Allowed

M S Tudor Management Consultants Pvt. Ltd. v. Ifci Limited

DRT14 Nov 2023SA/44/2023

Case brief

AI extract

What is this about?

The Tribunal held that the auction sale conducted by the Respondent Financial Institution was invalid due to lack of physical possession and undemarcated property boundaries. It ordered the refund of the EMD amount to the applicant.

What did the court decide?

Ordered to refund the EMD amount to the applicant within one month from the order date and directed to proceed for fresh auction in accordance with law.

M S Tudor Management Consultants Pvt. Ltd. versus Ifci… — Execution and Attachment | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL - I AT HYDERABAD

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DATED THIS THE 14TH DAY OF NOVEMBER, 2023

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PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER

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SA.No.44/2c-23

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M/s.Tudor Management Consultants Pvt. Ltd., Flat No.1 106, Mount Nazir Apartments, Beside Ravindra Bharathi, Saifabad, Hyderabad, Telangana - 500 004. Rep. by its Manager Director: Mr. Devarabhotla Veera Venkata Satya Garudu Murthy, S/o. D. Venkateswara Rao.

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Applicant.

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Versus

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IFCI Limited, 5-9- 1 3, Taramandal Complex, Saifabad, Hyderabad, Telangana-500004. Rep. by its Authorrzed Officer.

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Resportderut.

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Counsel for the Applicant

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Counsel for the Responderut

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Mr. M. Abhinay Reddy. Ms. P.V. Aruna Kumai.

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.:ORDER:-

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This application is filed by the Applicant u/s.17 of the SARFAESI Act, 2OO2, for declaring the e-mail dt.12.0 ) ,2023 and letter dt. 13.0 .2023, issued by the Respondent communicating closure of the auction sale of the schedule property and refunding the amounts to the Applicant as arbitrary, illegal, null and void and to set-aside the same and alternatively direct the Respondent to refund the EMD amount of Rs.79,00,000/- paid by the Applicant at the time of submission of bid.

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The averments

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in brief, are as under:-

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i) The Res ion invited tenders for purchase spplic6tiol6ptur4ute rtY, which was mortgaged

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SA.No.44/202i

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for the loans availed by M/s. VNR Infrastructures Ltd., vide Tender Document dt.20.12.2021, wherein auction of the schedule property was fixed on 12.01.2022 for a reserve price of Rs.7.92 crores. The Applicant participated in the said auction by paying EMD of Rs.79,2O,000/-. The Respondent-FI vide its letter dt.12.01.2022 declared the Applicant as a successful bidder for an amount of Rs.10.54 crores and advised the Applicant to pay 25o/o of the bid amount on the same day and also informed the Applicant that balance 75o/o of the bid amount will be demanded from the Applicant upon disposal of IA.No.Ol l2022 in WP.No.808l2O22 liled by M/s. RKR Housing Ltd., before the Hon'ble High Court for the State of Telangana challenging the recovery proceedings initiated by the Respondent-FL The Applicant paid Rs.1,00,0OO I - on 13.01.2022 and Rs.84,30,000/on 19.01.2022, totalling to Rs.2,63,50,00O/- (including EMD of Rs.79,20,000/- already deposited) towards 25oh of the bid amount.

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ii) The Respondent vide letter dt.13.04 .2022, informed the Applicant about the disposal of WP.No.SO 8l2O2O and another WP.No.138612022, which was filed challenging the sale of the schedule property, and sought payment of balance TSo/o of the bid amount. The Applicant vide its letter dt.18.04.2022, requested the Respondent-Fl for extension of time to pay the balance bid amount. The Applicant discovered that the boundaries of the schedule property are not demarcated and has also faced severe resistance in conducting the survey as several trespassers entered the property and threatened the workers of the Applicant. So, the Applicant filed FIR No. lO4l2O22 dt.22.O4.2O22, at the Ko I^{the trespassers. The Respondent-Flvide its} tended the time for payment of balance * @^{IBR ),O.75o/o p.a. Later, the Applicant} ii^iae {etfeffie-lffEils dt.frft .06.2022, 17 .O7 .2022 and 02.O8.2022 nt-FI for grant of further time to pay f:i,

