Dismissed

Ms Classic Chemicals Ltd. v. State Bank of India

DRAT10 Jan 2025REGULAR APPEAL/29/2021

Case brief

AI extract

What is this about?

Two appeals filed by the State Bank of India and the auction purchaser challenging the Debt Recovery Tribunal's order quashing an auction sale due to alleged violations of Rules 9(3) and 9(4) of the Security Interest Enforcement Rules. The tribunal upheld the quashing, finding defects in depositing the 25% balance and extending time to the purchaser.

What did the court decide?

The auctions appeals were dismissed; the judgment of the DRT-II Hyderabad confirming the auction quashment is upheld. The Bank is directed to refund the bid amount with interest to the Auction Purchas

Ms Classic Chemicals Ltd. versus State Bank of… — Contract and Commercial Disputes | DRAT (2025)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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(Appeal No. 29 of 2021)

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(Arising out of S.A. No. 1115 of 2017 (Old S.A. No. 259 of 2013) in DRT – II, Hyderabad) With

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(Appeal No. 56 of 2022)

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(Arising out of S.A. No. 1115 of 2017 in DRT-2, Hyderabad)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA

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CHAIRPERSON

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(Appeal No. 29 of 2021)

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(Arising out of S.A. No. 1115 of 2017 (Old S.A. No. 259 of 2013) in DRT – II, Hyderabad)

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(i). M/s Classic Chemicals Limited. 217/1, Ground Floor, 2^nd Cross, Near Juloori Veereshalingam Mandapam, Prenderghast Road, Secunderabad.

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…Appellants

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-Versus-

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(i) The Authorized Officer State Bank of India, SAM Branch, Secunderabad.

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(ii) M/s Vasantha Surgical Equipments, rep by its Proprietrix, Mrs. Amaraneni Vasantha, Plot No. 26/A, 27 & 28, Anrich Industrial Estate, D. No. 15-12, IDA Bollaram, Jinnaram Mandal Medak District.

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(iia) Mrs. A. Vasantha W/o Sri A. Pullaiah Flat No. 101, Plot No. 445 Road No. 9, Kakatiya Hills Guttala Begumpet, Madhapur Ranga Reddy District, Hyderabad – 500081.

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… Respondents

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Counsel for the parties

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Mr. K Rama Kanth Reddy, Learned Senior Advocate, Mr. Lakshit Chowdhury, Mr. Nemani Srinivas, Learned Counsel for the Appellants

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Mr.Debasish Chakrabarty, Learned Counsel for Respondent No. 1

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Mr. Avishek Mawle, Learned Counsel for the Respondent No. 2

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With

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(Appeal No. 56 of 2022) (Arising out of S.A. No. 1115 of 2017 in DRT-2, Hyderabad)

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(i) State Bank of India, State Bank Bhavan, Madame Cama Road, Nariman Point, Mumbai -400021 and SAM Branch, Patny, Near Secundrabad HPO, ADJ General Post Office, Secundrabad -500003 and now at 2-2-1 304/A, 1^st Floor, TSRTC Bus Stand, Kachiguda, Hyderabad -500027.

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(ii) Authorized Officer, State Bank of India, State Bank Bhavan, Madame Cama Road, Nariman Point, Mumbai -400021 and SAM Branch, Patny, Near Secundrabad HPO, ADJ General Post Office, Secundrabad -500003 and now at 2-2-1 304/A, 1^st Floor, TSRTC Bus Stand, Kachiguda, Hyderabad -500027.

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-Versus-

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(i) M/s Vasantha Surgical Equipments, Plot. No. 26/a, 27 and 28 Anrech Industrial Estate D No. 15-12, IDA Bollarum, Jinnaram Mondal, Dist. Medak.

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……….Respondent

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(ii) M/s. Classic Commercial Limited, 217/1, Ground Floor, second cross, Near Juloori Veereshalingam, Mandapam Penderghast Road, Secunderabad.

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….Proforma Respondent

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Counsel for the parties Mr. Debasish Chakrabarty, Learned Counsel for the Appellants

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Mr. Avishek Mawle,

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Learned Counsel for the Respondent No. 1 Mr. Nemani Srinivas, Learned Counsel for the Respondent No. 2.

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JUDGMENT : On 10^th January, 2025

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THE APPELLATE TRIBUNAL :

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Both these Appeals have arisen against a common judgment and order dated 05.03.2021 passed by Learned DRT-2 Hyderabad in S.A. No. 1115 of 2017 (Old S.A. No. 259 of 2013 in DRT-1, Hyderabad) (M/s Vasantha Surgical Equipments versus The Authorised Officer State Bank of India and others). Hence both the Appeals are being decided by a common judgment.

