Allowed

Parveen Prakash Mahtani v. Punjab National Bank

DRAT1 Jan 2025REGULAR APPEAL/49/2023

Case brief

AI extract

What is this about?

The Debts Recovery Appellate Tribunal allowed an appeal filed by a successful auction bidder who was rejected by the bank for not consenting to sell at the reserve price. The Tribunal held that the bank is estopped from rejecting a bid equal to the reserve price when the auction notice did not stipulate a higher starting price, emphasizing principles of natural justice and the true intent of the S

What did the court decide?

The sale in favor of the appellant was confirmed, subject to the deposit of the entire sale consideration within 15 days.

Parveen Prakash Mahtani versus Punjab National Bank — Arbitration | DRAT (2025)

¶1

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

¶2

Appeal No. 49/2023

¶3

Between

¶4

Praveen Prakash Mahtani … Appellant/s

¶5

V/s.

¶6

Punjab National Bank & Ors. …Respondent/s

¶7

Mr Siddharth Samantray i/b Ms Arshil A. Shah, Advocate for Appellant.

¶8

Ms Savita Nangare along with Mr Vinod Nagula, i/b M/s Law Focus, Advocate for Respondents.

¶9

-: Order dated: 01/01/2025:-

¶10

The successful bidder of the secured asset, namely Plot No. 5, River Hill Park, Phase-III, Gut No. 192 & 199, village Takwe Khurd, Lonavala, Taluka Maval, District Pune is in appeal aggrieved by the dismissal of his Securitisation Application (S.A.) No. 94 of 2023 filed by him before the Debts Recovery Tribunal-I, Mumbai (D.R.T.), vide order dated 24/05/2023.

¶11

Respondent Nos. 2 to 4, had borrowed money from the 1^st respondent, Punjab National Bank and defaulted on payment resulting in the loan account being classified as a non-performing asset (NPA) by the bank on 19/06/2017. Thereafter, steps were initiated by the bank to recover the debt due by proceeding against the abovementioned secured asset under the provisions of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, in short). Demand notice was issued under Sec. 13 (2) of the SARFAESI Act followed by taking over

¶12

¶13

possession of the subject property under Sec. 13 (4). Notice was published as per rules and the property was put up for public auction. Seven repeated attempts by the bank to sell the property by public auction failed. On 09/02/2023, a public auction of the subject property was scheduled for the eighth time on 24/03/2023. The reserve price of the property was fixed at ₹1,02,60,000/-. The appellant was the sole bidder who participated in the auction and was declared the successful bidder who had offered to purchase the property at the reserve price. An intimation was served upon him via email on the date of sale at 4:01 PM about his being the highest bidder. Thereafter, on 27/03/2023 at 2:39 PM, the bank sent another email to the appellant providing him with the details of the RTGS into which 25% of the sale consideration including the earnest money deposit (EMD) amounting to ₹26,15,000/- was to be paid. The appellant had already deposited 10% of the amount as EMD and therefore, the balance 15% of the sale consideration totalling ₹15,15,000/-was transferred within the stipulated time. However, to the surprise of the appellant, the bank rejected the sale via email dated 27/03/2023, informing him that as per the bank’s guidelines, the sale of the property at the reserve price could be affected only with the consent of the borrower. It was revealed that the first bid should have started

¶14

at an amount higher than the reserve price. Since the borrower, had refused to give his consent for the e-auction at the reserve price to the appellant, the bank was not in a position to confirm the sale in favour of the appellant. Thereafter, the bank proceeded to sell the property afresh by an auction notice dated 15/06/2023 fixing the reserve price

¶15

¶16

at ₹1,10,78,000/-. There were no bidders, and hence, the auction sale failed once again. The bank returned 25% of the sale consideration deposited by him.

¶17

Aggrieved by the act of the bank refusing to confirm his sale, the appellant approached the D.R.T. with the aforesaid S.A. No. 94 of 2023. Interpreting the proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, 2002, the D.R.T. opined that the sale could be confirmed in favour of the option bidder at the reserve price only with the consent of the borrower. Since the borrower did not consent to the sale at the reserve price, the bank was justified in not confirming the sale. Accordingly, the S.A. was dismissed vide the impugned order dated 24/05/2023. The appellant is aggrieved and hence in appeal.

¶18

Heard Mr Siddharth Samantary, the Ld. Counsel for the appellant, and Ms Savita Nangare, the Ld. Counsel for the respondent bank. Records perused.