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SA.No.44/2023

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balance bid amount in view of difficulties faced in identifying the boundaries of the schedule property and as interim payment, the Applicant also paid Rs.25,00,000/- on O1.O8.2022, The Respondent-Fl vide its replies dt.15.07.2022 and 08.08,2022 sought for payment of the balance sale consideration along with interest within the extended period. Later on, the Respondent-Fl vide its letter dt.13.1O.2O22 informed the Applicant that the amounts paid by the Applicant stand forfeited. In reply, the Applicant vide its letter dt.18.1O.2022 requested the RespondentFI to assist the Applicant in demarcating the boundaries and constructing a temporary fencing structure and also informed the Respondent-Fl that once the pending issues are resolved, it will immediately pay the balance bid amount. Without taking any steps for conducting survey of the schedule property, the Respondent-Fl arbitrarily sent letter dt.i6.Il.2022 that it is forfeiting EMD amount of Rs.79,2O,OOOl- and that the remaining amount of Rs.2,09,30,O00/- paid by the Applicant will be refunded. The Applicant vide its letter dt.l7.ll.2o22 promised the Respondent-Fl that balance bid amount will be paid immediately after survey and demarcation of the boundaries of the schedule property. Upon discussions with the officials of the Respondent-Fl, the Applicant paid amount of Rs.1,00,00,000/on 30.12.2022 as part of the balance bid amount and issued letter to the Respondent stating that it will undertake survey of the property without requesting the Respondent and it was also agreed that the Applicant shall pay further amount of s.1,00,00,000/- and the remaining balance bid amount within 61 SRU".^{Accordingly,the Applicant paid Rs.1,00,00,000/-on} trF fZ.dlpftS. Thus, the Applicant paid a total sum of ,ti.l 1 4 ti[]V^{?iln *} iii) The ReE dent-Fl issued e-mail dt. 1 2.0 | .2023 and letter 23 to the Applicant stating that the auction sale is cancelled and it cannot accept the payment of

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SA.No.44/2023

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Rs.1,00,00,000/- and that the amount paid is refunded after forfeiting the EMD amount and that the schedule property will be put for sale afresh. The Applicant vide its reply dt.13.ol.2o2s reiterated hindrance faced by it from the trespassers and local farmers and requested the Respondent-Fl to reconsider the issue. But, no reply was issued by the Respondent-Fl.

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ir) The Respondent-Fl failed to take physical possession of the schedule property before putting it for sale by taking aid under the provisions of the SARFAESI Act. The Respondent-Fl did not cooperate with the Applicant in identification of the boundaries of the schedule property. Further, the schedule property has been attached by the Tax Recovery officer (central), Hyderabad by way of order dt.27.10.2016. Hence the SA.

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The Respondent-Fl filed Counter denying all the adverse allegations made in the application. The contentions of the Respondent-Fl, in brief, are as under:-

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i) The Respondent-FI vide e-Auction Sale Notice and Tender Document dt.20.12.2021 had put on sale the mortgaged properties in respect of M/s. vNR Infrastructure Ltd., on 12.o1.2022, wherein the Applicant became successful bidder for Rs.10,54,00,000/- and had paid 2so/o of the bid amount viz., Rs.2,63,50,000/- (inctuding EMD of Rs.79,20,000/) and had agreed to pay balance 75oh of the bid amount within 7 days of reeiving the intimation/notice from the Respondent-Fl. The said intimation was sent to Applicant on 13.04.2022, pursuant to the f WP.No.808/2O2O, wherein mortgaged property was g1'^.ix"-b..-. ,"' 't;$ r. However, the Applicant failed to pay the balance 1''^,# amount and so, the Respondent-Fl vide letter t, ,; ,iI !i^" 14 ntimated the Applicant that the sale has already been cance and refunded Rs.4,09,30,3O,000/- deposited by the A .er retaining EMD amount.