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2. As per pleadings of the parties, S.A. No. 259 of 2013 (M/s Vasantha Surgical Equipments versus The Authorised Officer State Bank of India and others) was filed by the SARFAESI Applicant under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Act) challenging the auction notice dated 14.02.2013 and action conducted on 22.03.2013 on the ground that Possession Notice dated 15.09.2011 was bad without issuance of Demand Notice. There are defects and illegalities in the Possession Notice. There was violation of

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Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the Rules). E-auction Sale Notice dated 14.02.2013 was not served upon the borrower. Reserve price was fixed in violation of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. Auction was held illegally. S.A No. 259 of 2013 was allowed by the DRT on 28.01.2014.

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3. Thereafter, the Auction Purchaser namely M/s Classic Chemical Ltd. challenged the judgment dated 28.01.2014 by filing W.P. No. 7311 of 2014 before the Hon’ble High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh which was allowed by the Hon’ble High Court on 09.06.2014. Matter was remanded back to the DRT to implead the auction purchaser in the S.A. proceedings and decide the same after giving an opportunity of hearing to the parties.

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4. In compliance of the orders of the Hon’ble High Court, auction purchaser was impleaded as an opposite party in the S.A. proceedings. Learned DRT allowed the S.A. on 17.10.2018 and set aside the auction sale conducted on 22.03.2013.

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5. Feeling aggrieved by the judgment of the DRT, Appeal No. 191 of 2018 and Appeal No. 188 of 2018 were filed by the Bank as well as auction purchaser before the DRAT Kolkata. DRAT Kolkata vide order dated 14.01.2020 remanded back the matter for fresh adjudication on the issue of compliance of the provisions of Rule 9(3) and 9(4)

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of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules, 2002”). DRAT Kolkata also permitted the parties to bring on record the additional pleadings.

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6. After remand, pleadings were amended by the parties wherein it was pleaded by the SARFAESI Applicant that Rule 9(3) and 9(4) of the Security Interest (Enforcement) Rules, 2002 are violated by the Bank as well as auction purchaser. 25% of the bid amount was not deposited in compliance of the Rule 9(3) and 9(4) of the Security Interest (Enforcement) Rules, 2002. Further, extension of time was granted to the auction purchaser without the consent of the borrower which is in violation of the Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 as was prevalent on the date of auction i.e. 22.03.2013. 7. The Respondent Bank filed the reply to the additional pleadings to the effect that the auction was conducted on 22.03.2013 wherein the auction purchaser Respondent No. 2 in the S.A. was the successful bidder. 25% of the bid amount i.e. Rs. 1.29 crore was paid and auction was confirmed in his favour on 22.03.2013. Extension of time for payment of the balance amount was granted till 30^th June, 2013. Balance consideration amount of Rs. 3.87 crore was paid on 27.06.2013 and 28.06.2013. Sale Certificate was issued on 29.06.2013 and possession was also delivered. Sale was registered on 22.08.2014. It is further stated that the amount paid through cheque should relate

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back to the date of deposit of cheque. Auction purchaser issued cheque towards 25% of bid amount on 22.03.2013 and the cheque proceeds came to be credited to the loan account on the SARFAESI Applicant on 27.03.2013. Hence, there was no violation of Rule 9(3) of the Rules.

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8. It is further stated that there is no violation of Rule 9(3) or Rule 9(4) of the Rules. Amendment carried out in the year 2016 in Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 is clarificatory in nature which is towards operation in retrospectivity. Hence, no consent of borrower was required for extension of time for payment of balance 75% of the bid amount. It is further stated that 22.03.2013 was a Friday. 23^rd March, 2013 was Saturday and 24^th March, 2013 was Sunday. Hence, the cheque was presented on the next working day. There was an agreement between the secured creditor and the auction purchaser regarding extension of time for payment of balance bid amount of 75% upto 30^th June, 2013 upon the request letter dated 4^th April 2013 from the auction purchaser. Borrower cannot question the legality of Rule 9(3) or Rule 9(4) of the Rules. Tribunal was also required to look into the equity as huge amount is involved in the matter.