¶19

The question that arises for consideration in this appeal is whether the auction sale of the secured asset “at the reserve price”, without obtaining the consent of the borrower violates the proviso to Rule 9 (2) of the Security Interest (Enforcement) Rules.

¶20

Mr Samantray submits that Rule 9(2) has to be read along with Rule 8(5) and only when the property is being sold at a price lower than the reserve price does the consent of the borrower need to be obtained.

¶21

Per contra, Ms Savita Nangare would assert that the bank is at liberty to confirm the sale or refuse to do so at its discretion without assigning any reasons. There cannot be any compulsion on the bank

¶22

¶23

to sell the property at the reserve price. It is pointed out that the subsequent sale notice clarified that the participating bidder shall submit the bid with one increment over the reserve price. The concerned sale notice makes it adequately clear that the bank has the liberty to discard an offer to purchase the property without assigning any reasons. Hence the appellant has no authority to challenge the bank’s action.

¶24

Rule 9(2) reads thus:

¶25

“^{The sale shall be confirmed in favour of the purchaser who has} offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:

¶26

Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of [rule8]:

¶27

Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.”

¶28

The interpretation of the first proviso is important which states

¶29

that if the amount offered by the sale price is “less than the reserve price”, specified under sub-rule 5 of Rule 8, the sale shall not be confirmed. A reading of Rule 8(5) is also important, and it reads thus:

¶30

“Before effecting sale of the immovable property referred to in subrule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-

¶31

(a) by obtaining quotations from the persons dealing with similar

¶32

secured assets or otherwise interested in buying the such assets; or

¶33

(b) by inviting tenders from the public; or

¶34

[(c) by holding public auction including through e-auction mode; or]

¶35

¶36

(d) by private treaty.

¶37

Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provisions of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State.”

¶38

It is pertinent to note that under sub-rule 5 of Rule 8, the reserve price of the property has to be fixed based on the valuation report obtained before the property is sold by any of the methods mentioned therein. The second proviso to Rule 9(2) states that if the authorised officer fails to obtain a price higher than the reserve price, he may with the consent of the secured borrower and the secured creditor effect the sale at such price. The question that arises for consideration is whether the words “at such price” indicate the reserve price fixed or at a price less than that. A perusal of precedents on the point would be useful.

¶39

The Hon’ble High Court of Kerala has in Varghese Ukken vs. State Bank of India AIR 2011 Ker. 41 held thus:

¶40

“It is also settled that, the law has to be read and understood by its sprit and not by letters. What was in mind of the rule making authority, when they created Rule 8(6)(c) stipulating the ‘reserve price’ and the ‘provisos’ to Rule 9(2) that, even for affecting any sale for a price equal to the reserve price, consent of the borrower is necessary, it is obvious that no borrower who disputes the fixation of ‘reserve price’ will ever give any consent and as such, the very concept of fixation of ‘reserve price’ itself will be rendered otiose, more so, when the safeguard under Rule 8(6)(c) is that ‘reserve price’ is one, below which such property ‘may not be’ sold. If nobody quotes a higher amount, but for the ‘reserve price’ and if the proposition of the petitioners is to be considered as the correct interpretation, it is always open to anybody to defeat the said provision, if just ‘Re.1’ is added to the ‘reserve’ price and the bid amount is quoted accordingly. Since the statute does not say any minimum gap/difference between the ‘reserve price’ and the ‘higher price’ for affecting the sale without the consent of the borrower, the property can be sold for a higher price than the reserve price by adding just ‘Re.1’to the reserve price as above. This obviously is not the intention of the rule making authority, while stipulating under the ‘second proviso’; as to the necessity to obtain the consent of the borrower; which can only be read

¶41

¶42

to mean sale for a price ‘lesser than the reserve price’. No prejudice will be there to the borrower in this regard, as it is always open to the borrower to challenge the fixation of the ‘reserve price’ and the sale itself, availing the remedy under Sec. 17 of the SARFAESI Act.”

¶43

The Hon’ble High Court of Karnataka has in K. Sunder Babu vs.

¶44

Union of India & Ors AIR 2017 Kant. 68 observed that there would be no difficulty in understanding the contents of the rule that if the price quoted is the same as the reserve price or higher than the price, the sale could be confirmed in favour of the highest bidder. Obviously, if there is more than one bidder, certainly the highest bidder will not offer the same price as that of the reserve price and as such the rule is worded in that fashion. But if the highest bidder offers the same price as that of the reserve price, there would be no impediment for the authorised officer to confirm the sale in favour of such a bidder. The first proviso on the other hand makes it clear that the sale cannot be confirmed by the authorised officer if the price offered is less than the reserve price. The words ‘provided further’ employed in the second proviso to sub-rule 2 of Rule 9 will make it clear that it is an exception made to the first proviso by enabling the authorised officer to confirm the sale even when the price offered is less than the reserve price, but that is made possible only if the borrower and the secured creditor who is the owner of such secured asset consents to affect the sale at such price.