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[s;+?#fe

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SA.No.aa/202i

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ii) The very introduction part of the Tender Document provides that tenders are invited on: "AS Is WHERE Is ArrD WHATEVER THERE /s BAS/S AND wITHour REC?URSE BASrs". Further clauses 2.11 and 13.8 of the Tender Document provide that the intending bidder should make their own independent inquiries and satisfy themselves with respect to encumbrances, location, title of the property put on auction and claims/rights dues etc., affecting the property prior to submitting their bid. It was also made clear in the said clauses that the e-auction advertisement does not constitute and will not be deemed to constitute any commitment or representation on behalf of the Respondent. Further, clause 3.4 of the Tender Document provides that the bidder should thoroughly satisfy themselves about the nature, conditions and quality of assets and Authorized officer gives no guarantee or warranty as to the conditions of the assets/material or/its quality or fitness for any specific purpose or use.

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iii) The Applicant never made any whisper about the alleged difficulties faced by it in identifying the property, encroachments on the property etc., while seeking extensions of time for payment of balance 75o/o of the bid amount and those are all after thought as it failed to arrange funds to meet the payment obligations. The Respondent-Fl had taken symbolic possession of the schedule property on 19.07.2016_ The Applicant vide e_mail dt.30. 12.2022, informed the Respondent that it is initiating action for demarcation of boundaries by engaging private survey agencies and specificaily mentioned in the said letter that it will not be spondent's support. The Respondent-Fl had initiated and accordingly applied for the survey, vide

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fd* tion 04.2023.

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i$F 8?lu".,r f the Tender I)ocument, the Authorized Officer ,*I

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at his soleo@q.,. .4, tion may extend the payment period for 3 -C'1^itzl ith interest. In came the balance purchase

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SA.No.44/2023

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consideration along with due interest is not paid within the extended period, the sale of respective asset will be automatically cancelled and EMD of the bidder and other money deposited will automatically stands forfeited. The Applicant,s request for additional time to make the balance payment was duly considered from time to time i.e., on 13.04.2022, 26.os.2o22, 08.08.2022 and on 12.09.2022 and extension of time was also granted but, the Applicant failed to pay the money. so, the Respondent-Fl was forced to cancel the sale, forfeit the EMD and refund the balance amount paid by the Applicant. So, the sA Iiled by the Applicant is liable to be dismissed.

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Heard arguments of both the Counsels.

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Now, the points that arise for consideration are,_

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whether the Applicant has established any ground for declaring the e-mail dt. t2.o1.2023 and letter dt.13.ot.2023, issued by the Respondent-Fl communicating cancellation of auction sale of the schedule property herd on t2.o1.2o22 and refunding the amounts to the Applicant as arbitrary and illegal?

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ii) To what relief.2

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Point No.li):-

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6' During the course of arguments, Ld. Counsels for the Applicant and the Respondent-Fl reiterated the versions of the Applicant and the nesntrnffi stated supra.

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The undi"pri@'&1cts of the case are that, pursuant to the e-Auction sale Notice and',."tender Document d,t.2o.r2.2o21, issued by the $e:sforih.ai-pr r.x[s the auction sale of the application schedule .."- ii 7l' ..iproperty^{orr--. "l?P L2O22,theApplicantdeposited EMD of} R"29.,?Q,??.9/.:,,.-.,s0 participated in the said auction and became rlr '- ,^;1 ,-r:.'1" ' - --'.t/ -4' \a-_ .:^.a t..:.. ..-"':r, -";;*:#"-