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9. Auction purchaser also filed the reply to the amended pleadings and submitted that he has invested huge amount after delivery for possession of the secured assets. Several alterations to the property were made by spending

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Rs.5,23,451/- towards the cost of material and also Rs.9,79,200/- on the property towards panchayat tax. An amount of Rs.30,95,900/- was invested towards stamp duty. 10. The DRAT Kolkata in its judgment passed in Appeal No. 188 of 2018 and Appeal No. 191 of 2018 decided simultaneously on 14.01.2020 wherein it was held that-

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“9 . Having Heard the Counsel for the parties and on perusal of the record, it is apparent that the S.A. applicants have challenged the auction dated 22.03.2013 stating that e-auction sale proceedings were not valid under law. However, after reply of the bank, stating the details about deposit of sale price, the borrowers have not amended the S.A. Alleging that 75% of the amount was not deposited in time as per Rule 9(4) of SARFAESI Rules. In the absence of such pleading, the bank or the auction purchaser had no occasion to plead their case or to defend the issue involved. It appears that the issues of noncompliance of Rule 9(3) and 9(4) were raised during the course of the arguments and the Tribunal below has decided the aspect of Rule 9(4) but has not pondered over the aspect that whether the amendment made in Rule 9(4) with effect from 04.11.2016 was prospective or retrospective. Further, no finding has been recorded as to whether the 25% of the sale price was deposited in accordance with law or not and also to the fact that there was a single bidder. 10. Since the issues of amendment in pleading and submission of evidence are involved there4fore it is not proper to decide all these aspects for the first time in the Appeal, as such, I deem it appropriate to remand the matter back to decide these issues by the Tribunal below more so when all the parties are agreeable to the matter afresh by the Tribunal below. However, it is made clear that the issues other than the issues of Rule 9(3) and 9(4) have already been decided by the Tribunal below in favour of the Bank and against the borrowers so those shall not be considered against as no appeal has been filed by the borrower. Thus, the finding with regard to those issues till the valuation properties and service of sale notice etc., have attained finality.

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11. Accordingly, both the Appeals are disposed of in the manner that the impugned order dated 17.10.2018 is partly set aside to the extent as stated above and the matter is remanded back to the Tribunal below to decide the issues of Rule 9(3) and 9(4) of Security Interest (Enforcement) Rules, 2002 in view of the observations made hereinabove in accordance with law and without being influenced by such observations.

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12 . The borrowers may file an amendment application for pleading these issues and the bank and auction purchaser are free to defend

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their case on these aspects by filing counter to the pleadings and the Tribunal below shall decide the same along with the contention raised by the auction purchaser with regard to its rights, investment etc., over the property in question. Since the matter involves huge amount therefore, the Tribunal below is further directed to decide the S.A. as expeditiously as possible preferably within three months from today. The parties shall appear before the Tribunal below on 03.02.2020 and before that the borrowers shall file amendment petition and appellants shall file reply within two weeks thereafter. In the circumstances of the case, the parties shall maintain status quo with regard to possession of the property till decision of S.A.”

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11. In compliance of the judgment and order of the DRAT, Learned DRT accorded an opportunity of amending the pleadings as referred above and after hearing the parties framed the following issues for consideration.

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(i) Whether the Applicant made out any valid ground for quashing the e-auction sale held on 22.03.2013?

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(ii) Whether the 2^nd Respondent Auction Purchaser is entitled to compensation as claimed in reply statement in the event of e-auction sale dated 22.03.2013 being held invalid?

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(iii) To what relief?

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12. On issue No. (i) Learned DRT recorded a finding that there is material irregularity in payment of 25% of the sale price. Deposit of EMD through cheque was in contravention of the e-auction sale notice terms and conditions.

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13. It is further held that no consent of the borrower was obtained for extending the time by the secured creditor. Placing reliance upon the judgment of Hon’ble Apex Court in General Manager, Sri Siddeshwara Cooperative Bank Limited and another versus Ikbal and others (2013)

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10 SCC 83, it was held that “ the word parties for the purposes of Rule 9(4) must mean the secured creditor, borrower and auction purchaser.” Accordingly, Learned DRT held that no consent of the borrower was obtained for extending the time of 15 days for depositing the 75% of sale price. Accordingly, there is a violation of Rule 9(4) of the Rules.

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14. In issue No. (ii), Learned DRT held that “it was held while rejecting the interim relief that any action taken by the first Respondent Bank in respect of S.A. schedule property is subject to the result of the main S.A. Pendency of S.A. was well within the knowledge of the auction purchaser. Hence, any improvement made by the auction purchaser/ Applicant on secured assets pending S.A. were at his own risk. Accordingly, he was not entitled for any further claim.”

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15 . Consequently, Learned DRT allowed the SARFAESI Application and quashed the auction sale held on 22.03.2013 with the direction to the Bank to take steps to take back the possession from the auction purchaser with a further liberty to sell the secured assets afresh in accordance with law.

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16. Feeling aggrieved by the judgment, secured creditor as well as the auction purchaser preferred the separate appeals.

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17. I have heard the Learned Counsel for the parties and perused the record.