¶45

The Hon’ble High Court of Delhi has in Mahipal Singh Yadav vs Union Bank of India & Ors MANU/DE/0265/2022 observed that the embargo is against the confirmation of the sale price, which is less than the reserve price. The sequitur is that there is no embargo against confirmation of a sale, where the highest offered price is equal to, or

¶46

¶47

more than the reserve price. Once a reserve price is fixed, the borrower, as well as the world at large, is aware of the bare minimum price at which the subject property could be sold. The reserve price is put in the public domain, and the bidders are free to offer their bid at the reserve price, or above.

¶48

Ms Savita Nangare, the Ld. Counsel for the respondent vehemently argues that the authorised officer has the authority to decline the confirmation of sale if the offer is not above the reserve price. Even without assigning any reason, the authorised officer can decline to confirm the sale. Hence, the appellant cannot insist on the sale being confirmed on an offer made at the reserve price. The Ld. Counsel relies on the decision of the Hon’ble Supreme Court in State Bank of India vs. C. Natarajan & Ano. (2024) 2 SCC 637 wherein it was observed that the notice for auction constitutes an invitation to offer the bids submitted by the bidders also constitutes an offer and only upon confirmation of sale in favour of the highest bidder under Rule 9(2), the contract comes into existence. The Ld. Counsel also points out to the decision of the High Court of Kerala in Varghese Ukken (supra) wherein it is observed that the scheme of the statute clearly reveals that even if the sale fetches a price higher than the reserve price, the secured creditor can very well refuse to give effect to the same and may go for the fresh sale in view of the mandate under Rule 9(2).

¶49

Having anxiously considered the facts of this case, the rival arguments and the precedents relied upon, I find that there is substance in the arguments of the Ld. Counsel for the appellant. A

¶50

¶51

‘reserve price’ is fixed to notify the public at large and the participating bidders that the subject property will not be sold for a price less than the reserve price. In the instant case, the appellant was the sole bidder and he started his bid at the reserve price. There were no other bidders to enhance that bid of the appellant and hence, he remained the highest bidder without challenge. The auction notice does not state that the sale has to start at a price higher than the reserve price. If that is so, the reserve price would be that higher price at which the bid has to start. In the subsequent auction notice of the subject property, it has been clarified that the bid has to start at an increment higher price than the reserve price. But there is no such requirement in the auction notice with which we are concerned. Hence, there is no gainsaying that the authorised officer has the authority to reject the bid of the appellant without assigning any reasons. The reason assigned for not confirming the sale is that there is an internal circular of the bank which insists on selling the properties at a price higher than the reserve price. But that was not incorporated in the auction notice.

¶52

Understanding the concept behind the fixation of a reserve price, it has to be observed that the bid should begin at the reserve price. The appellant was not given an opportunity by the authorised officer to raise his bid. Had the authorised officer insisted on not conforming to the sale at the reserve price, the appellant could have offered a higher price. Depriving the appellant of such an opportunity is against the principles of natural justice. No bid would be successful and bidders would not dare to participate if auctions are held in such a manner. The rejection of the bid was improper and therefore, the

¶53

¶54

appellant has a right to get his bid confirmed. It is also pertinent to note that even the subsequently attempted auction did not attract any bidders. The appellant was the successful bidder in the respondent’s eighth attempt to sell the property.

¶55

The Tribunal below was not justified in dismissing the S.A. The appeal is, therefore, allowed. The sale in favour of the appellant shall be confirmed subject to the appellant depositing the entire sale consideration within 15 days from the date of this order.

¶56

Sd/Chairperson

¶57

mks-01

¶58

Parveen Prakash Mahtani v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

Parveen Prakash Mahtani v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

All orders in this case

Similar cases

Manikchand Dewasi versus Canara Bank

Vinodkumar Rangbhadaur Tiwari versus Indian Bank

Kashmira Gopal Dave Mihir Gopal Dave Gopal Chandulal Dave versus State Bank of India

Shri Jagdeep Singh Mohan Singh Birdi versus Bank of Baroda

Mukhtar Nizamoddin Shaikh versus Union Bank of India

Kotak Mahindra Bank Limited versus Mr Shivaji Kashiram Patil