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SA.No.44/2023

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successful bidder for Rs.10,s4,00,000/-. The Applicant had deposited 25vo of the bid amount viz., Rs.2,63,50,0o0/- (including EMD of Rs.79,2o,o00/) within the time. As wp.No.80}l2o2o, filed by the mortgagor challenging the SARFAESI action initiated by the Respondent-Fl was pending before the Hon,ble High court for the State of relangana, the Respondent-Fl communicated to the Applicant vide letter dt.l2.ol.2o22, that the balance 7so/o of the bid amount shall be paid by the Applicant within 7 days of receiving the intimation/notice from the Respondent-Fl. After disposal of the aforesaid wP.No.808l2o2o by the Hon,ble High court, the Respondent-Fl sent intimation to Applicant on 13.04.2022 for payment of the balance 75oh of the bid amount. As per the documents filed by both parties, it is clear that, the Applicant vide its letter dt'18.04.2022, sought extension of time for balance payment. The Respondent-Fl vide its retter dt.26.0s.2022, extended the time for payment of balance 7s% of the bid amount by the Applicant till 03'06.2022 along with interest @ ro.T}o/o p.?., for the period of extension. Thereafter, again the Applicant sent letters/ e_mails on o1.06.2022, 17.or.2022, o2.og.2o22 to the Respondent-Fl seeking extension of time for payment of balance TS%o of the bid amount and the Respondent-Fl extended the time vide its letters/ e-mails dt.13.04.2022, 26.05.2022 and 0g.0s.2022 but, the Applicant failed to deposit the total balance TSo/o of the bid amount. Thereafter, the Respondent-Fl was not inclined to the requests of the Applicant for further extension of time. Finally, the Respondent-Fl vide its letter dt.13.0r.2o2s informed the Appricant that the auction sale of the schedule property was already cancelled and refunded the part_ payments made by the Applicant i.e., Rs.4,09,30,0e0/_ after forfeiting the EMD amount of Rs.79,., ited by the Applicant for participating in the auctisd:ai\ffi%

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The contention of the dpiiti.r.,t i"'.[fr.t, th.k\daries of the schedule property are not a.a[..-"ted']ar,1d ffiBt rApplici" {r,." also faced severe resistance in condr"ffine survey r, ..*.j1,$.p"""ers entered the UW

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SA.No.44/2023

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property and threatened the workers of the Applicant and that the Applicant also liled FIR No.104/2022 dt.22.o4.2o22, at the Kothur P.S., against the trespassers but, there is no cooperation from the Respondent-Fl. It is also contended by the Applicant that it is very much interested in purchasing the property and it is ready to pay the balance bid amount if the Respondent-Fl cooperates in conducting survey by the revenue authorities and demarcating the boundaries of the schedule property but the Respondent-Fl had arbitrarily cancelled the auction sale of the schedule property and refunded the amounts paid by the Applicant by forfeiting the EMD.

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Per contra, the Respondent-Fl contended that, as per terms and conditions of the Auction Sale Notice cum Tender Document, the bids were invited for sale of the schedule propert5r on^.,As /s mHERD IS AND WHATEVER THERE 15 BAS/S AND WITHOUT RECOURSE BAS1S" and as per further clauses of the Tender Document the intending bidders should make their own independent inquiries and satisfy themselves with respect to encumbrances, location, title of the property put on auction and claims/rights dues etc., affecting the property prior to submitting their bid. It is also contended that, the Applicant, having participated in the bidding and after becoming successful bidder, it cannot allege that there are difficulties in identifying the boundaries of the property. It is further contended that, the Applicant never made any whisper about the alleged difficulties faced by it in identifying the property, encroachments on the property etc., while seeking extensions of time for payment of balance TSoh of the bid amount and those are all after thought as it failed to arrange funds to meet the payment obligations. It is also contended that, the Applicant vide e-mail dt.30. 12.2022, informed the Respondent that it isinitiatingaction"'offidariesbyengagingprivate survey agencies ::.1[i":A:}vi#fi*+.{ the said retter that it is further contended wili not be requiringiip6"Oonderitls "rppS balance 75oh of the bid amount, as per ument, the Authortzed

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SA.No.44/2023

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officer of the Respondent-Fl had cancelled the auction sale and refunded the part-payments made by the Applicant by forfeiting the EMD deposited by the Applicant and so, there is no illegality said to have been committed by the Respondent-Fl. It is further contended that, the Respondent-Fl had initiated survey proceedings and accordingly applied for survey of the schedule property vide application dt. 10.O4.2023.