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18. Learned Counsel for the Appellant Bank would submit that the Learned DRT has erred in allowing the SARFAESI Application. Learned DRT has wrongly interpreted the provisions of Rule 9(3) and 9(4) of Security Interest (Enforcement), Rules, 2002 (pre-amended). It is further submitted that Rule 9(4) was amended vide notification dated 03.11.2016 wherein it was clarified that the parties means ‘secured creditor and auction purchaser’. This amendment is clarificatory in nature which is to be treated as retrospective in nature. Hence, no consent of the borrower was required to be obtained by the secured creditor for extending the time for payment of 75% of the bid amount.

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19. It is further submitted that Rule 9(3) of the Rules was duly complied by the auction purchaser. Cheque was deposited on the date of auction. Thereafter, next two days were Saturday and Sunday. Hence, it was sent for clearance which was cleared on 27.03.2013 but since the cheque was already deposited on the date of auction, hence, the auction sale was confirmed in his favour on 22.03.2013. It was the due compliance of Rule 9(3) of the Security Interest (Enforcement) Rules, 2002.

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20. It is further submitted that the DRAT in Appeal No. 188 of 2018 and Appeal No. 191 of 2018 has held that the issues other than the issues of Rule 9(3) and 9(4) of the Rules have already been decided by the Tribunal below in favour of the Bank and borrower has not filed any Appeal

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against the same. Hence, the findings to those issues have attained finality. It is submitted that the Learned DRT was required to only consider the effect of Rule 9(3) and 9(4) of the Rules. Compliance of Rule 9(3) and 9(4) of the Rules was duly made by the Bank as well as the auction purchaser. It is further submitted that no prejudice is caused to the borrower by extending the time of deposit of 75% of the bid amount by the Bank with the consent of the auction purchaser.

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21. Learned Counsel for the auction purchaser supplemented the submissions made by the Learned Counsel for the Bank and further submitted that huge amount has been invested by the auction purchaser after confirmation of sale and issuance of sale certificate. It is further submitted that the DRAT in its judgment dated 14.01.2020 held that the borrower may file the application regarding the pleas of Rule 9(3) and 9(4) of the Rules. The Bank as well as the auction purchaser would also be at liberty to file the opposition. Tribunal below shall decide the same along with the contention raised by the auction purchaser with regard to its rights, investments etc. over the property in question. Learned Counsel for the auction purchaser would submit that since huge investments have been made by the auction purchaser, hence equity is in his favour. No illegality has been committed by the auction purchaser or the Bank.

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22. Learned Counsel for the Respondent borrower would submit that the auction purchaser as well as Bank has blatantly flouted the provisions of Rule 9(3) and 9(4) of the Rules. It is submitted that there is specific condition in the Sale Notice that EMD would not be accepted through cheque. Nonetheless, the cheque was accepted by the Bank which too was encashed on 27.03.2013 which is in clear cut violation of Rule 9(3) of the Rules.

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23. It is further submitted that there is also violation of Rule 9(4) of the Rules. Learned Counsel has placed reliance upon the judgment of Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal (supra) wherein it was held that consent of the parties required under Rule 9(4) means the ‘borrower, auction purchaser and secured creditor’. It is further submitted that amendment in the Rule 9(4) was made on 3^rd November, 2016 which cannot and should not be treated as retrospective in nature, rather, it is prospective in nature. Accordingly, since no consent of the borrower was obtained by the secured creditor in extending the time for depositing the 75% of the bid amount, hence, there is a violation of Rule 9(4) of the Rules.

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24. At this stage, I am constrained to observe that the Respondent i.e. borrower has filed voluminous written notes of arguments which are in contravention to the judgment passed by this Appellate Tribunal on 14.01.2020. In the Appeal No. 188 of 2018 and Appeal No. 191 of 2018, this Appellate Tribunal has remanded the matter to DRT to

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decide the issue of Rule 9(3) and 9(4) of the Rules only. There was a specific direction which for the sake of convenience at the cost of repetition Para No. 10 is again quoted.

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“10. Since the issues of amendment in pleading and submission of evidence are involved there4fore it is not proper to decide all these aspects for the first time in the Appeal, as such, I deem it appropriate to remand the matter back to decide these issues by the Tribunal below more so when all the parties are agreeable to the matter afresh by the Tribunal below. However, it is made clear that the issues other than the issues of Rule 9(3) and 9(4) have already been decided by the Tribunal below in favour of the Bank and against the borrowers so those shall not be considered against as no appeal has been filed by the borrower. Thus, the finding with regard to those issues till the valuation properties and service of sale notice etc., have attained finality.”

