was no approved plan for the building, building was not valued for any worth and the valuation was taken as ‘nil’. Photographs filed by the appellants show that existence of ground floor and first floor, fairly a big building. Certainly, this building would have added more value to the secured property under mortgage and got a better, if not the best price to the benefit of the borrowers/mortgagors.

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26 With regard to the submission of the first respondent made throughout his submissions that there is no plea in the SA with regard to undervaluation of the property, this Tribunal, on going through the entire pleadings, found that the appellants have made a specific ground in paragraph 5 of the SA and in ground ‘iv’ of the grounds of the appeal that bank acted in a high handed

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manner without considering the ground realities and acted with an object to sell Rs.3.00 crore worth property to Rs.1,10,25,000/- for the total loan dues of Rs.37.13 lakhs with mala fide intention. Similarly, in ground ‘viii’, it is pleaded that the subject property is situated adjacent to the High Way Road and Prime area and the value fixed was very low compared to the market value and the reserve price fixed by the valuer is highly erroneous. In the ground ‘x’, it was alleged that the reserve price was arbitrarily reduced to Rs.1.10 crores. Thus, this Tribunal finds that pleadings are made by the appellants with regard to undervaluation of the property.

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27 Perusal of the valuation report shows that there is RCC roof residential building and A.C. Sheet & M. tiled Commercial buildings. Land is located on the Salem to Madurai NH 47 By Pass road, surrounded by commercial buildings and agricultural lands. All basic amenities are available near the land. Value of the land estimated was Rs.1,57,50,000/-. Residential building and commercial buildings were valued at 33,29,388/- . But, this value was not at all considered at the time of fixing the upset price. Land value, especially the distress value of Rs.1,10,25,000/- was alone considered for fixing the upset price. There is also a grievance expressed with regard to reduction in market value by 30 to 35% while fixing the forced sale value, without any data.

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28 Hon’ble Supreme Court of India in re, Lachhman Dass Vs. Jagat Ram and others reported in (2007) 10 SCC 448 and in re, Narmada Bachao Andolan Vs. State of Madhya Pradesh and another reported in AIR 2011 SC 1589 held that “a right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of statute”. Therefore, it becomes a legal obligation on the part of the Authority that the property be sold in such a manner that it may fetch the best price. There must be application of mind by the Authority concerned, while approving/accepting the report of the approved Valuer fixing the reserve price. Failure to do so, may cause substantial injury to the petitioners/guarantors and that would amount to material irregularity and ultimately vitiate the subsequent proceedings.

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The valuer valued the land at Rs.1,57,50,000/- and the distress was fixed at Rs.1,10,25,000/-, by reducing the value by 30%. Reason attributed by the valuer are as follows:

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a) that there may not be any prospective buyers for the money has to be paid in WHITE, therefore, only few bidders would prefer to participate.

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b) Bidders have to pay sizable money for stamp duty. Therefore, 10% has to be deducted from the market value.

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c) Bidders show least interest because of negative sentiments. This reduces 5% from the market value.

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d) The adjacent owners will like to purchase the property and they will influence others in the locality not to buy. For this reason, 5% is reduced from the market value.

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e) There may be other negative factors which will further reduce the market value.

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f) Due to demonetization and non-registration of unapproved sites, real estate market is very down.

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29 Therefore, the valuer suggested reducing the market value by 30% to 35%. Accordingly, upset price was reduced and in the final sale notice dated 3.8.2022, reserve price was fixed at Rs.1,10,25,000/-. Reasons assigned by the valuer for reducing the distress sale value to Rs.1,10,25,000/- are imaginary and not supported by any data and evidence. Therefore, reducing the value by 30% to 35% from the market value of the land at Rs.1,57,56,000/- to Rs.1,10,25,000/- cannot be accepted. Not only that, as stated earlier, ground and first floor building existing in the land and its value was not at all considered for fixing the reserve price. Even as per the report of the valuer, building value is Rs.33,29,388/-. If land and building were valued together and reserve price was fixed, certainly, property would have fetched a fair value, though not the best price. Fair price would have been sufficient enough not only to clear the dues but to return the balance amount to the appellants/borrowers. By omitting to include the building in the property for fixing the reserve price and by grossly reducing the land value on the imaginary grounds, the property was grossly undervalued. Therefore, this Tribunal is of

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the view, though the appellants failed to establish other grounds, the sale has to be set aside on the ground that property was sold for grossly undervalued price, depriving the best price and ultimately caused monetary loss to the appellants.

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30 In this view of the matter, following order is passed.

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a) Order of the Learned Presiding Officer DRT, Coimbatore dated 12.10.2023 passed in SA No.90/2022 is set aside. Consequently, SA No.909/2022 is allowed and the sale held on 25.8.2022 in favour of the auction purchaser, its confirmation and the sale certificate dated 15.9.2022 are set aside.

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b) Auction purchaser shall be repaid the sale consideration with interest at 6% per annum (simple) from the date of deposit made by him and he shall also be repaid the stamp duty and the registration charges incurred by him with interest at 6% (simple) from the date of payment made by him till the date of payment, by the 1^st respondent bank.

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c) The first respondent bank is at liberty to initiate sale measures for the property afresh, in accordance with provisions under SARFAESI Act.

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In the result, Appeal RA(SA) 09/2024 is allowed as indicated above. Parties are directed to bear their own costs.

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Pending IAs, if any stand closed.

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[Dictated to Steno(SN), transcribed by him, corrected, signed and pronounced by me in open court, this 5^th August, 2025)

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(JUSTICE G. CHANDRASEKHARAN) CHAIRPERSON

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19

M Mathivanan v. Indian Overseas Bank

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M Mathivanan v. Indian Overseas Bank

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