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As can be seen from the pleadings of both parties, it is very clear that the Respondent-Fl has not taken physical possession of the schedule propert5r, which is vacant land, and has taken only symbolic possession of the said property on 19.07.2016. It is also very clear that, the boundaries of the schedule property are not demarcated as the Respondent-Fl itself has filed an application for survey of the property on 1O.04.2023, which is after cancellation of the auction sale and refunding of amount to the Applicant. It is also very clear that the Respondent-Fl had called for the bids and conducted the auction of the schedule property (boundaries of which are not demarcated) on %S /S WHERE IS AITD WHATEVER THERE 15 BAS/S AND WITHOUT REC?URSE BAS/S". Now, the question that arises is whether such auction sale of the property is valid?

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In this regard, it is pertinent to refer to the judgment of the Hon'ble High court of Andhra Pradesh in wp.No.39og4 of 2or7 - ,,Mandaua Krishna chaitanga vs. rJCo Bank, Asse/ Maruagement Branch", decided on21.O2.2O18, whereunder, it is held as under:-

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rther, t where is' and 'as is ls'basl losf its tca"nce tn currertt commercial and the o uenditor is more oru the to the ted The 1B82 's the seller to and it is ntoa sible ban take an ction purchaser or a ride b sellin him a taint thereafter claim under t 1,^{fhe counter-affidauit} filed by the bank clearlg tes that the bank urudertook no exercise tahatsoeuer to ascertain as to what enanmbrances attached" to the :.;^":;;;;'"

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SA.No.44/2023

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subject propertg at any stage. No d"etails a.re forthcoming of any efforts hauing been made by the bank, be it aeforl the registration authorities or any other authority at any stage. Now, it has come to light that the property in question is tiinted on grounds more than one. It falls utithin the full tank leuel of a land and, surprisingly, it is also treated. as a ceiling surplis land.. That aparL the possesslon of the propertg cannot euen be handed ouer by the bank to the petitionei as the sale utas effected without the bank seanring actual phgsical possesslon thereof and the bank does not d.eny the factum of lease hauing been created bg the borrouter in relation thereto. The banL therefore cannot complg taith the statutory mand"ate of detiueing actual possessiln of the propertg sold" uide, the sali certificatJ. The decisions of uarious courts referred. to supra would. come to the aid of the petitioner in this regard.. That apart, the registration authorities alread.y indicated to the petitioner that the subject land is noted" as a ceiling surplus lind.. Therefore, e_uen if theg do entertain the sale ceiificati issued by the Lani for^{registration,} it tuould. be subject to this cloud. and" would not amount to clear co_nueaance of title. It is therefore manifest that the bank made the innocent petitioner a uictim by jailing to exercise due dilig_ence, not onlg in terms of the statuiory ""i"" of the SARFAES/ Act and the Rules of zobz, but also in its own commercial interest, lgt alone public interest, tahen it accepted. this propertg as secuitg for thb loan sanctioned. by it. This utter carelessness on the part of the bank in sanctioning loans, bg use of public monies, on the strength of seanred assefs which are not euen utorthg of betlg mortgaged., requires to be deprecated. in the ore care strongest terms. _ and caytion while public m lhrourh^d"oo"it" ?A =using"to^.i"o, 9th"r-i".,ih"n "on"rioning loon" rrlithout "oution ?, or"ffiitt"d to "loi* .i-^ ?rotection ^^^-^t --^under . ' t:^{outdated legal} such the . This Court therefore L'LetvJvt E ,LL.shas no rLU hesitatLeslL( lron t ion i@ctioru tn nontng that the auctioru salsal e he ld.ld bg the bank, without euen exercisin{ minimum c:are to ascertain the encumbrances attaching to the iubject property and" without informing the petitioner or oth"r bicld.ers oyihe'same, uitiates the sa.\ yrgceedings, qtrminating in issuancl of the sare certificate which is get to be registered".