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25. Despite this specific direction, Respondent borrower has filed elaborate, bulky written notes of arguments dealing with the issues which have already been decided by this Appellate Tribunal in the judgment dated 14.01.2020. It is noteworthy that judgment of DRAT Kolkata in Appeal No. 188 of 2018 and Appeal No. 191 of 2018 was not challenged. Hence, attained finality. Accordingly, all the findings recorded in the judgment are binding upon the parties. Thereafter, DRT decided the issue of violation of Rule 9(3) and 9(4) of the Rules in favour of the borrower and allowed the SARFAESI Application by impugned judgment which is challenged by the secured creditor as well as auction purchaser in this Appeal. Accordingly, now the only issue to be considered in this Appeal are - (i) Whether there was violation of Rule 9(3) of the unamended Rules?

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(ii) Whether there was violation of unamended 9(4) of the Rules?

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26. At the very outset, it is to be observed that this case relates to unamended provisions of Rule 9(3) & 9(4) of the Security Interest (Enforcement) Rules, 2002. Amendment was made w.e.f. 03.11.2016.

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Rule 9(3) of the unamended Rules reads as under:

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“On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the cade may be, pay a deposit of twenty five per cent of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;”

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27. It has been held by the Hon’ble Apex Court in General Manager, Sri Siddeshwara Cooperative Bank Ltd. &

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Anr. Vs. Ikbal & Ors. [(2013) 10 SCC 83] at Para 18 as under :

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18. A reading of sub-rule (1) of Rule 9 makes it manifest that the provision is mandatory. The plain language of Rule 9(1) suggests this. Similarly, Rule 9(3) which provides that the purchaser shall pay a deposit of 25% of the amount of the sale price on the sale of immovable property also indicates that the said provision is mandatory in nature. As regards balance amount of purchase price, sub-rule (4) provides that the said amount shall be paid by the purchaser on or before the fifteenth day of confirmation of sale of immovable property or such extended period as may be agreed upon in writing between the parties. The period of fifteen days in Rule 9(4) is not that sacrosanct and it is extendable if there is a written agreement between the parties for such extension. What is the meaning of the expression ‘written agreement between the parties’ in Rule 9(4)? 2002 Rules do not prescribe any particular form for such agreement except that it must be in writing. The use of term ‘written agreement’ means a mutual understanding or an arrangement about relative rights and duties by the parties. For the purposes of Rule 9(4), the expression “written agreement” means nothing

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more than a manifestation of mutual assent in writing. The word ‘parties’ for the purposes of Rule 9(4) we think must mean the secured creditor, borrower and auction purchaser.

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28. It has further been held in Sri Siddeshwara

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Cooperative Bank Ltd. & Anr. Vs. Ikbal & Ors. case

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(supra) at Para 19 and 20:

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19. There is no doubt that Rule 9(1) is mandatory but this provision is definitely for the benefit of the borrower. Similarly, Rule 9(3) and Rule 9(4) are for the benefit of the secured creditor (or in any case for the benefit of the borrower). It is settled position in law that even if a provision is mandatory, it can always be waived by a party (or parties) for whose benefit such provision has been made. The provision in Rule 9(1) being for the benefit of the borrower and the provisions contained in Rule 9(3) and Rule 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right. These provisions neither expressly nor contextually indicate otherwise. Obviously, the question whether there is waiver or not depends on facts of each case and no hard and fast rule can be laid down in this regard.

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20. The letter dated 13.11.2006 sent by the borrower to the Bank leaves no manner of doubt that the borrower had waived his right under Rule 9(1) or for that matter under Rule 9(3) and Rule 9(4) as well.

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29. This judgment was further approved by the Hon’ble Apex Court in the Case of Varimadugu OBI Reddy Versus B. Sreenivasulu & ors (2023) 2 SCC 168 wherein reliance was placed on General Manager, Sri Siddeshwara Cooperative Bank Limited Vs. Ikbal and others (2013) 10 SCC 83 and it was held that -

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“The period which is referred to in Rule 9(4) is not that sacrosanct and may be extended if there is a written agreement between the

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parties and since parties to the written agreement is not defined in Rule 9(4), this Court was of the view that it covers in its fold the secured creditor, the auction purchaser and the borrower, but later the legislature taking into consideration the judgment of this Court made its intention clear by making an appropriate amendment in Rule 9(4) of the Rules, 2002 which came into effect by a notification dated 3^rd November, 2016 effective from 4^th November, 2016.”(emphasis supplied)

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30. Further, Guwahati High Court placing reliance upon the decision of General Manager, Sri Siddeshwara Cooperative Bank Ltd. & Anr. Vs. Ikbal & Ors. (supra) in the case of Union Bank of India & Anr. Vs. Pabitra Pran Saikia [2018 SCC OnLine Gau 2295] in Para No. 20, 22 and 23 held that-

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“ 20 . A perusal of Rule 9(3) of the Rules reveals that 25% of the auction sale shall be deposited by the purchaser on the same day itself or not later than the next working day and the consequence of default of such deposit would be that the property shall be sold again. The veery expression “not later than the next working day” indicates a mandatory outer limit within which the 25% deposit can be made. Further, the consequence of such defalt having been provided in the rule itself that the property shall be sold again, also is an indication that the provisions of rule 9(3) are mandatory in nature.

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22 . As held by the Hon’ble Supreme Court in para 19 of Ikbal (supra) Rule 9(3) of the Rules are mandatory in nature, but, they can be waived by the secured creditor and the borrower, but to that extent there definitely must be material to indicate that there was such a waiver. In the instant case, no such material has been produced by the petitioner bank or by the respondent thrt the mandatory period prescribed under rule 9(3) of the Rules had been waived by them.

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23. In view of the above, no infirmity can be found in the conclusion of the DRT, Guwahati in its order dated 30.01.2015 and DRAT, Kolkata in its order dated 4.7.2017 that the auction sale of 29.06.2013 and the slae certificate of 1.7.2013 are vitiated and unsustainable for there being a violation of the procedural requirements of Rule 9(3) of the Rules.

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31. In Sri Siddeshwara Cooperative Bank Ltd. & Anr.

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Vs. Ikbal & Ors case (supra), Hon’ble Apex Court has held that provisions of Rule 9(3) are mandatory in nature.

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32. A bare perusal of the law laid down by the Hon’ble Apex Court makes it clear that the provisions of Rule 9(3) are mandatory in nature.

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33. It is settled legal proposition that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same as has been held in the case of Swastik Agency and Others -vs- State Bank of India, Bhubaneswar & Others [AIR 2009 Ori 147] . Reliance is placed on Nazir Ahmed -vs- King Emperor [AIR 1936 PC 253].

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34. Accordingly, now it is settled that firstly Rule 9(3) of the Rules mandates that on sale of immovable property, the purchaser shall immediately i.e. on the same day or not later on next working day as the case may be, pay a deposit of 25% of the amount of the sale price which is inclusive of Earnest Money Deposit to the Authorised Officer conducting the sale. A default clause is also provided that in case of default, the property shall be sold again. This Rule is mandatory in nature which has to be followed in its true sense. No authority is permitted to modify or change the provisions of the Rules.

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35. Now we have to see as to whether the auction purchaser complied the Rule 9(3) of the Rules i.e. whether he has deposited 25% of the bid amount on the date of sale or on the next working day?

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36. Admittedly, auction was conducted on 22.03.2013 on the basis of e-auction Sale Notice dated 14.02.2013, which was published on 15.02.2013 wherein clause 5 and 10 are as under:

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“ 5) . For participating in e-auction intending bidders have to submit auction bids forms online https:// sbi.abcprocure.com mentioning their User ID and details of payment of refundable Earnest Money Deposit of 10% of the reserve price of the property concerned i.e., Rs.51,50,000/- by RTGS/NEFT/Funds Transfer to the credit of A/c No. 32669084199 with State Bank of India, SA< Branch, Secunderabad and to the Authorised Officer of State Bank of India, SAM Branch, Secunderabad, through IFSC Code “ SBIN0004106” or by demand draft/Pay Order in favour of the Authorised Officer SBI account “M/s Vasantha Surgical Equipments” and submit the print out of online bids form of e-auction along with copies of PAN card and Address Proof, are to be submitted any time on or before 5.00 p.m. 21-03-2013.”

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“10 . The EMD and other payments shall be remitted through EFT/NEFT/RTGS to the bank account as specified above, cheque will not be accepted.”

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37. A bare perusal of clause 10 would reveal that there was a specific condition that the EMD and other payments shall be remitted through EFT/NEFT/RTGS to the Bank account as specified above. Cheque will not be accepted for EMD (emphasis supplied).

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38. It is settled legal proposition that when parties to an agreement voluntarily accepts the conditions of the notice, then they are bound by the terms and conditions of the notice. They cannot change or violate the terms unilaterally if it is done, it is against law. When there was a specific

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condition that the amount should be remitted through EFT/ NEFT or RTGS and cheques will not be accepted, then the bidder, who is the successful auction purchaser, was not entitled to make the deposit through cheque. This exercise by the auction purchaser makes all proceedings void ab initio because preliminary condition in the auction notice was violated by the auction purchaser. Hence, he cannot and should not be permitted to take advantage of the wrongs committed by himself.