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relevant to refer to another judgment of the Hon,ble High State of Telangana and Andhra pradesh in wp.No.45o of 2020^" -^"D. .r c. InJrastructure & projects (Ind.ia) priuate Limited vs. IFCI Limite'd"r*d ided on 27.O2.2O18, whereunder in paragraphs No.12 & 13 it is as under:

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SA.No.44/2023

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"72. In our consi opinion. the t-instituti eannot denu its re. ibilitu to take sesslon the orooertu. i not under Section 13 he Act, at inuokiruq Section 14 the Act r taki assisl the Chi, itart istrate or Maai. to do r the It canruot orce tlrc i like oetiti er to ta teps to ssion o the which haue sed from r the dent he amourtt bua purchasen It carunot compel the petitioner to continue with sale transaction in light of its conduct in not fuffilling its obligation to deliuer the phgsical po"rr"ri* of the propertg though almost four months haue elapsed. since receipt of fuu sale consid"eration by the respond.ent institution from the petitioner.

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13' As can be seen from the aforesaid judgments, it is clearly held that, the bank should take utmost care while selling the properties and the auction purchasers cannot be taken for a ride by selling the tainted property. In the present case on hand, admittedly, the boundaries of the schedule property are not demarcated and the Applicant faced difficulties in identifying the boundaries of the property and also resistance and threats from the trespassers and the Applicant had to submit FIR before the concerned PS against the trespassers. In fact, the Respondent-Fl has taken steps before the revenue authorities for survey of the schedule property by filing an application on 10.04 .2023 i'e., only after cancellation of the auction sale. So, considering all the circumstances, it has to be held that the auction sale held by the bank, without even exercising minimum care in getting demarcation of the boundaries and obtaining physical possession of the subject property before conducting the auction, is bad as it is not in a position to deliver actual/peacefur possession of the property soid to the auction purchaser i.e., the Applicant. So, when the auction of the propgffiffi'-{}e . -+t'ffi:=.-cancelled in view of the lapses on the pa rt of .-'7- -rrtlt t the Re$ift i"Sile",f,!',:Wtlicant shall be entitled for refund of entire t:' 'l'-n;snonaei"'is not enti'ed to #:":t"l"j]-t"l*: 'forfeit {rre pMD .{grosirirdi o, the Applicant and it has to refund the The Respondent-Fl is at liberty to

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SA.No.44/2023

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proceed for auction of the secured asset afresh in accordance with law. This point is answered accordingly.

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Point No.liil:-

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The present Securitization Application is disposed of holding that the auction of the schedule property conducted on r2.o1.2o23 stands cancelled in view of the lapses on the part of the Respondent-Fl and it has to refund the EMD amount to the Applicant within one month from the date of this order. The Respondent-Fl is at liberty to proceed for auction of the schedule property afresh in accordance with law. The Interlocutory Applications, pending if any shall stand disposed of. No order as to costs.

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communicate a copy of this order to the parties concerned.

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(Dictated to the Priuate secretary^,^transcibed. by her, corrected, signed and pronounced bg me in the open court on this the 14,h daA of Nouember, 2023)

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sd/(c. coPrcHAND) PRESIDING OFFICER

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TRUE COPY
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M S Tudor Management Consultants Pvt. Ltd. v. Ifci Limited

Case brief

What is this about?

What did the court decide?

M S Tudor Management Consultants Pvt. Ltd. v. Ifci Limited

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

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