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39. There is another aspect of the matter. Admittedly cheque was deposited with the Authorized Officer which was encashed on 27.03.2013. It is stated that 23^rd March, 2013 was Saturday and 24^th March, 2013 was Sunday. Even if we take it as correct, then we can take judicial notice of the fact that in the year 2013, 4^th Saturday of the month was not a Bank holiday. In that case why the cheque was not encahsed on the very next day i.e. 23^rd March, 2013, no explanations have been submitted by the secured creditor or the auction purchaser on this count.

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40. Admittedly, cheque was encashed on 27.03.2013 but as per the secured creditor’s version, auction sale was confirmed on 22.03.2013 only. It is surprising to note that when the cheque proceeds were realized on 27.03.2013 then how the sale was confirmed on 22.03.2013? It was against the specific condition of clause 5 and 10 of the Auction Notice.

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41. Accordingly, I am of the considered view that the secured creditor i.e. the Bank has committed material illegality in accepting the cheque of the 25% of the sale price and issuing sale confirmation letter prior to realization of the cheque proceeds. These violations of the provision are inherent in nature which vitiates the whole exercise of auction sale and the borrower was highly prejudiced by virtue of the illegalities having been committed by the secured creditor in the auction proceedings. 42. Other issue is regarding violation of the provisions of Rule 9(4) of the Rules. Rule 9(4) of the Rules reads as under:

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“Pre amended Rule 9(4) of the Security Interest (Enforcement) Rules reads as under:

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“(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.”

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43. Words used in the Rule 9(4) of the Rules are ‘parties’ which means that the parties must consist of borrower, secured creditor as well as auction purchaser as has been held in the case of General Manager Sri Siddeshwara Cooperative Bank Limited and another versus Ikbal and others (supra). An argument is raised by the Learned Counsel for the secured creditor as well as the auction purchaser that Rule 9(4) of the Rules was amended with effect from 03.11.2016 wherein it was provided that – “9.4. The balance amount of purchaser price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of

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confirmation of sale of the immovable property or such extended period [ as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months].

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44. It is submitted that the clarification was required in view of the law laid down by the Hon’ble Apex Court which is clarificatory in nature and retrospective in nature. Per contra, Learned Counsel for the borrower would submit that the amendment was made with effect from 03.11.2016. There is no provision in the amending Act that it would be retrospective in nature.

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45. In the case of Madras Bar Association vs Union of India & Anr. 2021 7 SCC 369, Hon’ble Apex Court held that supporting legislation cannot be given retrospective effect unless the parent statute specifically provides for the same. In Sri Vijayalakshmi Rice Mills, New Contrators Co. and ors. Vs. State of Andhra Pradesh (1976) 3, SCC 37 , it was held by the Hon’ble Apex Court that “it is well recognized Rule of interpretation that in the absence of express words or appropriate in from which retrospectivity may be inferred there a notification takes effect from the date it is issued and not from any prior date.” The principle is also well settled that statute should not be construed so as to create new disabilities or obligations or impose new duties in respect of the transactions which were complied at the time of the amendment Act came into force. Hon’ble Apex Court has placed reliance upon Nani Gopal Mitra versus State of Bihar AIR 1970 SC 1636.

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46. A reading of the Rule 9(4) made it clear that there was no elements of retrospectivity in operation in the amending law. Accordingly, by no stretch of imagination it can be presumed that the amendment was retrospective in nature. Accordingly, consent of borrower for extending the time for deposit of 75% of the bid amount was mandated as per unamended Rule 9(4) of the Rules. But admittedly, no such consent of the borrower was obtained by the secured creditor which is in violation of Rule 9(4) of the Rules.

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47. Learned Counsel for the auction purchaser would submit that the issue of investments having been made by the auction purchaser should also have been considered by the DRT. Auction purchaser has invested huge amount of Rs.13,29,48,643/- in the improvement of the secured assets which was proved by way of evidences of one Sunil Chawda Proprietor of the auction purchaser and one Yogesh Kr. Parmar. Both these witnesses filed their affidavit who were not examined by the borrower but at the same time, it is to be seen as to what would be the effect of the arguments made by the Learned Counsel for the auction purchaser? Firstly, no such plea is taken by the auction purchaser in the affidavit filed before the Learned DRT wherein only statement was made to the effect that he spent a substantial amount of Rs.5,23,451/- towards the cost of the materials and also spent Rs. 9,79,200/- towards Panchyat tax and also spent Rs.30,95,900/- in registration of the sale deed. No plea of spending Rs. 13,29,48,643/- was taken in

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the pleadings. Accordingly, when a plea is not taken in the pleadings it cannot be considered. Consequently, even if for the sake of arguments, it is accepted that certain improvements are made by the auction purchaser in the secured assets after delivery of possession and execution of sale certificate or same amount is spent by the auction purchaser, then we have to examine it in the light of the fact that auction purchaser was well informed about pendency of the securitization application. Accordingly, all the actions of the auction purchaser would be subject to the result of securitization Application as has been held by the Hon’ble Apex Court in the case of Shingara Singh versus Daljit Singh and another 2024 SCC OnLine SC 2823 wherein Hon’ble Apex Court placing relevance upon Usha Sinha versus Dina Ram (2008) 7 SCC 144 held that the doctrine of lis pendens applies to alienation during the pendency of the suit whether such alienees had or had no notice under pending proceedings. Hon’ble Apex Court with the approval quoted below Para No. 18 and 23 of Usha Sinha versus Dina Ram (supra) which is as under:

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“18. Before one-and-half century, in Bellamy v. Sabine [(1857) 1 De G & J 566: 44 ER 842], Lord Cranworth, L.C. proclaimed that where a litigation is pending between a plaintiff and a defendant as to the right to a particular estate, the necessities of mankind require that the decision of the court in the suit shall be binding not only on the litigating parties, but also on those who derive title under them by alienations made pending the suit, whether such alienees had or had no notice of the pending proceedings. If this were not so, there could be no certainty that the litigation would ever come to an end. 23. It is thus settled law that a purchaser of suit property during the pendency of litigation has no right to resist or obstruct execution of decree passed by a competent court. The doctrine of “lis pendens”prohibits a party from dealing with the property which is the

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subject matter of suit. “Lis pendens” itself is treated as constructive notice to a purchaser that he is bound by a decree to be entered in the pending suit. Rule 102, therefore, clarifies that there should not be resistance or obstruction by a transferee pendente lite. It declares that if the resistance is caused or obstruction is offered by a transferee pendente lite of the judgment debtor, he cannot seek benefit of Rules 98 or 100 of Order 21.”

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48. Further, Hon’ble Apex Court with approval has placed reliance upon Sanjay Verma v. Manik Roy (2006) 13 SCC 608 wherein it was held that-

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“ 12. The principles specified in Section 52 of the TP Act are in accordance with equity, good conscience or justice because they rest upon an equitable and just foundation that it will be impossible to bring on action or suit to a successful termination if alienations are permitted to prevails. A transferee pendente lite is bound by the decree just as much as he was a party to the suit. The principle of lis pendens embodied in Section 52 of the TP Act being a principle of public policy, no question of good faith or bona fide arises. The principle underlying Section 52 is that a litigating party is exempted from taking notice of a title acquired during the pendency of the litigation. The mere pendency of a suit does not prevent one of the parties from dealing with the property constituting the subject matter of the suit. The section only postulates a condition that the alienation will in no manner affect the rights of the other party under any decree which may be passed in the suit unless the property was alienated with the permission of the Court.”

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In Chander Bhan (D) through Lr. Sher Singh v. Mukhtiar Singh 2024 SCC OnLine SC 761, Hon’ble Apex court held that-

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“Keeping this in mind, the explanation to Section 52 which was inserted by the Act. No. XX of 1929, clarifies that pendency of a suit shall be deemed to have commenced from the date on which the plaintiff presents the suit. Further, that such pendency would extend till a final decree is passed and such decree is realized.”

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49. Although, the auction purchaser was the highest bidder in the auction conducted by the secured creditor but the same was done blatantly in violation of Rule 9(3) and 9(4) of

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the unamended Rules which vitiates the whole auction proceedings. Accordingly, I cannot prescribe the submissions made by the Learned Counsel for the auction purchaser that substantial amount is invested by the auction purchaser in improvement over the secured assets. All the actions would be subject to the doctrine of lis pendens. Accordingly, auction purchaser/ Appellant cannot take any advantage of the amount spent by him on the secured assets.

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50. On the basis of discussions made above, I am of the considered view that the Learned DRT has considered the issues in accordance with law and arrived at a finding which does not warrant any interference. Accordingly, both the Appeals are liable to be dismissed. Judgment and order passed by Learned DRT is liable to be confirmed.

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ORDER

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Appeal No. 29 of 2021 and Appeal No. 56 of 2022 are dismissed. Judgment and order dated 05.03.2021 passed by Learned DRT-II Hyderabad in S.A. No. 1115 of 2017 (Old SA No. 259 of 2013 of DRT-I, Hyderabad) is confirmed. The Secured Creditor/ Bank is directed to refund the bid amount to the Auction Purchaser with interest @ 9% from the date of deposit till the date of actual payment within a period of 30 days.

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However, secured creditor Bank would be at liberty to initiate proceedings for realization of its dues in accordance with law.

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Let a copy of this judgment be placed on the record of Appeal No. 56 of 2022.

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No Order as to costs.

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File be consigned to Record Room.

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Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

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